Title: Outsourced Manufacturing Within The Current Global Marketplace
1Outsourced Manufacturing Within The Current
Global Marketplace
Mr. Anthony Della-Croce VP Solutions
Architecture Core Services
2Agenda
- The Current Shift To Global Manufacturing and
Distribution Operations - ERP Application Requirements and Processes In The
Global Manufacturing and Distribution Business
Environment - Benefits and Risks of Outsourced Manufacturing
3The Industry Experts
- Forrester Research
- High-tech firms continue to shed manufacturing
plants but struggle to manage their contract
manufacturers. OEMs must treat these outsource
relationships like a merger and develop new
virtual manufacturing skills. - Lean manufacturing and outsourcing
- By Eric O. Olsen and Mark Zetter - Aug 09, 2006
- We have arrived at the nexus of two powerful
trends in business process improvement and
product manufacturing operations management. - One, lean operations, offer streamlined flow of
value to the customer with minimal inventory and
waste. The other, outsourcing, offers
dramatically lower cost of goods sold (COGs).
Both can result in highly competitive pricing
positions and healthy profit margins. How do
executives remain true to the tenants of lean
while stretching their company value stream
across the globe? How do companies build close
relationships with suppliers if each party
speaks, and acts, differently? How does an
organization make value 'flow' when its raw
materials, or products, might be arriving in
batches the size of large, ocean-going ship
containers, or perhaps even the size of the
container ship?
4The Industry Experts
- Metric-Stream
- As companies shift manufacturing and assembly
operations offshore to low cost countries, a
large number of deliveries to US based customers
suddenly become cross-border transactions.
Sometimes shipments can take weeks to be
delivered to distribution sites within the United
States, resulting in long supply chains. It is
very important for such companies to gain
visibility into process capability and quality
issues within their outsourcer's manufacturing
sites so that they can prevent any unacceptable
quality products from entering the inbound supply
chain. If these unacceptable quality products
enter the supply chain, the company has to wait
to scrap a part of the shipment at the point of
destination, weeks after it was shipped from the
outsourcer's manufacturing site. The additional
transportation and handling incurred due to poor
quality products being rejected at the point of
destination, instead of the point of manufacture,
also leads to increased cost of inventory
write-offs.
5Overview Process - Drop Shipments
- Drop Shipment Characteristics
- Entire Transaction Originates From Sales Order
Line - Sales Order Line Is Linked To Requisition Which
In Turn Is Linked To Purchase Order Line- You Are
Buying Product Not a Process - Sometimes Called Back to Back Orders
- You Never Take Physical Possession Of Inventory
But You Do Take Financial Ownership of The
Product - No Manufacturing Work Order Is Generated
- MRP See Sales Order Demand Linked To Purchase
Order Supply, No Action Required
6Overview Process - Outside Processing Operations
- Outside Processing Characteristics
- Entire Process Is Internal To A Single
Manufacturing Organization, - You Must Utilize Manufacturing Work Order or
Repetitive Production Schedule - You Are Buying Process Not a Product
- The Work Order Generates a Purchase Requisition
For Outside Processing Item Code Automatically - Common Misconception Is That You Are Buying End
Assembly - Generated Purchase Requisition Is Converted To
Purchase Order By - Purchase Order Receipt Is To Outside Process
Operation On Work Order
7Overview Process - Outside Processing Operations
- Outside Processing Characteristics
- Common Misconception Is That You Are Buying End
Assembly You Are Buying The Process - Generated Purchase Requisition Is Converted To
Purchase Order - Manually Converted or
- Blanket Purchase Order Release - Can Be Automatic
If Sourcing Rules Are Available - Purchase Order Receipt Is To Outside Process
Operation On Work Order
8Complete Outsourced Manufacturing Operations
- Outsourced Manufacturing Definition
- Your Organizations Controls the Creation and
Release of Work Orders to Sub-Contracted
Manufacturing Vendor. - Each Sub-Contracted Manufacturing Vendor
Preferably Should Have Their Own Inventory
Organization Assigned to Them For - Security/Address Definitions/Work Order Creation
etc. - Your Issue of The Released Work Order Creates a
Purchase Requisition Linked To That Work Order. - Convert this Requisition to Purchase Order and
Receive to the Work Order - Sub-Contracted Manufacturing Vendor Ideally
Logs Into Your System - Receiving Raw Material Component Inventory As
Necessary - Controls Moves/Completion Of Work Order
- Work Order Completion Should be Updating Your
Inventory Value - Ships Directly To Your End Customer, This Is Not
Drop Shipment Since Sub-Contracted
Manufacturing Vendor Is Shipping From Your
Inventory
9Complete Outsourced Manufacturing Operations
Ship Directly To Customer Demand Place
PlanningDirectly on Sub-Contractor
GL
Purchasing
OM
Internal Inventory Organization
Sub-Contracted Manufacturing Vendor
Your Owned/Managed Warehouse Item Flagged As
Make At Sub-Contracted Manufacturing Vendor
MRP
Forecast
MDS
MPS
10Complete Outsourced Manufacturing Operations Ship
Directly To Customer Demand Place Planning
Directly on Sub-Contractor
OM
Purchasing
1) Original Sales Order Demand
Internal Inventory Organization
Sub-Contracted Manufacturing Vendor
2) MPS or MRP Creates Work Order For Finished
Goods
Your Owned/Managed Warehouse and
You/Sub-Contractor Control Planning At
Sub-Contractor Org.
Purchase Requisitions For Raw Materials
Forecast
MDS
MPS
MRP
11Complete Outsourced Manufacturing Operations
Ship Directly To Customer Demand Place
Planning Directly on Sub-Contractor
OM
Purchasing
1) Original Sales Order Demand
Internal Inventory Organization
Sub-Contracted Manufacturing Vendor
3) Work Order Release Creates Purchase
Requisition/Purchase Order For Outside Process
2) MPS or MRP Creates Work Order For Finished
Goods
Your Owned/Managed Warehouse and
You/Sub-Contractor Control Planning At
Sub-Contractor Org.
Work Order Completed Outside Process PO
Received Triggers Inventory Updates
Forecast
MDS
MPS
MRP
12Complete Outsourced Manufacturing Operations
Ship Directly To Customer Demand Place and
Planning Directly on Sub-Contractor
Purchasing
OM
- Original Sales Order Shipped Directly To Customer
Internal Inventory Organization
Sub-Contracted Manufacturing Vendor
3) Work Order Release Creates Purchase
Requisition/Purchase Order For Outside Process
Your Owned/Managed Warehouse
4A) Print Pick/Pack/Ship Documents At
Sub-Contracted Manufacturing Vendor 4B) Vendor
Notifies You Of Shipment 4C) You Do Logical
Shipment of Sales Order
Work Order Completed Outside Process PO
Received Triggers Inventory Updates
13Complete Outsourced Manufacturing Operations
Ship To Your Organization Demand/Planning
Internal Supply Chain
Order Mgmt
Purchasing
GL
1) Original Sales Order Demand
Internal Inventory Organization
Sub-Contracted Manufacturing Vendor
2) MRP Generates Internal Requisition And
Internal Sales Order
Your Owned/Managed Warehouse Item Flagged As
Make At Sub-Contracted Manufacturing Vendor
But Buy Item In Internal Inventory Organization
Forecast
MDS
MPS
MRP
14Complete Outsourced Manufacturing Operations
Ship To Your Organization Demand/Planning
Internal Supply Chain
GL
OM
Purchasing
1) Original Sales Order Demand
Internal Inventory Organization
Sub-Contracted Manufacturing Vendor
2) MRP Generates Internal Requisition And
Internal Sales Order
3) MPS or MRP Creates Work Order For Finish Goods
4) Purchase Requisitions For Raw Materials
Forecast
MDS
MPS
MRP
15Complete Outsourced Manufacturing Operations
Ship To Your Organization Demand/Planning
Internal Supply Chain
GL
OM
Purchasing
1) Original Sales Order Demand
Internal Inventory Organization
Sub-Contracted Manufacturing Vendor
2) MRP Generates Internal Requisition And
Internal Sales Order
5) Work Order Completed At Sub-Contracted
Manufacturing Vendor 6) Sub-Contracted
Manufacturing Vendor Ships Item Back To Internal
Organization Via Internal Sales Order 7) After
Receipt Against Internal Purchase Order, Update
Inventory 8) Ship To End Customer From Internal
Inventory Organization
16Review Of Outsourced Manufacturing Benefits and
Issues
- Drop Shipments Benefits
- Dont incur financial obligation of inventory
until customer order received and processed. - Dont have the cost or overhead of delivering
finish product to customers. - Dont maintain warehouse or inventory carrying
cost. - Dont control production or design of the product
- Drop Shipment Issues
- Cannot control acquisition cost of product,
- subject to vendor price
- cannot control delivery or promise dates
- Vendor could sell direct
- Financial liability for purchase even if customer
cancels order - No control over product quality but sale still
impacts your reputation with marketplace
17Review Of Outsourced Manufacturing Benefits and
Issues
- Outside Processing Benefits
- No financial obligation of Assets to perform
special processing. - Dont have setup or overhead costs associated
with completing specialized processing. - Dont maintain inventory required to perform
specialized processes. - You still control production process of your
finish good while holding the vendor responsible
for only this unique process.
- Outside Processing Issues
- Dont control the direct quality of the outside
process - Dont easily control delivery, promise dates to
your customer - Competitors can utilize your outside processor
- Financial liability for purchase even if customer
cancels order - No control over product quality but sale still
impacts your reputation with marketplace
18Review Of Outsourced Manufacturing Benefits and
Issues
- Outsourced Manufacturing Benefits
- No financial obligation of Assets perform special
processing. - Dont have the setup or overhead costs associated
with completing specialized processing - Dont maintain inventory required to perform
specialized processes. - Control production process remotely for your
finish good while holding the vendor responsible
for executing shop floor transactions. - Dont incur costs and overhead of the shipment
process. - You can quickly change product lines based on
market conditions by utilizing several
sub-contractors
- Outsourced Manufacturing Issues
- cannot control the direct quality of the outside
process - cannot easily control delivery, promise dates to
your customer - competitors can utilize your outside processor
- financial liability for purchase even if customer
cancels order - no control over product quality but sale still
impacts your reputation with marketplace - Engineering design and maintenance must be
controlled across organizational boundaries - You must establish a safe/secure ERP environment
that can be flexible and easily adapted to
multiple sub-contractors