Manufacturing may be in the midst of a surge in re-shoring work, but that hasn’t meant the end of outsourcing manufacturing. Whether it’s to provide flexible capacity, unique capabilities, or lower costs, outsourced manufacturing is here to stay. There has been a corresponding increase in the number of contract manufacturers—so much so that the U.S. Bureau of Labor Statistics has proposed to add a new industry classification to the NAICS codes effective in 2017. Along with a new NAICS code to keep the government statistics straight, contract manufacturering organizations (CMOs) need specific capabilities in their ERP systems.
1. Visibility
Contract manufacturers are one step further removed from the end-customers for their products than most manufacturers, so they need to ensure that they stay even closer to their customers. This requires strong collaborative forecasting capabilities to drive planning systems.
In addition, EDI or a supplier order portal can help to provide visibility faster than waiting for the phone to ring.
2. Consigned inventory
Contract manufacturers will have customers who want them to buy inventory on their behalf, while others prefer to own the inventory and consign it to the manufacturer. When inventory is consigned, it shouldn’t appear on the CMO’s balance sheet. Many ERP systems are not equipped to handle this, and they require manual workarounds or journal entries to value inventory correctly. ERP systems that include consigned inventory management have the ability to keep the ownership and value of the inventory separate, a necessity for contract manufacturing.
3. Lot and serial control
Contract manufacturers may have inventory on site that belongs to various customers. To avoid commingling materials, they need strong lot and serial control to ensure that each customer's inventory is only used to manufacture that customer’s products. Without lot and serial control, the contract manufacturer would have to use cumbersome manual procedures to ensure inventory segregation.
4. Quoting
Since the CMO probably doesn’t have products of its own, every order will require a custom quote. The quotation capability in their ERP system needs to be flexible enough to allow for quoting items that don’t yet have part numbers.
5. Same as except BOMs and routings
For the same reason, having “same as except” capabilities for bills of material and routings can be a major time saver. This ability allows you to copy an existing BOM or routing and then just make the changes necessary for the new item. That can save time and entry errors when you are adding a new item that is similar to an existing product, which may happen if your customer is introducing product line extensions or new models.
6. Revision control
Your customer may also want you to track revisions. They may require you to manufacture multiple revisions for spares or during phase out, phase for new models in parts of the product life cycle. If the items look very similar, it may save you time and effort if you can have multiple revisions of the same item in stock or WIP.
7. Engineering change notice (ECN) management
By the same token, managing ECNs is vital for contract manufacturers. Your customer may want ECNs implemented differently depending on the change. Some ECNs may require reworking materials in process while others may just be designated for all future orders. Tracking the requirements for phasing in ECNs in your ERP system is much easier and less error prone than managing it manually.
8. ATP and CTP
Available to promise (ATP) and capable to promise (CTP) functionality will save you a lot of time and effort on new orders. Since you don’t have perfect visibility into customer requirements, the ability to provide accurate delivery dates for unexpected orders is critical.
Contract manufacturing is here to stay. If this is your business, you need an ERP system that understands your needs and supports the requirements of this growing niche.
For more information on what to look for when evaluating ERP vendors and solutions, download our 7 Questions Electronics/High Tech Manufacturers Should Ask ERP Vendors white paper.
