Even outsourcing companies sometimes need to outsource.  This can be a cost effective way to complete a job when they do not have the resources or capabilities in-house.  However, three main actions are needed in order for it to work:

1. Notify Purchasing - after MRP creates demand for the processed component, purchasing must be notified to not only order the raw material, but also the processing of the raw material into the finished component.
   
   
2. Notify Inventory - once the raw material is in house, it must be sent for processing.  If there is a delay from initial receipt to shipping to the outsource provider it may delay the entire order.  If the same outsource company always processes the raw material, then this can be setup under the raw component so inventory knows where to send it.  Otherwise, purchasing must have a way to indicate which supplier will process the raw material for the specific order.
   
   
3. Reflect Costs in Accounting - if the additional costs are not reflected in the final assembly, it will not be priced correctly and can make the entire job unprofitable.  Many companies forget this because the labor is not done in-house and the tracking is done outside of their system.  (There is some debate on how and where to record this additional expense.  Is it reflected in the labor or materials?  The preferred method, for most, is to record these costs as part of the material cost since it is purchased and not produced.  This is the same reason companies do not separate the labor costs to produce a capacitor under labor for the final assembly.  If desired, the labor required for tracking and managing the outsourcing may be recorded under labor costs for the top level.)
   

Many companies do not have an effective way of tracking these within their system and ensure that each step in the process is completed quickly and correctly. It is possible to manage this outside of any system, but doing so requires careful attention and an awareness of the potential pitfalls.

ManEx is designed for EMS companies that traditionally do the outsourced work.  However, there are ways to setup and track outside processing within ManEx.  We suggest handling the three main actions as follows:

Notify Purchasing:

By creating a sub-assembly in ManEx for the processed component, users can accurately track costs and notification actions.  Because ManEx allows up to 512 levels on a BoM, users can make very complex sub-assemblies and still keep delivery commitments and costs.

The easiest way to notify buyers is to create an inventory part called "Outsource Labor" and put it as an item on the subassembly* to make the processed component.  This has several advantages, it allows MRP to automatically create the notification for buyers and they know how to process the "part", it allows accounting to capture this cost in the assembly (and include it in cost roll-ups), it allows receiving to have a part to receive once the processing is complete, it can be used on numerous assemblies as needed, and it allows users to account for both the raw and processed parts.

The sub-assembly approach will also ensure that the raw parts are delivered in plenty of time to allow for processing and still be included with the rest of the purchased components. This extra lead time is determined by value recorded under the processed component's production lead time in the item master.

*In order to purchase a part, it must be BUY or MAKE/BUY.  Buyers cannot order MAKE parts.  Additionally, BUY and MAKE/BUY parts cannot have other parts issued to them in kitting. This is why the processing is setup as a component on the processed part. Otherwise, users will not be able to automatically associate the costs of the raw component and processing with the processed component.

Notify Inventory

Parts that require outside processing can be marked to require incoming inspection.  This creates a flag for receiving so they can see what needs to happen next.  If the outsourcing is always done by the same supplier, users can add this information to the item master note as this is easily accessible from receiving.  Otherwise, buyers can indicate in the PO (either on the item or schedule notes) where the raw parts should be sent for processing.

If the part is always outsourced, it may be helpful to modify the part description to indicate this as well.  That will serve as another level of notification for receiving and inventory.

Another option is to create the WO for the processed part and change the kit status to "In Process" as soon as the raw material is ordered.  This will create a kit shortage for the raw part and allow receiving to "pull" the parts for the kit upon receiving.  Because they are needed for the "Out Sourced" work center (see the next section for details) receiving would know that it needs to be shipped for processing.

Reflect Costs in Accounting production Control

To keep an accurate picture of the value and location for raw and processed parts, the processed part bom should have a routing that includes a work center called "Out Sourced".  When inventory sends the raw parts out for processing, they can document this in the system by issuing them to the kit and transferring the qty to the "Out Sourced" work center.   Once the processing is complete, receiving will see that it is needed for the open work order already containing the raw parts.  The processing labor "part" can be issued to the kit and the "assembly" transfered to FGI.

The method will accurately reflect the cost, qty, and location for the raw parts and the processed parts (including the labor for processing).  It will create the notifications and action messages and help manufactures stay on top of their outsourced work.