Subcontracting

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Transcript:

Hi! In this video, we will see how to manage outsourced services and operations from subcontractors or contract manufacturers with the help of MRPeasy.

There are two different kinds of outsourced processes that are managed with the “Subcontracting” functionality:

You order completed products from a contract manufacturer and free-issue materials from your own inventory to them.

Or, you have outsourced operations alongside your in-house manufacturing processes.

The first method is suitable when we ourselves buy materials, but outsource all operations to the subcontractor. In order to get the products into stock:

We create a purchase order for the product to the subcontractor.

We free-issue the materials to the subcontractor.

The subcontractor performs the necessary operations.

Finally, we receive the completed products.

The second method is useful if we perform some manufacturing operations ourselves and use subcontracting for others, e.g. for painting. It is also useful if we have several subcontractors performing different operations.

In this scenario:

We include the subcontracted operations in the product’s routing.

We create a manufacturing order for the product.

We order and manage the subcontracted operations through connected purchase orders during the manufacturing order execution.

Let’s see Method 1 in progress, where we do not perform any manufacturing operations ourselves.

As the first thing, we must define the subcontractor.

In MRPeasy, a subcontractor is defined as any other vendor in the procurement section.

Then, we must define the bill of materials for the product, which lists only the parts that we supply to the contract manufacturer from our stock.

Now, let’s add a purchase term so that MRPeasy can automatically pre-fill the purchase order with vendor details, prices, and lead times.

Connect the BOM with the purchase term, by selecting it in the subcontracting BOM field.

The ability to connect a BOM with a purchase term allows you to have several BOMs for the item, with different purchasing options, and also separate BOMs for in-house manufacturing.

Ordering these products from a contract manufacturer is very similar to working with a regular purchase order.

So, to order the products, let’s create a new purchase order.

After clicking “save,” a new section appears for booking the free issue materials and shipping them.

Let’s click on “book materials” to book them from our stock according to the bill of materials and the ordered quantity of products.

Clicking “show bookings” shows us all materials that have been reserved for this subcontracting purchase order.

To plan the shipme nt of the materials, let’s add a new shipment.

Let’s check all the pre-filled details and “save.”

Currently, this is a planned shipment, and can now be seen by the stock workers – this screen is a digital picking list for reporting the shipment. Here, it’s also possible to print out the waybill and the picking list.

Let’s report the shipping by picking the items from stock. The free issue materials have now left the stock.

Back in the subcontracting purchase order, we must process and track this as any other purchase order. We can print out a PDF or have MRPeasy open the e-mail client to order it.

We can track the status in the TOP part of the PO.

Once items have arrived, we report the receipt in the PO.

In summary, we’ve received the products into stock and no longer have any materials, which were consumed by the subcontractor, in stock.

The cost of the products reflects both the purchase order cost and the cost of the consumed materials, which MRPeasy automatically keeps track of.

To recap: First, create a Purchase Order for the subcontractor for the product. Second, free issue the materials to the Subcontractor. Then, the subcontractor performs the work. Finally, receive the completed products by reporting PO receipt.

Now, let’s go though the Method 2, where we perform some operations in-house and one or more are performed by subcontractors.

We open a product’s routing and use it to define which operations are performed outside of our facilities.

To do that, we choose the subcontractor from the “workstation group,” to whom this operation will be assigned.

By using the setup and cycle time fields, we can enter the estimated time it takes for this process.

We have defined in our settings an 8-hour workday, so to define a fixed 3-day lead time, we enter 1440 minutes as the setup time. In case the lead time is a function of quantity, then we must also use the cycle time field.

Our subcontractor will bill us by piece; therefore, we’ll enter an estimated variable cost of 10 dollars per piece.

Next, we will schedule a manufacturing order for our product.

Once it’s saved, we see that the subcontracted operation is scheduled together with other operations that we perform ourselves.

Once we’re ready to send the purchase order to the subcontractor, we click the “create PO” button in the subcontracts section of the manufacturing order. MRPeasy automatically prefills the whole purchase order.

Alternatively, we can use the Procurement → Requirements report to create the PO for the service. Here we can combine services from several MOs into one PO.

At any point, when necessary, we can edit the PO; for example, when we receive the final price confirmation.

Once the purchase order is saved, it is tied to this manufacturing order – plus, the status of the purchase order drives the status of the corresponding operation in the manufacturing order.

When we ship the products to our subcontractor, we must fill the “shipped on” field in the purchase order. The subcontracting PO status will become “shipped” and the subcontracted operation in the manufacturing order will become “started.”

When we receive the purchase order, we will enter the arrival date in the purchase order, which will now become “received.” Back in the manufacturing order, the subcontracted operation is marked finished.

If this operation was the last step, then to wrap up, the manufacturing order must be finalized, as usual – by clicking the “finish production as planned” button, or “finish production” button in the reporting view.

Now, all products are available in stock and all materials have been consumed from stock, plus the costs of the subcontracting purchase order are included in the cost of the products.

To recap:

First, include the subcontracted operations in the routing.

Second, create a manufacturing order for the product.

Then, order and manage the subcontracted operations through connected purchase orders during the manufacturing order execution.

The functionality can be enabled in the section “settings – system settings – professional functions.”

In this video, we described how the subcontracting functionality works.

To learn more about MRPeasy, please see our other videos.

Thanks for watching!

Keywords: subcontracting, subcontractor management, subcontractor scheduling, contract manufacturer, subcontracted operations