4Implementing Outside Processing

This chapter contains the following:

Outside Processing: Overview

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

The following figure is an example of outside processing:

The following figure 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 which is performed by outside processing.

Business flow for 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.

Outside Processing Features in Oracle Supply Chain Management Cloud: Overview

To support outside processing, Oracle Fusion Supply Chain Management offers many capabilities and enables you to do the following:

  • Differentiate between manufacturing operations that are processed in-house and those that are outsourced to suppliers.

  • Create and manage standard operations of the type Supplier.

  • Create and manage work definitions with supplier operations.

  • Create and manage work orders with supplier operations.

  • Schedule supplier operations based on the processing lead times maintained at the operation level.

  • Trigger automatic creation of purchasing documents.

  • Trigger generation of shipment lines for shipping and printing shipping documents such as packing slip, bill of lading that are required in outside processing.

  • Record completed quantities at supplier operations after goods are received and delivered to Oracle Fusion Manufacturing.

  • Manage and execute supplier operations with or without serialization-enabled manufacturing.

  • Review supplier operation details, manage supply exceptions, and perform receipt-related returns and corrections.

  • Manage demand side changes by automatically propagating work order changes referred to as demand side changes to the associated purchase orders.

  • Manage supply side changes by logging supplier operation exceptions to notify changes to purchase orders.

Oracle Fusion Supply Chain Management helps improve operational efficiency in managing outside processing in many ways. Some of them are as follows:

  • Provides enhanced visibility into supply chain execution by displaying purchasing, shipping, and receiving details for a supplier operation.

  • Reduces the manual intervention required to manage supplier operations through automatic creation and approval of purchasing documents, shipment lines and progression of quantities at a supplier operation upon receipt.

  • Enables increased responsiveness in managing demand and supply side changes by providing the ability to automatically propagate demand side changes and log exceptions to notify supply side exceptions.

  • Provides better insight into outside processing costs through the display of receipt and cost accounting distributions at supplier operations.

Managing and Executing Outside Processing: Explained

This topic details the sequence of steps of the process flow for outside processing. There may be variations to the process flow depending on the business offering.

The following image illustrates the process flow of outside processing across product offerings in Supply Chain Management:

This image explains the various steps involved across products to complete an outside processing flow.

Process flow of outside processing across product
offerings in Supply Chain Management

The following steps explain the process flow in a sequential manner:

  1. Create and release a work order with supplier operations in Oracle Fusion Manufacturing Service. Work orders are scheduled using the unconstrained logic in Oracle Fusion Planning Central Service and Oracle Fusion Supply Planning Service.

  2. When the work order is released, a request is sent to Oracle Fusion Orchestration Service to create a Purchase Requisition. Oracle Fusion Orchestration Service in turn creates a Supply Order and triggers the creation of a Purchase Requisition in Self-Service Procurement.

  3. An Outside Processing Purchase Order is created in Oracle Fusion Purchasing Service using the details maintained in the Outside Processing Blanket Agreement.

  4. Execute the work order by reporting quantities as completed at the operation prior to the supplier operation. A request is then sent to Oracle Fusion Orchestration Service to create a Shipment Line. Oracle Fusion Orchestration Service in turn creates a Supply Order Line and triggers the creation of a Shipment Line in Oracle Fusion Shipping.

  5. A Shipment is manually created for the Shipment Line in Oracle Fusion Shipping which is then Confirmed and Closed. Based on the options set for the Ship Confirm Rule, the processes to Print Packing Slip and Bill of Lading are initiated automatically.

  6. The next step is to create an Advance Shipment Notice (ASN) in the Supplier Portal for the outside processing service item. Goods are received in Oracle Fusion Receiving using the ASN and delivered to Oracle Fusion Manufacturing Service. For a supplier operation that is not serialization enabled, this results in automatic completion of quantities at the supplier operation.

  7. Supplier operations are then managed and tracked in Oracle Fusion Manufacturing Service.

  8. The receipt, delivery and operation transactions result in receipt and cost accounting in Oracle Fusion Cost Management.

Note: Steps to create shipment line and print shipping documents are optional as indicated in the diagram. ASN creation is required only in the case of consecutive outside processing scenarios.

Creating and Managing Work Orders with Supplier Operations: Explained

To support outside processing, Oracle Fusion Manufacturing provides the ability to distinguish between work order operations that are processed in-house and those that are outsourced to suppliers through the Operation Type attribute.

The Operation Type attribute of an operation is set to Supplier to indicate that the attribute is processed by a supplier. You can create and manage all types of work orders with one or more supplier operations, define consecutive supplier operations, and maintain additional details for a supplier operation.

You can also import work orders with supplier operations using the predefined .xlsm template.

Work orders with supplier operations are scheduled using the unconstrained logic in Oracle Fusion Planning Central and Oracle Fusion Supply Planning taking into account the fixed and variable lead times maintained for the supplier operation.

The fixed and variable lead times specified for the supplier operation are also considered by Oracle Fusion Planning Central and Oracle Fusion Supply Planning while creating a planned order for an item that includes one or more supplier operations within its work definition. Additionally, the manufacturing lead time calculation program takes into account fixed and variable lead times maintained for the supplier operation.

Note: For more information about creating work orders with supplier operations, refer to the Manage Production chapter of the Oracle Supply Chain Management Cloud Using Manufacturing guide.

Purchasing Documents For Outside Processing: How The Documents Are Created And Managed

This topic explains how purchasing documents for outside processing are created and managed.

Settings That Affect Purchase Requisition Creation

Purchase requisitions for outside processing are created based on the setting of the Purchase Requisition Trigger plant parameter.

How Purchase Requisition Is Created

If the Purchase Requisition Trigger plant parameter is set to Work Order Release, purchase requisitions are created for all supplier operations on a work order when the work order is released.

If the parameter is set to Prior Operation Completion, purchase requisitions are created for a supplier operation on a work order when quantities are completed at the prior count point operation. If the supplier operation is the first count point operation, then the purchase requisition for the supplier operation is created when the work order is released.

In each of these scenarios, Oracle Fusion Manufacturing Service sends a request to Oracle Orchestration Service to create a purchase requisition.

Oracle Fusion Orchestration Service creates a supply order based on the request received from Oracle Fusion Manufacturing. It orchestrates the automatic creation of outside processing purchase requisitions in Self-Service Procurement.

An outside processing purchase order is created in Oracle Fusion Purchasing from the purchase requisition based on the outside processing blanket agreement that is set up for the outside processing service item.

Oracle Fusion Orchestration Service maintains the details of the outside processing purchase requisitions and purchase orders, and provides drill-down capabilities to review additional details of the outside processing purchase orders

Oracle Fusion Purchasing maintains manufacturing details (such as Work Order, Operation, and Product) for outside processing purchase orders. It displays the details at purchase order line and schedule levels, and uses the Manufacturing destination type for outside processing.

Oracle Fusion Purchasing also supports consecutive supplier operation scenarios. In consecutive outside processing, the Ship to Party, Ship-to Location, and Deliver to Location in the purchase order cut for the first supplier operation correspond to the Supplier and Supplier Site that services the next operation in sequence.

Shipping Documents For Outside Processing: How The Documents Are Created And Managed

This topic explains how shipping documents for outside processing are created and managed.

Settings That Affect Shipment Line Creation

Shipment lines for outside processing are created based on the setting of the Generate Shipment attribute of the work order supplier operation.

How Shipping Documents Are Created And Managed

Oracle Fusion Manufacturing Service sends a request to Oracle Fusion Orchestration Service to create a shipment line when the goods are reported as complete at the operation prior to the supplier operation to ship the goods to the supplier.

Oracle Fusion Orchestration Service creates a Supply Order Line based on the request sent by Oracle Fusion Manufacturing and orchestrates the automatic creation of a shipment line of Outside Processing order type in Oracle Fusion Shipping. For such shipment lines, Oracle Fusion Shipping maintains and displays manufacturing details such as work order, operation, and end assembly.

The shipment line is then associated with an existing shipment or a new shipment. The shipment is then confirmed and closed. Based on the options set for the Ship Confirm Rule, the processes to Print Packing Slip and Bill of Lading are initiated automatically.

Alternatively, these documents can be printed on demand for shipping the goods to the supplier for outside processing.

Oracle Fusion Orchestration Service maintains and tracks the details of the shipments, such as Shipment Number and Shipment Line that are related to outside processing.

Receiving and Delivering Goods for Outside Processing: Explained

To support outside processing, Oracle Fusion Receiving receives and delivers goods processed by the supplier using the Manufacturing destination type.

After creating the delivery, Oracle Fusion Receiving calls Oracle Fusion Manufacturing to automatically report operation completions for nonserialized operations. The quantities are then further managed in Oracle Fusion Manufacturing.

For serialization enabled operations, quantities automatically progress from In Process status to Ready. The serials are reported as Completed either in the Manage Supplier Operations page or by reporting the operation transactions in a predefined .xlsm template.

Receipts in outside processing can also be recorded using Advance Shipment Notices (ASNs) that are created in Supplier Portal or in Oracle Fusion Receiving. ASNs are mandatory only if the next count point operation is also a Supplier Operation.

Monitor, Manage, and Execute Supplier Operations in Manufacturing: Explained

Oracle Fusion Manufacturing Service enables the monitoring of supplier operation quantities by dispatch status (In Process, Ready, Complete, Scrap, Reject) in the Manage Supplier Operation page.

The In Process dispatch status represents quantities in supplier operations that are completed in the previous count operation but have not been received from the supplier after processing. When received, the quantities or serials are further managed in the Manage Supplier Operation page. You can complete, scrap, reject quantities using the Quick Complete and Complete with Details actions.

The Manage Supplier Operation page also provides visibility into supplier operation exceptions.

Additionally, for any supplier operation record, the Manage Supplier Operations page enables you to navigate to the work order details page and the Review Supplier Operation Details page.

You can print work order traveler and product labels directly from the Manage Supplier Operations page.

You can navigate to the Material Transactions page to report Original Equipment Manufacturer-supplied component usage.

Note: The Manage Supplier Operations page displays only Supplier Operation records.

For any given supplier operation, the Review Supplier Operation Details page enables you to monitor and review supplier operation details by:

  • Displaying the purchasing, shipping and receiving details related to a supplier operation.

  • Providing links to review additional details of purchase orders, shipments and receipts.

The Review Supplier Operation Details page provides several actions for production supervisors to manage supply exceptions. These actions are conditionally enabled and allow production supervisors to do the following:

  • Initiate the creation of a purchase requisition in case of supply failures to fulfill the requirement for the deficit quantity.

  • Handle issues related to the quality and quantity of the goods delivered to Manufacturing with the ability to correct receipts, over receipts, and return quantities to supplier or receiving.

Note: For more information about Supplier Operations in Manufacturing, refer to the Manage Production chapter of the Oracle Supply Chain Management Cloud Using Manufacturing guide.

Planning, Accounting, and Reviewing Outside Processing Costs: Explained

As part of cost planning, Oracle Fusion Cost Management enables you to define outside processing service item cost and include it in the rolled up cost of standard costed items.

Oracle Fusion Cost Accounting and Oracle Fusion Receipt Accounting support processing of outside processing transactions. Accounting distributions are created in Oracle Fusion Receipt Accounting for the receipt of outside processing service item. Accounting distributions are created in Oracle Fusion Cost Accounting after the outside processing service item is delivered to Oracle Fusion Manufacturing. The Manufacturing destination type is used to identify receipt of outside processing items.

In outside processing, there are no changes for managing receipt accounting accruals. Purchase cost is included to work in process if the cost method of the outside processing item is Average or Actual. If the outside processing item is standard costed, then the standard cost is used.

Oracle Fusion Cost Management also provides the ability for cost accountants to identify supplier operations while reviewing work order costs.

Note: For more information about planning, accounting and reviewing outside processing costs, refer to the Oracle Supply Chain Management Cloud Using Supply Chain Managerial Accounting guide.

Managing Demand and Supply Side Changes in Outside Processing: Explained

Demand side changes in outside processing refer to changes to a work order with supplier operations.

It can also be a result of reporting transactions at a count point operation prior to the supplier operation which impacts the associated purchasing and shipping documents. This can be any of the following:

  • Work order quantity change

  • Work order status change

  • Work order date change

  • Scrap at prior operation

  • Reversal at prior operation

In such cases, Supply Chain Orchestration propagates the work order changes to the associated purchase orders. Open shipments, if any, are canceled only on closure or cancellation of the work order.

Note: Failure to propagate work order-related changes results in logging of supplier operation exceptions in Manufacturing.

Supply side changes in outside processing refer to the changes to an outside processing purchase order in Purchasing. This can be any of the following:

  • PO status change

  • PO quantity change

  • PO requested date change

  • PO schedule split

Order Orchestration reports such change events and notifies Manufacturing. This results in the logging of supply operation exceptions. Users can review the exception details and directly navigate to the Review Supplier Operation Details page to take appropriate actions.

Note: For more information about demand and supply side changes for outside processing, refer to the Manage Production chapter of the Oracle Supply Chain Management Cloud Using Manufacturing guide.

Setting Up Outside Processing: Overview

The key setups required for using the outside processing feature are as follows:

  • Purchase Requisition Trigger plant parameter must be set up using the Manage Plant Parameters task in the Setup and Maintenance work area.

  • To derive the Purchase Order Charge Account, rules for the predefined outside processing mapping set must be defined using the Define Transaction Account Rules and Manage Mapping Sets tasks in the Setup and Maintenance work area.

  • Outside Processing Service Items must be created using the Create Item task in the Product Information Management work area.

  • Suppliers must be created using the Create Supplier task in the Suppliers work area.

  • Standard operations can be optionally created using the Manage Standard Operations task in the Work Definition work area.

  • Work definitions must be created using the Manage Work Definitions task in the Work Definition work area.

Setting Up Plant Parameters for Outside Processing: Explained

You must review and set up the Purchase Requisition Trigger plant parameter to determine when purchase requisitions are created for supplier operations of a work order for outside processing.

  • If set to Work Order Release, purchase requisitions are created for all supplier operations of a work order when the work order is released.

  • If set to Prior Operation Completion, purchase requisitions are created for a supplier operation of a work order when quantities are completed at the prior count point operation.

    If the supplier operation happens to be the first count point operation, then the purchase requisition for the supplier operation is created when the work order is released.

Note: For more information about setting up plant parameters for outside processing, refer to the Implementing Manufacturing chapter of the Oracle SCM Cloud Implementing Manufacturing and Supply Chain Materials Management guide.

Setting Up Mapping Sets for Outside Processing: Explained

You must define rules for the predefined outside processing mapping set. This enables you to get the purchase order charge account required for automatic creation of outside processing purchase orders.

You can define rules by using the Define Transaction Account Rules and Manage Mapping Sets tasks in the Setup and Maintenance work area.

The predefined outside processing mapping set is based on the following attributes:

  • Inventory Organization

  • Work Order Subtype

  • Purchasing Category Code

  • Item Number

Setting Up Items for Outside Processing: Explained

In addition to the finished goods and components, you must define an outside processing service item in Product Information Management to represent the value added service, such as plating.

The service item is used to account for the supplier contribution in the build process. The outside processing item is referenced in the purchasing and shipping documents, and is used to receive goods against an outside processing purchase order.

The outside processing service item also represents the outgoing partially completed assembly shipped to the manufacturing partner. For example, machined partially finished assemblies that are sent to the manufacturing partner for plating.

The service item also represents the incoming partially finished assembly received from the manufacturing partner. For example, plated partially finished assemblies received from the manufacturing partner. Receiving the outside processing item implicitly means receipt of the incoming partially finished assembly.

Note: For more information about setting up items for outside processing, refer to the Oracle Supply Chain Management Cloud Using Product Master Data Management guide.

Setting Up Suppliers for Outside Processing: Explained

In Oracle Fusion Manufacturing, it is required to define suppliers for the outside processing of an operation.

In the context of outside processing, a supplier refers to an external party that provides specialized manufacturing services, such as plating to manufacture a product.

Note: For more information about setting up suppliers for outside processing, refer to Manage Supplier Information chapter of the Oracle Procurement Cloud Using Procurement guide.

Setting Up Blanket Purchase Agreement for Outside Processing: Explained

In Oracle Fusion Purchasing, you must define an outside processing blanket agreement for the outside processing service item, to enable automatic creation and approval of purchase orders in outside processing.

In the absence of a blanket agreement, the purchase orders must be manually created from the requisition.

Note: For more information about blanket purchase agreements, refer to the Manage Supplier Agreements chapter of the Oracle Procurement Cloud Using Procurement guide.

Setting Up Standard Supplier Operations: Explained

In Oracle Fusion Manufacturing, you can optionally define and identify standard operations that are processed in-house, or by an external supplier. You can also maintain additional details for a standard supplier operation and reuse standard supplier operation across work definitions and work orders.

Note: For more information about setting up standard supplier operations, refer to the Design Production Process chapter of the Oracle Supply Chain Management Cloud Using Manufacturing guide.

Setting Up Work Definition With Supplier Operations: Explained

In Oracle Fusion Manufacturing, you must define work definitions with supplier operations to create standard work orders with supplier operations.

Oracle Fusion Manufacturing enables you to:

  • Define and manage work definitions with one or more supplier operations

  • Maintain additional details for a supplier operation

  • Define back to back or consecutive supplier operations

  • Manage work definitions with supplier operations using ADF Desktop Integration (ADFdi)

Note: For more information about setting up work definitions with supplier operations, refer to the Design Production Process chapter of the Oracle Supply Chain Management Cloud Using Manufacturing guide.

Implementing Outside Processing: Explained

The following points must be considered for implementing outside processing:

  • To model and track consumption of the Original Equipment Manufacturer (OEM) supplied components, associate components to a supplier operation with the supply type, such as Push (Operation), Pull (Assembly Pull).

  • To inspect goods after they are received from supplier and delivered to Oracle Fusion Manufacturing, create an in-house operation immediately after the supplier operation to record inspection results.