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Outsourced production: New ideas for Microsoft Dynamics 365 for Finance and Operations

by Evert Bos
Solution Architect, Sikich

Outsourcing is a widely used business process in the manufacturing industry. The main reasons are:

  • In the manufacturing facility, certain machines are not available because they would not be used enough to justify the high cost. Outsourced anodizing, heat treatment, black oxide treatment, many examples exist. It is cheaper to have these operations done permanently “outside”.
  • The manufacturing facility has the ability (machines/personnel) to do the work but the facility is too busy in a certain time period. This is capacity-driven outsourcing and it is also a very frequent phenomenon.

Outsourcing comes in two main flavors. Our focus in this article is only on one type of outsourcing, where my materials are sent to a contractor and he returns a finished part number. This can be a permanent arrangement, or it could be done ad-hoc.

Let us compare the two main flavors of outsourcing in the manufacturing industry from the perspective of D365FO:

Subcontracting an operation

Subcontracting as outsourced production

In the Production order routing one or more steps are outsourced operations, the other operations are in-house.

There is typically only one routing step, and it contains a Vendor resource group or resource.

The part number leaving my facility is the same part number that returns from the contractor.

Part number(s) leaving my facility is/are different then what comes back from the contractor.

This scenario is represented in the system by an “in-house” production order with an associated Purchase order for a service item.

This scenario is represented in the system by a vendor production order with an associated Purchase order for a service item.

Receiving consists of receiving the subcontracted PO.

Receiving consists of two steps: receiving the subcontracted PO and Reporting as Finished of the vendor production order (but not in this sequence!).

Purchasing deals with subcontract Purchase orders only.

Purchasing has to deal with Purchase orders and Production orders.

No need for a vendor warehouse or a vendor location in the system

Need to set a vendor warehouse and/or location where my materials are showing as on-hand at the contractor

The following will only discuss the subcontracting of the entire process, where my part numbers are sent to the contractor and he sends me a different part number back.

Standard features of D365FO for Subcontracting as outsourced production

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About Evert Bos

I am Evert J Bos, ERP consultant since 1986. I started in Europe with IMS7 (A Honeywell Bull Mainframe ERP system) and the BaaN ERP system. Since 1995 I have worked in the USA and since 2004 I have been working with Dynamics AX.  I work for Sikich and focus mostly on manufacturing companies that make complex, engineered products.

More about Evert Bos