1 outsourced manufacturing within the current global marketplace mr. anthony della-croce vp...

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Outsourced Manufacturing Within The Current Global Marketplace

Mr. Anthony Della-CroceVP Solutions ArchitectureCore Services

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Agenda

• 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

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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 outsourcingBy 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?

The Industry Experts

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The 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.

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Overview Process - Drop Shipments

• Drop Shipment Characteristics1. Entire Transaction Originates From Sales Order Line2. Sales Order Line Is Linked To Requisition Which In Turn Is

Linked To Purchase Order Line- You Are Buying “Product” Not a “Process”

3. Sometimes Called “Back to Back” Orders4. 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

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Overview Process - Outside Processing Operations

• Outside Processing Characteristics:1. Entire Process Is “Internal” To A Single Manufacturing

Organization, 2. You Must Utilize Manufacturing Work Order or Repetitive

Production Schedule1.You Are Buying “Process” Not a “Product”

3. The Work Order Generates a “Purchase Requisition” For “Outside Processing Item Code” Automatically:

4. Common Misconception Is That You Are “Buying End Assembly”

5. Generated Purchase Requisition Is Converted To Purchase Order By”

6. Purchase Order Receipt Is “To Outside Process Operation” On Work Order

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Overview Process - Outside Processing Operations

Outside Processing Characteristics:

1. Common Misconception Is That You Are “Buying End Assembly”You Are Buying The “Process”

2. Generated Purchase Requisition Is Converted To Purchase Order1. Manually Converted or2. Blanket Purchase Order Release - Can Be Automatic If Sourcing

Rules Are Available3. Purchase Order Receipt Is “To Outside Process Operation” On

Work Order

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Complete 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

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Complete Outsourced Manufacturing Operations Ship Directly To Customer “Demand Place & PlanningDirectly on “Sub-Contractor”

OM Purchasing

Internal InventoryOrganization

Your Owned/Managed Warehouse Item Flagged As “Make At “Sub-Contracted” Manufacturing Vendor

“Sub-Contracted” Manufacturing Vendor

1) Original Sales Order Demand

Forecast MDS MPS MRP

GL

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OM Purchasing


Your Owned/Managed Warehouse and You/Sub-ContractorControl Planning At Sub-Contractor Org.


1) Original Sales

Order Demand


2) M

PS o

r M

RP C

reat

es

Wor

k O

rder

For

Fin

ishe

d

Goo

ds

Purchase RequisitionsFor Raw Materials

Complete Outsourced Manufacturing Operations Ship Directly To Customer “Demand Place & Planning Directly on “Sub-Contractor”

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OM Purchasing



1) Original Sales

Order Demand


2) M

PS o

r M

RP

Cre

ates

Wor

k O

rder

For

Fini

shed

Goo

ds

3) Work Order ReleaseCreates Purchase Requisition/Purchase OrderFor Outside Process

Work Order Completed & Outside Process PO Received Triggers Inventory Updates

Your Owned/Managed Warehouse and You/Sub-Contractor Control Planning At Sub-Contractor Org.

Complete Outsourced Manufacturing Operations Ship Directly To Customer “Demand Place & Planning Directly on “Sub-Contractor”

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OM Purchasing


Your Owned/Managed Warehouse


4) Original Sales Order Shipped

Directly To Customer

3) Work Order ReleaseCreates Purchase Requisition/Purchase OrderFor Outside Process

Work Order Completed& Outside Process PO Received Triggers Inventory Updates

4A) Print Pick/Pack/Ship DocumentsAt “Sub-Contracted” Manufacturing Vendor4B) Vendor Notifies You Of Shipment4C) You Do “Logical” Shipment of Sales Order

Complete Outsourced Manufacturing Operations Ship Directly To Customer ”Demand Place and Planning Directly on “Sub-Contractor”

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Complete Outsourced Manufacturing Operations Ship To Your Organization Demand/Planning Internal Supply Chain

OrderMgmt

Purchasing


Your Owned/Managed Warehouse Item Flagged As “Make At “Sub-Contracted” Manufacturing Vendor But Buy Item In Internal Inventory Organization


1) O

rigin

al S

ale

s Ord

er D

em

and


GL

2) MRP Generates Internal RequisitionAnd Internal Sales Order

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OM Purchasing



1) Original Sales Order

Demand


GL


3) MPS or M

RP Cre

ates

Work Ord

er For F

inish G

oods

4) Purchase Requisitions For Raw Materials


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OM Purchasing



1) Original Sales

Order D

emand

GL


5) Work Order Completed At “Sub-Contracted” Manufacturing Vendor6) “Sub-Contracted” Manufacturing Vendor Ships Item Back To Internal Organization Via Internal Sales Order7) After Receipt Against Internal Purchase Order, Update Inventory8) Ship To End Customer From “Internal Inventory Organization


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Review Of Outsourced Manufacturing Benefits and Issues

Drop Shipments Benefits• Don’t incur financial

obligation of inventory until customer order received and processed.

• Don’t have the cost or overhead of delivering finish product to customers.

• Don’t maintain warehouse or inventory carrying cost.

• Don’t 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

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Outside Processing Benefits• No financial obligation of

Assets to perform special processing.

• Don’t have setup or overhead costs associated with completing specialized processing.

• Don’t 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• Don’t control the direct

quality of the outside process

• Don’t 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

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Outsourced Manufacturing Benefits

• No financial obligation of Assets perform special processing.

• Don’t have the setup or overhead costs associated with completing specialized processing

• Don’t 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.

• Don’t 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

1 outsourced manufacturing within the current global marketplace mr. anthony della-croce vp...

Documents

global manufacturing

lean manufacturing

manufacturing plants

purchase order supply

purchase order line

unacceptable quality

entire process

sales order demand