Manufacturing

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Topic

    Deepika Nathany
    Contract Manufacturing Vs Outside Processing
    Topic posted July 11, 2019 by Deepika NathanySilver Medal: 2,000+ Points, tagged Manufacturing MDM, Work Execution 
    134 Views, 5 Comments
    Title:
    Contract Manufacturing Vs Outside Processing
    Summary:
    Can you give a view on when do we decide to use Contract Manufacturing Vs Outside Processing
    Content:

    As far as I understand --- 

    If the OEM maintains complete control over the CM Order - we go for CM. (meaning where OEM like regular updates)

    Also in CM -- the OEM is the owner of the material\components.

    In Outside processing -- the vendor owns the material\components and also does the job on the work order.

    The reason I ask is -- My customer -- Outsources its manufacuting to a contract manufacturer but doesn not own the components or anything. It doesnt even care to have any updates -- it just receives the final product.

    I think this fits for a Outside processing but the customer has been terming this as Contract Manufacturing. 

    Hence thought I can double check this with the experts here. 

    Thanks in advance.

    Comment

     

    • Roy Amozeg

      Hi,

      I would even consider this scenario as regular 'buy' items.

      The considerations should be around costing, execution and planning.

      From costing perspective, it might be required to capture manufacturing cost which might disqualify the 'buy' scenario

      From materials handling perspective both outside processing and contract mfg scenarios allow to model all material ownership situations (owned by customer and supplied to supplier, owned by supplier/cm). 'Buy' item scenario will not allow to control the materials.

      The main use of contract manufacturing is if you need to have visibility into the manufacturing process steps (i.e. at which operation the material is, start and end dates of operations)

      Contract manufacturing also allows to use materials at different stages of production (which is useful if the production process is long)

      From planning perspective, if the customer (your client) need to plan and procure materials that the CM will use (regardless if they are sipped directly to the CM or supplied from your customer stock), then 'buy' item is also off the table but OSP and CM are still valid.

      I hope this helps

      Roy

      • Deepika Nathany

        Thanks Roy -- We didnt want to use regular buy process as --

        The customer though outsources all its manufacturing processes (and does not track any progress or update) -- it has quality check reported and tracks only the quality result. The quality checks are also done in ad hoc fashion. 

         

    • Venkata Ramana Malluri

      Hi Deepika,

      Contract Manufacturing solution should be used if the following criteria is met:

      - OEM is completely outsourcing the manufacturing of an assembly (end item) to a contract manufacturer

      - If OEM would like to supply one or more components to the contract manufacturer that are required to manufacture the assembly

      - If OEM would like to track the manufacturing process at the contract manufacturer's facility

      - If OEM would like to track the components stock supplied by them at the contract manufacturer's facility and also track the end assembly stock owned by them

      Outside Processing solution should be used if the following criteria is met:

      - If the OEM is outsourcing only a part of manufacturing process (one or more operations of the work order and NOT all operations) to a Manufacturing Partner

      - If the OEM is NOT supplying any components to the Manufacturing Partner. Currently this solution does not support component supply by OEM. 

       

      Now, with regard to your customer use case, what I am understanding is, they are completely outsourcing the manufacturing of the assembly to a third party (contract manufacturer). They do not supply any components to the contract manufacturer. And they do not want to even track the manufacturing process. In this case, implementing contract manufacturing solution would be a overhead. Outside Processing is NOT the right fitment for this use case. They can simply use a regular Procure to Pay flow and  buy the assembly from the supplier (contract manufacturer).It can be a Back-to-Back Buy flow or a Plan to Produce Buy flow.

      Hope this helps. 

      Thanks,

      Venkat

      • pandurang bugadikatti

        I fully agree with Venkat. this is not a CM flow.

        CM is fully integrated fully orchestrated by SCO.. 

        Thanks

        Pandurang

         

      • Deepika Nathany

        Thanks Venkat to your detailed explanation.

        Yes you are right -- Neither Contract Manufacturing nor Outside processing completely suits the business Requirement.

        I missed mentioning why We didn't want to use Procure to pay -- as I was focusing only on the two manufacturing processes.

        The customer though outsources all its manufacturing processes (and does not track any progress or update) -- it has quality check reported and tracks only the quality result. The quality checks are also done in ad hoc fashion. 

        My idea was to implement Outside processing -- and have quality checks reported. They are not using planning or order management -- hence cannot have any components planned. 

        They kind of want to have minimal maintenance on the manufacturing process and expect to use more of standard operations.