Today’s producers are continuously looking for methods to reduce costs, streamline operations, and enhance their production methods. One effective strategy is to outsource specific manufacturing tasks to third-party vendors, specifically through NetSuite Outsourced Manufacturing.
What is NetSuite Outsourced Production?
NetSuite Outsourced Manufacturing is a comprehensive solution designed to simplify the process of subcontracted manufacturing within organizations. This platform allows businesses to procure outsourced assembly from suppliers while automating various aspects of the procurement and production procedures. The primary features of NetSuite Outsourced Manufacturing comprise:
Automated generation of subcontracting orders
Simplified ordering of production components
Simulation of the subcontractor’s manufacturing process
Transfer of partially completed assemblies
Automated drop-shipping or warehouse delivery
These automated elements help companies improve efficiency, reduce manual labor, and ensure fluid information transfer between internal teams and external vendors.
4 Advantages of NetSuite Outsourced Manufacturing
Firms utilizing NetSuite manufacturing achieve comprehensive control over their outsourced functions. The following advantages enable businesses to manage production more effectively using NetSuite Outsourced Manufacturing:
1. Enhanced Visibility
NetSuite's outsourced manufacturing enhances visibility at every phase of the production lifecycle. It connects work orders, assembly builds, and item receipts, providing a holistic view. This visibility benefits NetSuite inventory management by assisting companies in tracking both components and finished products. With precise and real-time updates, businesses can better plan and avoid expensive inventory issues such as excess stock or material shortages.
2. Reduced Overhead
NetSuite outsourced manufacturing integrates procurement with production processes. This automation minimizes manual tasks and reduces mistakes. In fact, components utilized during production are recorded automatically, enhancing accuracy. This streamlining of operations leads to significant decreases in overhead costs, freeing teams to concentrate on value-added tasks rather than repetitive ones.
3. Increased Efficiency
With NetSuite manufacturing, companies can outsource labor and assembly while keeping ownership of their components. Clear visibility into outsourced operations enables accurate estimation of order fulfillment timelines. Firms can respond quickly to changes in materials and update outstanding orders. This results in smoother production processes and improved alignment with customer delivery schedules.
4. Enhanced Communication
Rapid information sharing regarding product updates and manufacturing changes is vital. NetSuite manufacturing prioritizes communication between internal teams and subcontractors. This ensures easy tracking of changes for raw materials, pricing, or vendor costs that may have occurred during an upgrade. Enhanced communication also allows for the necessary specifications in manufacturing, reducing instances of incorrect specifications that could lead to quality issues in products.
How to Configure NetSuite Outsourced Manufacturing
If your organization uses NetSuite for manufacturing, implementing the Outsourced Manufacturing feature will assist you in managing the outsourced operations effectively. The steps for configuring the Outsourced Manufacturing process in NetSuite are outlined below:
Step 1. Activate the Necessary Features
Before embarking on Outsourced Manufacturing, you need to activate the following features in NetSuite:
Advanced Bill of Materials (BOM) Feature
Outsourced Manufacturing Feature
To enable these, navigate to Setup > Company > Enable Features, and check the relevant boxes for these features.
Step 2. Connect the Outsourced Location with a Vendor Record
After activating the Outsourced Manufacturing feature, you need to associate your Outsourced Locations with Vendor records. Here’s how to do this:
Go to the Vendor record.
Under the Outsourced Manufacturing tab, select the pertinent Outsourced Location.
If you cannot see the Outsourced Manufacturing tab, you may need to update the Preferred Vendor Form to include this tab.
Note: Each Outsourced Location can only connect to one Vendor; however, a Vendor can have multiple Outsourced Locations. If the Outsourced Location is linked to another vendor, NetSuite will notify you and prevent saving the vendor record.
Step 3. Create an Outsourcing Charge Item
To impose a rate for outsourcing an assembly, you must create an Outsourcing Charge Item. Follow these steps:
Go to Lists > Accounting > Items > New.
Choose either Service for Purchase or Other Charge for Purchase as the item type.
Name the item and, in the Purchasing tab, choose Outsourcing Charge under the Cost Category field.
Set the charge rate in the Purchase price field.
Under the Accounting tab, select the Expense account to record the charge when the Vendor Bill is received.
Click Save.
Step 4. Revise BOM Records
After creating the Outsourcing Charge Item, you need to update the Bill of Materials (BOM) Revision for your assembly items:
Open the Assembly Item Record.
In the Manufacturing tab, click the link for the Assembly’s Revision.
On the Bill of Materials Revision page, click Edit.
In the Components tab, add the Outsourcing Charge Item from Step 3.
NetSuite will automatically set the Outsourcing Charge Item quantity to one (1), and this quantity is not adjustable.
Click Save.
Step 5. Log the Outsourced Manufacturing Transactions
When you receive an item from the outsourced vendor, NetSuite automatically creates an Assembly Build transaction related to the Work Order. Keep in mind that there will be no GL impact recorded at the point of the Item Receipt. The GL impacts will manifest during the Assembly Build transaction, where the increase in assembly, decrease in components, and outsourcing charges will be recorded.
Methods for NetSuite Outsourced Manufacturing
NetSuite Manufacturing ERP provides two adaptable options for managing outsourced manufacturing. Each method is crafted to cater to different business requirements depending on production complexity. These options include:
1. Outsourcing from a Purchase Order
This method permits businesses to establish a purchase order for the outsourced assembly. Once the vendor delivers the item, the NetSuite Manufacturing SuiteApp automatically generates the appropriate assembly build. You can incorporate essential production elements such as the assembly type, outsourcing location, timeline, and Bill of Materials. This approach is suitable for simpler outsourcing needs, ensuring vendors receive all necessary instructions to complete the task accurately and on schedule.
2. Outsourcing from a Work Order
Work order-based outsourcing is ideal for manufacturers with intricate production needs. It offers enhanced control and flexibility over each production stage. This method enables companies to manage precise stages of the manufacturing process, monitor numerous components, and adapt to changes as they arise. It works best when used with NetSuite Manufacturing Integration as it assists in synchronizing procurement, assembly, and inventory processes.
Expert NetSuite Outsourced Manufacturing Guidance
Outsourced manufacturing can introduce various challenges, particularly concerning visibility, efficiency, and accuracy across multiple vendors and processes. While offering tools to optimize business workflows, firms face obstacles such as subcontracting management, inventory oversight, and synchronizing production timelines and expenses. Without proper implementation, these challenges can quickly escalate.
With the right support and strategies from Versich, these challenges can be effectively managed. Our team specializes in implementing tailored NetSuite Outsourced Manufacturing solutions that fit your unique business needs. From configuration to optimization, our experts guarantee seamless integration, increased efficiency, and thorough visibility into your outsourced operations.
