Contract manufacturing is the outsourcing of production capacity. When properly structured, it provides flexibility; however, if poorly structured, it creates blind spots in terms of inventory, cost, and traceability.
Contract manufacturing models
Model
How does it work?
Point to note
Subcontracting operation
One leg of the route is done in the outdoor workshop; the product goes there and back.
Round trip time and inclusion of transportation in the plan.
Subcontracting by supplying materials.
Raw materials are sent to the subcontractor, and the finished product is received back.
We retain ownership of the stock held by the subcontractor; tracking is mandatory.
Turnkey subcontracting
The subcontractor supplies the materials themselves and delivers the finished product.
The responsibility for quality and compliance remains with us.
Capacity leasing
External capacity is reserved for a specific period or volume.
Monitoring whether the committed volume has been used.
Scope
Inclusion of subcontracting capacity in the plan: Modeling the external workshop as a work center, with its own operating hours and capacity.
Build-or-buy decision: Determining whether a job should be done in-house or outsourced by comparing cost, capacity, and delivery time.
Material shipment: The materials are dispatched to the subcontractor with shipping documents and tracked as a separate stock item while retaining ownership.
Subcontractor inventory tracking: Real-time knowledge of raw material, semi-finished product, and finished product quantities from external suppliers, and periodic reconciliation.
Waste and yield agreement: The waste that will occur at the subcontractor must be defined in the contract, and the actual waste must be evaluated accordingly.
Subcontracting order and goods receipt: Opening the service purchase order, quality control of the received product, and reflecting its cost in the product price.
Quality responsibility: Monitoring the subcontractor's process competence and defining the inspection plan for incoming products.
Traceability continuity: The subcontracting step should not create gaps in the batch traceability chain.
Performance evaluation: Monitoring the subcontractor's delivery time, quality, and waste performance.
The most common mistake: Completely deducting materials sent to subcontractors from inventory. In this case, a significant amount of material that is still owned by the company becomes invisible in the system; it does not find its correct place in either inventory or cost at the end of the period. Inventory at the subcontractor should be tracked as a separate inventory location .