Source Type 4: Outside Assembly Kanbans
You can use a source type 4 kanban when you have a value-added manufacturing process that you outsource. As part of the outsourcing process, you provide the outside assembly supplier with the required materials (raw materials or subassembly parts). This situation might occur because the company can provide the raw materials or subassembly parts at a lower overall cost than can the outsourcing supplier. In either situation, you use the outside assembly kanban to create a sales order to sell all of the outside process items to the outsourced supplier; and, as part of the same kanban process, you use a purchase order to buy back the value-added subassembly or finished product. This process, while similar to an outside operation purchase order in shop floor transactions, offers more direct control and visibility of inventory than the outside operation purchase order. The sales order transaction relieves inventory balances for all components of the outsourced assembly while the purchase order transaction increments inventory for the outsourced parent item.
To control which items are shipped (using a sales order) and acquired (using a purchase order) when you check out a source type 4 kanban, you create a bill of material for the parent item. This bill of material lists:
The required outsourced component items, which appear as individual detail lines within a sales order document
The parent item of the bill of material, which is the value-added item that you are buying back from the supplier
When you check in a one-phase kanban of source type 4, the system performs a shipment confirmation transaction, a purchase order receipt transaction, and an inventory transfer transaction that moves the material from the supplying location to the consuming location that is specified in the kanban master record. If the kanban is a two-phase kanban, you must move the kanban to a Complete status before checking it in. The Complete status transaction ship confirms the sales order for the component items and performs the purchase order receipt for the parent item.