Overview of Outside Processing

Outside processing is a business process where one or more operations of a work order are outsourced to a supplier who provides specialized manufacturing services.

These services may vary depending on the nature of the industry.

Outside processing is often adopted as a strategic alternative to in-house manufacturing for the following reasons:

• To lower manufacturing costs due to production costs

• To leverage state of the art manufacturing technology

• To increase capacity to overcome production bottlenecks

• To focus on core competencies

Here's a figure which explains a business flow where three operations are required to complete a work order. Operation 10 which is machining, followed by operation 20 which is plating, and operation 30 which is assembly. Operation 20 is a supplier operation performed by outside processing.

• An Original Equipment Manufacturer (OEM) performs the first operation in-house and ships the machined parts to a supplier for plating.

• The supplier performs the plating operation and sends the plated parts to the Original Equipment Manufacturer (OEM).

• The OEM receives the plated parts and pays the supplier for performing the value added services.

In the entire process, the OEM retains the ownership of the goods that are sent to and received back from the supplier.

Note: The outside processing flow is supported for both discrete and process manufacturing.