Guidelines for the Setup and Implementation of Contract Manufacturing

This topic explains certain decision points and some best practices that are crucial for the setup and implementation of contract manufacturing.

Decision Points

The following decisions must be made before you set up your organization as a contract manufacturing organization.

• The original equipment manufacturer organizations must identify the items for which the manufacturing process is completely outsourced to a contract manufacturer.

• The original equipment manufacturer organizations must identify which items are outsourced to fulfill a customer order, and which items are outsourced to fulfill a planned order generated against a forecast. This decision has to be made taking into account the readiness of the extended supply chain to support the contract manufacturing flows.

  The items outsourced to fulfill a customer order is a contract manufactured item, and the item outsourced to fulfill a planned order is a back-to-back item.

Best Practices

The following points are some of the best practices that you can keep in mind while setting up your organization as a contract manufacturing organization:

• Each contract manufacturing site should be modeled as one inventory organization within the original equipment manufacturer's enterprise.

• For easy identification, name the contract manufacturing organization with the contract manufacturer's name.

• Define one subinventory for tracking the finished good inventory, and another subinventory for tracking the components supplied by the original equipment manufacturer.

• For easy identification of the contract manufacturing service item, name the service item by suffixing the contract manufacturer's name or initial to the contract manufacturing finished good item.