Outsourcing Production (Subcontracting)

Subcontracting planning was discussed in Chapter 20; this chapter covers the execution and commercial aspects of outsourced production.

1. Contract purchasing process

• Subcontracting order: The process of opening an order for services or goods, linked to a related work order; defining price, delivery time, and technical specifications.
• Contract management: Keeping records of price lists, volume commitments, waste rates, quality requirements, and penalties for delays.
• Subcontractor selection: Evaluation based on cost, capacity, quality track record, and delivery performance.
• Material shipment: Ensuring that raw materials are sent to the subcontractor with shipping documents, and that transportation and compliance requirements are met.
• Goods receipt and inspection: Quality control of incoming products, decision on return or reprocessing in case of non-conformity.
• Invoice reconciliation: Comparing the subcontractor's invoice with the delivered quantity and contract price; evaluating any differences in waste/waste.

2. Supply network inventory

• External location inventory: Modeling inventory at subcontractors, customs warehouses, consignment warehouses, and customer sites as separate inventory locations.
• Separation of ownership: Accurate accounting for materials that are physically outside the property but are legally owned by us.
• Reconciliation process: Periodically reconcile inventory with the subcontractor and investigate any discrepancies.
• Visibility: The entire inventory can be viewed on a single screen, regardless of location.
• Aging: Marking of material left outside for a long time; this is the most common source of risk of loss and forgotten stock.

3. Externalizing the work order process

• Subcontracting operations included in the route: The external step becomes part of the route with its own time and cost; the work order waits at this step.
• Automatic triggering: Once the previous operation is complete, the system automatically initiates the subcontracting order and shipment.
• Supplier portal: Where the subcontractor views their own work list, reports progress, and uploads documents.
• Maintaining traceability: Ensuring that the shipment leaves the factory and returns to the same chain.
• Capacity visibility: Taking into account the subcontractor's committed capacity and current workload in planning.
• Performance measurement: Monitoring delivery time, quality, waste, and cost performance on a subcontractor basis.