In today’s world, manufacturing is nearly impossible without the aid of third-party businesses to complete the process. For many organizations, outsourcing offers a way for them to focus on their core businesses while employing partner vendors who can fill in the gaps.
The advantages of outsourcing can be substantial—from cost savings and efficiency gains to more significant competitive advantages. For this reason, manufacturers of all sizes lean on outsourcing when they need to reduce labor or overhead costs without losing their core competencies. Outsourcing enables manufacturers to eliminate the need to invest in expensive equipment or the associated maintenance needed to keep machines running. That means they can then put their resources to work in places where they’re most likely to see a positive ROI on the other side of the process.
Yet, with all these advantages, there are inherent risks that can come from outsourcing manufacturing. It’s not uncommon for manufacturers to own their raw materials and components, but they often then send those items to subcontractors to be assembled and returned. This back-and-forth process requires a solid system to be in place in order to mitigate liability issues and ensure as much transparency as possible as the goods are relocated from place to place. In other words, there needs to be a clear window into the movement of goods from the time they’re received initially until they arrive back at manufacturers’ doors as finished products.
The following are three ways the right software can reduce the risks of outsourced manufacturing:
1. Maintaining Visibility
As noted, it’s vital for manufacturers to maintain visibility throughout the entirety of their production processes. This becomes more and more difficult as business processes become more complex. For instance, adding manufacturing locations, warehouses, and selling channels immediately infers there needs to be a system in place to keep track of each of these areas, as well as the movement of goods from place to place. When you add in a subcontractor, the situation is further complicated, making inventory visibility absolutely vital to the efficient and effective operation of your business.
If you don’t have inventory visibility, demand planning and forecasting can be a crapshoot, potentially leaving you with too much or not enough inventory. This is where NetSuite’s new Outsourced Manufacturing functionality can really be a game-changer. It allows businesses to proactively manage third-party manufacturing, just as they would if they were manufacturing the products in-house. This brings greater transparency and accuracy to each step of the manufacturing process.
NetSuite’s Outsourced Manufacturing lets you outsource assembly production to third parties from purchase or work orders, along with building instructions and specific attributes, so you can track every product throughout each step of the process. When you include detailed build instructions and the BOM within POs themselves, you’ll be better positioned to manage the subcontracted manufacturing process. Along the same lines, NetSuite will offer you real-time inventory visibility of parts within your warehouse, as well as those sent to outsourced vendors, so the procurement and production transactions are always in sync.
2. Communicating Build Specs
Products and production are often changing—whether it’s because there needs to be a component substitution to reduce the COGS or changes need to occur to optimize the manufacturing process.
These changes need to be clearly communicated to production so products are made correctly, ensuring no rework needs to happen as a result of version control issues. This becomes even more essential when you’re working with a third-party contractor for production. Within the standard outsourced PO, you can include additional specifications, attributions ,and instructions for the building. This helps to standardize the production process, cost, and quality of products with your brand on them, whether you make them in-house or not. Within the purchase order, you can define the following outsourcing details:
- Assemblies
- Outsourcing location
- Production start date
- Production end date
- Bill of materials
- Bill of materials revision
3. Understanding COGS
Often times, when production is outsourced to an outside vendor, the pieces are owned by the manufacturer, but the subcontractor is incurring the costs of labor, assembly location, and any other components necessary to complete the build. In order to understand a true cost of goods sold (COGS), you need to combine all of these elements to establish an accurate selling price.
The cost of production is the actual charge the contractor is charging you. Each production run uses the charge on the PO. A bill of materials is then generated to capture the final assembly costs, which include necessary components and the outsourced production charges in a single document.
With the right software, this is all done seamlessly, freeing up your team to focus on more important matters of your organization while technology takes care of these details.
Check out our NetSuite Outsourced Manufacturing Demo to learn more:
Talk to the NetSuite Experts at MIBAR
If you’re curious to see how NetSuite Outsourced Manufacturing can eliminate some of your manufacturing headaches and reduce risks along the way, our team at MIBAR would love to meet with you. We invite you to reach out to us online or via phone today.
Additional Resources
NetSuite 2022 Release 1: New Features for Manufacturers
