Outside Processing in Oracle Process Manufacturing

This chapter explains how to manage outside processed resources in Process Manufacturing.

This chapter covers the following topics:

Overview of OPM Outside Processing

Outside Processing (OSP) is a subcontracting process where certain operations in a process routing are performed by the subcontractor. This process can be leveraged by manufacturers who do not always have the capabilities or equipment to perform all the steps in their manufacturing process to produce their products. Outside Processing enables manufacturers to indicate single or multiple steps and operations in a process that requires outside manufacturing, track the material and cost when it leaves their facility and apply the outside processing cost to the overall cost of the finished good.

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Outside Processing is a practice where the manufacturer owns the product designs that it sells and manages the supply chain by determining which manufacturing processes are internal and which can be outsourced to suppliers. The supplier in the outside processing process is defined as the business that performs a contract manufacturing function for the manufacturer. Oracle Process Manufacturing enables Batch-Step level Outsourcing. The manufacturer indicates a specific operation/step of a sequence in a routing which is performed by a supplier.

OPM Outside Processing Features

Following are the main features of OPM Outside Processing:

Representing Supplier's Service as a Resource

The OPM-OSP feature involves representing the service provided by the supplier as a resource. At the Generic Resource level users identify the resource as an OSP. At the Plant Resource level users provide details of the OSP Item and other details like cost etc.

Creating Requisitions/Purchase Orders at Various Batch/Step Stages

When single or multiple steps or operations in a routing are not performed in-house and needs outside processing, a requisition representing the service of the supplier can be created during Batch Creation, Batch Release, and Step Release. Requisition interface records are created at these batch/step stages for an OSP operation and users schedule the Requisition Import Concurrent Request to create purchase orders based on the requisitions.

Manual Creation of Requisitions

This option automatically charges outside processing resources at an OSP step , but does not link the creation of the requisition to either creation or processing of the batch or step.

Defining Automatic/Manual Approvals for PO/Req

Should the order be of high value and in need of approvals, an approval hierarchy can be set and handled only on need by basis.

Manual Creation of Purchase Order and Lines

Manual purchase order can be defined for outside processing items. For each purchase order line, a batch that is to be charged needs to be specified. Transactions can be tracked. Resource Cost or PO price can be used for resource costing depending on the flag checked.

Receiving Full or Partial Quantity in OPM Enabled Organizations

The Purchase Order can be received for the full or partial quantities and the quantity delivered to the shop floor should update the OSP Actual step quantity. Note that the quantity on the Purchase Order may either be the product quantity of the Batch or the resource usage of the OSP resource. Hence, the quantity received will be proportional to the step quantity but will not be same as the step quantity.

Managing Returns and Adjustments

OPM Users can return the OSP item/service for rework and reverse over-receipts that are erroneously transacted.

Integration with OPM Cost Management

As the Purchase Order is raised for a service, the value of this service is added to the Product cost. OPM users define a Standard Cost for the resource associated with the Outside Processing step and can choose between Resource Cost and PO Price cost as Cost source. The supported cost methods are:

OPM Outside Processing Solution Flow

OPM Outside Processing solution enables a manufacturer to associate outside manufacturing services to a resource that is used in the batch requiring the OSP operation.

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For example, a batch may have Step 10, Step 20 and Step 30. If manufacturer is unable complete Step 20 as part of the in-house process, the option is available to define Step 20 for outside processing by associating a resource to the OSP item. The components and/or partially completed products required to complete the outside processed item are physically shipped against system generated requisitions/purchase orders. The OPM Outside Processing process also calculates OSP charges and adds it to the product cost. The outside processed item is then physically shipped back to the manufacturer to complete the next in-house Step 30.

To execute the OPM Outside Processing process, prerequisite setups are required. The setup includes creating the OSP item and associating with an OSP resource, defining the resource as an OSP item, defining the generic and plant resources, the batch parameters and the sourcing rules.

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After the required setup is complete, when the manufacturer creates a batch a requisition record is created (if requisition creation is set at the batch creation level). When the batch is released, a purchase order is created based on the requisition. The Batch and Purchase Order are linked and any changes in the date of the batch leads to change in the Need By Date on the corresponding line of the PO.

When the OSP item on the PO is received, corresponding resource transactions are triggered for the OSP batch step and the OSP Actual step quantity is updated with the receipt quantity. Once the complete step quantity is received, the production supervisor completes the step. The service charges for the OSP resource are defined as part of Resource cost and are considered in the cost calculation for the product based on the cost source setup as Resource Cost in the OSP resource definition. If the cost source is set to the PO Price, the OSP resource charges are calculated as per the PO Price.

OPM Outside Processing Setup and Planning

The required setup steps are completed in Oracle Applications: Inventory, OPM Process Planning, Product Development, Process Execution, Purchasing, and OPM Cost Management. The following diagram lists the setup steps to be completed in each of these applications.

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Setting Up Inventory

Use the Items window to define and maintain outside processing items. See: Defining Items, Oracle Inventory User's Guide.

See: Oracle Inventory User's Guide

Setting Up OPM Process Planning

Use OPM Process Planning to:

Note: Searching for an OSP resource using the Plant Resource window would list all OSP and non-OSP resources because Outside Processing field is not a database column and is derived from the Generic Resource. Use the Generic Resource window to search for an OSP resource.

See: Oracle Oracle Process Manufacturing Process Planning User's Guide

Setting Up OPM Process Development

Use OPM Process Development to create operations and add the OSP resource and to create a routing. Also create recipes and validity rules.

See: Oracle Process Manufacturing Product Development User's Guide

Setting Up OPM Process Execution

Use the Outside Processing tab in the Process Execution Parameters window to enable OSP related options.

Setting Up Purchasing

Oracle Purchasing enables requisition creation, facilitates the approval process, and automatic purchase order creation for outside processing items and resources. There are several setup steps for outside processing that you must perform in Purchasing.

See: Oracle Purchasing User's Guide

Setting up OPM Cost Management

Complete the following set up in OPM Cost Management:

See: Oracle Process Manufacturing Cost Management User's Guide

OPM Outside Processing Execution

When the required setups are completed, OPM outside processing is executed in Oracle Applications: OPM Process Execution, Purchasing, Receiving and OPM Cost Management. The following diagram gives a high level description of OPM Outside Processing execution and costing:

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Creating Batches

The first step in the OPM Outside Processing execution process after the required setup, is to create a batch. See: Creating a Batch or Firm Planned Order.

Use the Others tab in the Batch Steps form to view the OSP batch step. The Outside Processing flag will be checked for OSP operations.

Creating Purchase Orders/Requisitions for OSP Operations

Requisition interface records are created at the batch creation, batch release and batch step release levels to create requisitions for an OSP operation. Requisitions are created with the Quantity calculated based on the Unit Type, the OSP Item UOM and the Need By Date as the step completion date.

For example, in a batch production of 10,000 tablets, 100 pounds of medicinal material is processed in-house in Step 10. Step 20 is the packaging stage designated as an outsourced operation wherein 10,000 tablets are packaged at the rate of 1000 per hour. For the Item Unit Type: Resource, for a batch of 10,000 Tablets, the resource usage calculated would be 10 hours. A purchase order is created for 10 HR (hours) assuming the OSP Item UOM is also HR (hours).

For the Item Unit Type: Assembly, a purchase order is created on the basis of the Primary product quantity of the batch quantity which is 10,000 EA, assuming that the OSP Item UOM is also EA.

Note: The primary product refers to the product from the validity rule based on which the batch is created. If the primary product and coproduct have same validity rule and preference then requisition is created based on product's validity rule used for batch creation

Important: Note that the purchase order is created with the OSP item UOM. If the resource usage UOM differs from the OSP Item in case of Item unit type as Resource, the quantity is not converted and the purchase order is created with the OSP item UOM. Ensure that the OSP item UOM and the resource usage UOM is the same. Similarly, ensure the primary product UOM and the OSP Item UOM is the same in case of Item unit type as Assembly.

Viewing Purchase Order

You can view purchase order details based on the PO line to which the OSP Step is associated from the Batch Details window (from Actions / tools >PO) for OSP batches.

To view the purchase order for an OSP step:

  1. Navigate to the Find Batches dialog box.

  2. Query the batch which contains OSP step or operation and click Find. The Batch Details window displays the results of the search.

  3. Click Steps. The Batch Step window appears.

  4. Select the OSP steps or operations and from the Tools menu, select View PO Summary. The purchase order for the selected steps or operations is displayed in read only mode.

Approving Purchase Order/Requisitions for OSP Operations

Launch the Requisition Import concurrent program manually or schedule this program to run periodically as required. Configure the requisition import concurrent program to launch with the authorization status parameter as Approved or Incomplete as required.

Manually Creating Requisitions/Purchase Order for OSP Operations

If Requisition Creation Time is set to Manual, create the requisition or the purchase order for an OSP Operation manually and associate batch information to the purchase order. When associating Batch information at the Purchase order distribution level, note that only the following information can be entered:

Synchronizing Production Batch Changes to Requisitions/POs

Monitor batch actions at different statuses of the batch for corresponding requisition/purchase order status to check if the batch actions are allowed or not. Batch actions like Reschedule/Manual update of Step completion dates requires updates to Need By Date of all the corresponding open requisition/purchase orders for the corresponding OSP step.

Batch actions like Scale Batch/Update Primary Product Quantity/Update Resource Usage require increase in quantity, and the corresponding requisition and Purchase order have to be updated accordingly. If the PO update is not allowed, a new requisition is required for the difference in the quantity update.

The following tables describe change management in context of batches and their statuses:

Batch Actions and Quantity Changes
Batch/Step Status Batch Action Propagate Batch Changes: Yes Propagate Batch Changes: No
Pending Scale Update Req and PO/Warning No Action
  Update Planned Product Quantity Update Req and PO/Warning No Action
  Update OSP Planned Resource Usage Update Req and PO/Warning No Action
WIP Update WIP Plan Product Quantity Update Req and PO/Warning No Action

Additional Information: Batch changes propagate differently depending on the OSP Unit Type.

Note that Requisition/Purchase Order quantity update is allowed only if:

In case the requisition or the purchase order quantity update fails, create a new requisition based on the increase in Batch Quantity.

Batch Actions and Date Changes
Batch/Step Status Batch Action Propagate Batch Changes: Yes Propagate Batch Changes: No
Pending Reschedule Batch/Step Update the Need By Date of Req/PO No Action
WIP Reschedule Batch/Step Update the Need By Date of Req/PO No Action

Note that Requisition/Purchase Order Need By Date update is allowed only if:

In case the requisition or the purchase order quantity update fails, create a new requisition based on the increase in Batch Quantity.

Batch/Step Actions and PO/Req Cancellations
Batch Status Batch Action Propagate Batch Changes: Yes Propagate Batch Changes: No
Pending Reroute Cancel Req/Recreate Req Warning
  Cancel Cancel Req/PO Warning
  Delete Step/Resource Cancel Req/PO Warning
Step Status Step Action Propagate Batch Changes: Yes Propagate Batch Changes: No
Pending Delete Step/Resource Cancel Req/PO Warning
  Cancel Step through Batch Terminate Cancel Req/PO Warning

Note that Requisition/Purchase Order cannot be cancelled if:

Batch/Step Actions Not Allowed for Existing Open PO/Req
Batch Status Batch Action Open PO/Req Exist No Open PO/Req Exist
WIP Unrelease Error Out Proceed
  Complete Warning and Proceed Proceed
  Terminate Error Out Proceed
Completed Close Error Out Proceed
Step Status Step Action Open PO/Req Exist No Open PO/Req Exist
WIP Unrelease Error Out Proceed
  Complete Warning and Proceed Proceed
Completed Close Error Out Proceed

Note that Open PO/requisition exists if:

Performing Resource Transactions for OSP Operations

Receiving and delivery of the purchase order of the OSP item in OPM enabled organizations occurs only if the corresponding OSP step in the batch is in WIP or Completed Status.

When the purchase order is received, a resource transaction for the OSP resource is created using the open interface for the resource transactions and the Actual Step quantity of OSP step is updated.

The resource transaction is created with the resource usage calculated based on the OSP item unit type:

As the OPM Outside Processing solution allows only one resource and one activity to be associated for the OSP step, the system updates the actual step quantity of the OSP step with respect to the received quantity. This actual step quantity is updated as part of the resource transaction creation.

In case of the partial receipts, the actual step quantity is added to the existing actual step quantity. The formula for calculation of the actual step quantity is:

When a batch is placed on hold in either Pause or Stop mode, the resource transactions manager does not update the batch records. To update the batch records, you must release the hold, correct the records using Batch Open Interface forms, and then resubmit the records. For more information regarding Batch Open Interface and creating and releasing batch hold, refer to Managing Batches Using the Batch Open Interface and Holding a Batch

The following validations on OSP resource transactions are ensured:

Receiving Inspection with OPM Quality for the product received from OSP supplier

To perform quality tests for the materials/products received from the outside manufacturing service provider, set OPM Quality Specifications for the OSP item. Receiving inspection is performed using these specifications and results recorded against such specifications.

Note: As this item is different from the product of the batch, the results recorded for this item will not be used for reporting results of the product.

Specifications are set and samples generated for the OSP item. Sample records are generated and stored for the OSP item in the receiving organization. Such samples follow standard OPM quality sample business flow. These samples do not create inventory transactions as the item is not expected to be carried in inventory.

Updating Resource Transactions upon Correction/Returns of the Received OSP item from Receiving

Perform corrections of the delivered material using the Receiving Corrections form or return the material using the Returns form for the OSP item belonging to the process enabled organizations as long as the corresponding OSP step in the batch is in WIP or Completed Status.

As part of the correction or return, the resource transactions for the OSP resource should get updated by using the open interface for the resource transactions so that the processing of the correction or return transaction and the resource transaction are independent.

The resource transaction is created with the resource usage calculated based on the OSP item unit type:

The Resource Transaction in the Resource transaction interface table is updated with the corrected quantity. While processing the resource transaction interface using the Resource transaction manager, the resource transaction created by the original receipt is updated with the new value after the correction transaction.

The actual step quantity is updated as part of the resource transaction update. The actual step quantity is added or subtracted to/from the existing actual step quantity based on whether the correction type is positive or negative or return. The formula for calculation of the actual step quantity is:

For example, if 10 Hrs of service is received and a resource transaction is created for 10 Hrs, in case of negative correction/return of -2 Hrs, the resource transaction is updated to 8 Hrs.

For costing details associated with outside processing in Oracle Process Manufacturing, see Oracle Process Manufacturing Cost Management User's Guide.