This blog post is designed to help you determine if NetSuite Outsourced Production is the right solution for your organization. In the modern landscape, nearly all manufacturers engage in some form of outsourcing for their operations. Different sectors and businesses utilize third-party manufacturers in various ways. Currently, many organizations find outsourcing production operations to be an attractive choice, but is it suitable for your needs? Here’s a guide to assist you in setup and configuration, upgrades to NetSuite’s manufacturing processes, and some of what I consider the most beneficial features of NetSuite Outsourced Production.
What is Outsourced Production?
Outsourced production refers to hiring external individuals to assemble components or create an entire product. The main reason driving companies worldwide to outsource their manufacturing needs is the reduction in labor costs. Firms can use third-party contracts to liberate cash from unnecessary overhead, allowing them to allocate resources more effectively. Without a system to track the subcontracted production process, businesses risk limited visibility and heightened responsibility. This is where a VersiMarket consultant can deliver an effective NetSuite solution related to outsourced production.
What is NetSuite Outsourced Production?
NetSuite’s Outsourced Production is beneficial for organizations in industries looking to streamline processes and automate their manufacturing workflows. The bill of materials version control simplifies the process flow within the system. Furthermore, production costs and any raw materials involved in the manufacturing process can be bundled together. The additional functions and features included in the Outsourced Production edition are designed to facilitate the use of NetSuite for their manufacturing needs, especially when generating a standard outsourced purchase order.
Benefits of NetSuite Outsourced Production
Given the adaptability of NetSuite Outsourced Production, various companies can gain from its integration into their systems. Let’s explore the benefits in more detail.
Enhanced Tracking and Visibility
As corporate processes become more complex, inventory visibility increasingly challenges organizations. This challenge escalates when contract manufacturers are part of the mix, highlighting the importance of inventory oversight for seamless business operation. Outsourced production offers improved traceability and visibility by linking work orders, assembly builds, and the item receipt process.
Boosted Efficiency
Accessing information about the outsourced production process enables you to forecast completion dates, communicate availability to waiting customers, or adjust the materials accordingly.
Automation and Lower Overhead
Integrated production and procurement transactions enhance automation and efficiency while minimizing end-user effort and costs.
Improved Communication
The heightened version control offered by NetSuite OM allows for easy calculation of product costs, as well as adjustments to raw material, selling, or vendor costs over time.
VersiMarket’s Recommended Configuration
Here are the steps a NetSuite Solution Architect working for VersiMarket would follow when setting up NetSuite Outsourced Production for your organization.
Activate Features
The following essential components must be activated to enable outsourced production:
- Purchase Orders
- Advanced Receiving
- Multi-Location Inventory
- Assembly Items
- Advanced Bill of Materials
- Work Orders
Outsourced Production functionality can be activated once these requirements have been satisfied.
Location Setup
Establish a location or multiple locations where any outsourced production processes will occur.
Vendor Setup
Once the feature is activated, an Outsourced Production tab will appear on vendor records. Locations must be specified for where the outsourced production process will take place.
Configuration of Raw Materials/Components
Assembly components will require a bill of materials (BOM) and a BOM revision once the Advanced Bill of Materials feature is enabled. Raw material items should be established to complete a BOM revision.
Service Charges & Fees Configuration
Any fees or expenses incurred by the contract manufacturing organization (CMO) must be created as other charges for purchase items, and the cost category should change to an “Outsourcing Charge” to incorporate the item into the outsourced production process. Service charges may include labor costs and packing fees, which can be dynamically added or deducted from the BOM as rates fluctuate.
Configuration of Bill of Materials
Generate a bill of materials that will store updates to the BOM, including components and any fees or service costs that will apply to the final assembly.
Configuration of Bill of Materials Revision
Once the BOM has been created, a new revision should be made. You can include a start and end date for version control in the BOM revision. This must cover all component items and other costs requiring payment, accounting for raw material costs and additional fees. The revised BOM will indicate the quantity of each finished item and the unit of measure for creating one unit of the final product. If your organization owns the inventory goods, quantities will be taken from stock; alternatively, if the product will be sourced from the outsourced manufacturer, items may be procured from the work order. For raw material loss during the manufacturing process, component yields can be established for specific products and tracked on the BOM revision. The advanced BOM and the outsourced production module offer version control, allowing users to deactivate previous BOM revisions while creating new ones with the latest parts and other charge items. Historical changes and effective dates are accessible for expense tracking and reporting.
Final Products Configuration
After all necessary configurations, create an assembly (final product) item. Add the BOM to the Manufacturing tab (the current revision will auto-populate).
Process of Outsourced Production Transactions
The subsequent step a VersiMarket consultant would undertake in configuring outsourced production in NetSuite is to set up a process for effectively tracking your organization’s manufacturing transactions.
Purchase Order
The “Outsourced Purchase Order” form becomes available once the Outsourced Production option is activated. Users can only select assembly items on the outsourced form since the fields on the Items subtab have been altered. After completing the required fields in the purchase order header, select the assembly to be purchased. Along with the BOM and its latest revision, the other charge item that documents expenses incurred during the manufacturing process and the location where the process will occur will populate on the line. Users can manually edit these field values.
Work Order
Auto-generated work orders connect at the line level for seamless tracking and a comprehensive view of the unified process flow from purchase order to work order upon saving the transaction. The assembly, BOM, and BOM revision are linked by default in the transaction’s header, with the work order in the “Released” status. The work order is poised for receiving and building, as it encompasses all line-item components comprising the BOM.
Item Receipt and Assembly Build
When the item receipt is saved, an automated assembly build for the assembly item is generated and linked to both the work order and the item receipt. This ensures a complete 360-degree view of the process, interconnecting every transaction in the sequence through related records or a custom hyperlink field.
Vendor Bill
The vendor bill, initiated from either the item receipt or the purchase order, serves as the final transaction in the process flow. Any BOM items not previously owned and stocked internally will be included on the vendor bill, along with other charge items.
In Conclusion
NetSuite Outsourced Production enables smooth manufacturing processes across multiple production locations, providing the necessary automation, visibility, and tracking. It allows NetSuite users to enhance their manufacturing operations through automation and an integrated transaction flow. Outsourced Production in NetSuite can benefit organizations aiming to further automate manufacturing processes, minimize overhead, and improve end-user efficiency. In my professional view, NetSuite Outsourced Production is a robust solution for all your outsourcing challenges.
