Value Delivered By Value Chain Planning - Subcontracting Practices
We had earlier discussed about Oracle's OSP, in relation to contract manufacturing and how it aligns to business needs. Subcontracting is another module that has been gaining in terms of popularity. Subcontracting is a common business practice where a brand-owner or an Original Equipment Manufacturer outsources its entire manufacturing operations or a portion of it by entering into a contractual agreement with an external manufacturing service provider commonly known as a Manufacturing Partner. This is the CMO we have been talking along all the while.
From a system standpoint following would be the sequence of events involved in a typical subcontracting cycle.
- Creation of a subcontracting order and its communication to the CMO.
- Automatic creation of the discrete job for assembly production in CMO premises.
- Automatic creation of purchase orders for procuring the component/ingredient items from the retailer.
- Automatic creation of the sales order for the component items.
- Shipment against the SO for the component orders to the CMO.
- Automatic receipt of the component items in CMO.
- Assembly manufacture in CMO against the discrete job.
- Shipment of assembly to the retailer.
- Receive the final assembly in the retailer premises.
- Automatic completion and closure of the discrete job
It is to be noted that modeling of business cycles requires setting up Retailer and CMO as inventory organizations. The module supports two modes of component types.
Synchronized: In this case the components are shipped to CMO with reference to a specific Subcontracting Order along with the order.
Pre-positioned: In this case the components are shipped to CMO without reference to any Subcontracting Order ahead of assembly requirements.
Also worth discussing is the nature of subcontracting. If the retailer charges the CMO upfront for the components supplied and pays for the services received separately, then we talk in terms of Chargeable subcontracting.
If the retailer nets off the payables and receivables invoices in the case above, it is termed as Buy/Sell subcontracting.
Today systems are available with strong features that can suit ever increasing business needs. In certain cases we might have to customize the vanilla application, but as they say IT always follows business.
