Partially outsourced manufacturing

For manufacturers who use a third party to manufacture their products partially

Siim Sirel avatar
Written by Siim Sirel
Updated over a week ago

Partially outsourced manufacturing is a business model where a company mostly manufactures in-house and uses a contracting partner for part of the manufacturing process.

Katana can also support a fully outsourced manufacturing workflow where all the manufacturing process is done by the contractor and the brand owner is responsible for purchasing raw materials and tracking their stock for the contract manufacturer.

A general workflow for partially outsourced manufacturing would look something like this:

  • Purchase raw materials from your supplier

  • Receive materials

  • Manufacture at your location

  • Send semi-finished goods to your contracting partner

  • Work operations at the contractor

  • Receive (semi)finished goods from the contractor

  • Sales order fulfillment

There are two ways to track partially outsourced manufacturing in Katana, depending on whether you need to track the location of the goods (e.g. semi-finished goods need to be transported to the contractor and back) or not (e.g. contractor carries out the work operations at your location).

Partial outsourcing at a contractor's location

Track the location of semi-finished goods from partially outsourced manufacturing by using subassemblies and Outsourced purchase orders (OPO).

  1. You will first want to create a multilevel product, where one of the subassemblies is sent to your contractor, and another one is returned from the contractor.

    1. Create a subassembly that will be transferred from your location to your contracting partner. Open the Product recipe / BOM tab and add all the ingredients that will be used until the outsourced operation.

      In the Production operations tab, add all the operations that need to be done before the outsourced operation.

    2. Create a subassembly that will be returned from the contracting partner. Make sure to enable both I make this product and I buy this product. If you have a default contracting partner for a specific operation, choose it from the Default supplier field. You can also add a service price of the operation in the Default purchase price column.

      Head back to the Product recipe / BOM tab to confirm the subassembly is there.

      The Production operations can be left empty as this will be done by your contracting partner.

    3. Create a finished product that will be sold to your customers. In the Product recipe / BOM tab, add the subassembly that was created in step 1b as well as all the other ingredients that will be used to finish the product.

      In the Production operations tab, add all the steps that are needed to finish the product.

  2. Create a Manufacturing order (MO) for the final product created in step 1c, that will be sold to your customers. Checkmark Create MOs for the subassemblies.

  3. Delete the MO that was automatically created for the outsourced subassembly.

  4. Create an OPO in place of the previously deleted MO. Update the Expected arrival date and add a fee for the contracting service as a Price per unit .

    Note: Setting up your contracting partner as a Default supplier on the item card will trigger a pop-up after choosing the supplier on the OPO so that you can add the subassembly in the required quantity to the order

    1. Email the order documents to your contractor to receive a quote or to inform them about the incoming order.

  5. Finish the MO for the subassembly you are making. Items are now ready at your manufacturing location to be delivered to your contractor.

  6. Create a Stock transfer from you location to the contractor's location when the subassemblies are picked up by the delivery.

    Note: OPO will now show the ingredient availability as In stock.

  7. Once the contractor's work is finished and the products are returned, receive the OPO.

  8. Finish the MO for the final product. Cost of the final product includes all the ingredients used, the work operations completed in your own manufacturing, and the service fee for the outsourced operation.

Partial outsourcing at your location

If the partially outsourced operations are carried out at your location or you don't need to track the location of the semi-finished goods, you can handle partially outsourced manufacturing by using Production operations steps on Manufacturing orders (MO).

  1. Go to the Production operations tab of the product card and add the outsourced operation as an Operation directly from the table.

  2. Add the contracting partner as a Resource from the table.

  3. Add the default cost per piece for contracting the operation by filling in the Cost per hour and Time fields.

  4. Create a MO for the product.

  5. Track the operation statuses on the MO card or through the Shop Floor App.

    Tip: Use the Tasks tab to see which orders and products are currently at a contractor.

  6. Adjust the operation cost if the service fee for an outsourced operation is different from the default amount after receiving an invoice.

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