External manufacturing refers to all production operations to be performed outside the company’s own production plant by suppliers (also referred to as external manufacturers). These outside operations are characterized by the fact that the items delivered to the suppliers are processed by the supplier (wage labor). Together with the items to be processed, materials provided to vendor required for the further processing can also be delivered.

In addition, other materials can be introduced directly by the supplier. This also means that services provided by the supplier can occur at the start and end of the production process as well as anytime inbetween. It is also possible that the production of items involves multiple work steps or operations on these items by one or more different external manufacturers.

For work steps that occur frequently at a location other than the company’s own production site, an orderly, on-time dispatch of the provided items or semi-finished goods is required. For purposes of planning the due dates and utilizing of the company’s own resources, it may be important to have an overview of the operations (in the Routings application) to be completed externally and to monitor the status of an external manufacturer, as necessary.

The items are inventoried again after processing by the supplier and processed further, if required. With this receipt of goods, an assignment to the triggering production order for the monitoring of the planned due dates is very important.

This article provides an overview of the entire external manufacturing process. Because the process requires multiple applications from various frameworks, references are given in certain places to the detailed articles for these applications.

Definition of terms

External manufacturer

An external manufacturer may be a supplier or a company belonging to your own group. The required work steps are carried out off site and are ordered from the external manufacturer using an external manufacturing item. For the service to be rendered, the manufacturer is supplied with the external manufacturing item and any other necessary materials as required.

External operation

An outside operation is an operation that is carried out externally. This refers to all external work steps in the production process, for instance, by suppliers or other companies in your own group. The production item currently in production is delivered to the external manufacturer. This item is then referred to as an external manufacturing item. Other items may be added to the external manufacturing item as material provided to vendor. Due to the fact that the outside operation is not carried out on your own premises, no resources can be assigned to it.

External manufacturing item

An external manufacturing item comes from purchase orders and delivery documents for an external manufacturing process. The external manufacturing item is used to price and order the service to be rendered by the external manufacturer.

Material provided to vendor

Items that are delivered to an external manufacturer during the external manufacturing process. These materials are used in or integrated into the externally manufactured item by the external manufacturer.

Voucher references chain

In the voucher references chain for the production order, the associated purchase order is visible as a downstream voucher. Purchase order is the very first and primary voucher in the voucher references chain.

In the voucher references chain for the purchase order, the following preliminary and downstream vouchers are additionally visible as soon as they are connected to the order by means of a voucher reference:

Relevant applications

In order to map a complete external manufacturing process, various settings must be made in applications of different frameworks. In addition, special master data must be entered and actions called up. The following section describes these special features for each application.

Customizing application

As a precondition, external manufacturing must be marked as active under External manufacturing in the Production grouping of the Customizing application.

Selecting the Automatic shipment picking parameter changes immediately an outside operation status to Deliverable when a preceding internal operation is posted.

The order type entered in the Purchase order type field is used when a purchase order is generated, if no order type was entered in the Production order types application. This step occurs when the production order is dispatched.

In the Production issues trigger field, you can specify the moment when the external operation is to be commenced by an external manufacturer. Selectable options are:

• Delivery – the actual material issue of the material provided to vendor is to be posted with the delivery of the items (external manufacturing items and material provided to vendor) to the supplier.
• Processing by external manufacturer – a transfer posting to the transit warehouse entered in Customizing is to be made with the delivery of the items (external manufacturing items and material provided to vendor). The actual issue from the transit warehouse is then posted with the action or Processed by external manufacturer in the External manufacturing operation positing This posting can be made directly by the external manufacturer holding the corresponding authorization or by an internal employee. Because this action is an optional step, the posting is triggered at the latest when the receipt of goods of the processed items is posted, if the Processed by external manufacturer action was not used.
• Receipt from external manufacturer – a transfer posting to the transit warehouse entered in Customizing is to be made with the delivery of the items (external manufacturing items and material provided to vendor). The actual issue posting of the transit warehouse is then made when the receipt of goods of the processed goods is posted.

For an external manufacturing operation, the external manufacturer represents the resource. For a capacity examination, suppliers require specific information that is stored in the Start of work, Daily capacity, and Company calendar type fields under the Supplier data grouping. These fields are used if no entries have been made in the Supplier view of the Partners application.

The assignment of the voucher document template for the external manufacturing delivery or for the external manufacturing delivery slip is made under Documents → Voucher document templates in the Production grouping of the Customizing application. This is required if the external manufacturing item and, if applicable, the material provided to vendor are delivered to the external manufacturer.

Partners application and Suppliers application

For an external operation, the external manufacturer represents the resource with a corresponding resource capacity. For a capacity examination, suppliers require specific information. Both the Partners application (Base framework) and the Suppliers application (Purchasing view) have the Production data grouping in the Supplier view, containing the Start of work, Daily capacity, and Company calendar type fields.

Items application

The External manufacturing item item category is required for mapping the external manufacturing process. These items are non-inventoried and do not have any inventory management data. External manufacturing items assume multiple tasks in this process. They are used to map the purchased service of the external manufacturer and at the same time to map a portion currently in process onto the delivery documents without triggering inventory postings for this. External manufacturing items can have data for various uses; relevant fields can be found in the Base, Purchasing, Suppliers, and Financials views. For detailed description of the fields in the views, refer to the article Items.

To create an external manufacturing item, press the [New] button in the standard toolbar of the Items application and select the External manufacturing item category in the dialog window.

Operations application

To create an external operation, select the [External manufacturing operation] under [New operation] in the standard toolbar of the Operations application. The following is defined in an external operation:

• operation name
• description
• reference factor of an operation
• times required for the processing at the external manufacturer
• external manufacturer providing the service
• external manufacturing item used
• purchasing organization

Additional fields, such as the transport time, which is often important for external manufacturing processes, are available in the identification pane of the application.

The Return delivery after processing parameter is used to specify whether the item will be sent back to the company after processing or whether an additional external operation will follow, and thus the return of the item is not expected until later.

Routings application

In the Routings application, it is possible to assign external operations and other operations to a routing in a series of work steps using the line item editor. In so doing, it is irrelevant whether there are multiple external operations in succession.

Bills of resources application

Material line items assigned to an external operation in the bill of resources are interpreted as material provided to vendor.

During automatic generation of purchase orders, these line items are inserted as sub-items under the external manufacturing item and are sent as material provided to vendor during the course of the delivery. This means implicitly that bills of resources must always be used for external manufacturing scenarios in which material provided to vendor is a factor. Otherwise, the system does not know which materials are to be used for the internal manufacturing and which ones are to be sent as part of an external operation.

Purchase orders application

One or more purchase orders are generated automatically during the dispatching of a production order.

The external manufacturing item is added to a purchase order as a line item. If material provided to vendor for the external operation is entered in the bill of resources, these materials will be added to the line item as sub-items.

If quantities are to be changed, this must be carried out in the production order (in the Production orders application). The relevant changes in the production order are then updated in the purchase order. The relevant changes in the production order are then updated in the purchase order.

External manufacturing line items are moved from different purchase orders into one purchase order in the Find and add line items dialog window, and the existing voucher relationships are updated accordingly in the voucher references chain and orders.

External manufacturing line items with the same supplier, business partner, invoicing entity, invoice and delivery recipient and compatible currency can be added via the Find and add external manufacturing line items dialog window. In addition, these items are neither delivered nor invoiced. They are not assigned in the receipt of goods and supplier invoice, either.

If no other line items exist in the order from which the line item were taken, this order is then deleted.

The relationship between external manufacturing line items and the assigned materials provided to vendor is always retained. The line items are always received directly, i.e., there is no means of transferring the line items using the line item editor.

For information, refer to the article Purchase orders.

Receipts of goods application

The creation and processing of a receipt of goods for an external manufacturing item is no different than the creation of a receipt of goods from a purchase order that contains no external manufacturing items. The item for which the receipt of goods is posted is the external manufacturing item.

For receipts of goods of external manufacturing items, the assignment dialog for manual line item assignment and the order reference dialog provide the production order type and production order number as search criteria. For the entered and assigned line items from external manufacturing, the [Production orders] button in the toolbar for the list can be used to open a row within the line item list. This row indicates the production order to which the line item has been assigned.

When the receipt of goods is posted, a status update in the production order and a corresponding operation posting for the external operation takes place in the background. Postings of receipts of goods can influence the internal and external status of external operations in production orders. If the external status was not reported with the External manufacturing operation postings application, the external status is set automatically to Received in full.

If a receipt of goods is canceled, the Received in full status will be reset back to Received in part or Not received, if the total quantity was affected.

If Processing by external manufacturer or Receipt from external manufacturer was selected in the Production issues trigger field under External manufacturing in the Production grouping of Customizing, a transfer posting to the transit warehouse entered in Customizing is made upon the delivery of the items to the external manufacturer.

If the Processing by external manufacturer setting was chosen and the Processed by external manufacturer action is not executed in the External manufacturing operation postings application, a receipt of goods will trigger the issues posting of the primary material from the transit warehouse.

If the Receipt from external manufacturer setting was chosen, the receipt of goods of the external manufacturing item will always trigger the issues posting of the primary material from the transit warehouse.

External manufacturing operation postings application

Information on the processing status for external operations can be entered in the External manufacturing operation postings application. In addition, the delivery orders for the material provided to vendor and the external manufacturing item are generated from here via the [Select action] → [Ship to external manufacturer] action. When this action is selected, delivery orders are generated based on the quantity entered in the Reported quantity field and a voucher relationship with the relevant purchase order is established. In so doing, the quantities of any existing material provided to vendor are adjusted in proportion to the total quantity and, if necessary, rounded off.

The external and internal statuses of an external operation in a production order can be changed in this application. The external statuses reflect the situation at the external manufacturer. Optionally, the following can be monitored:

• whether the items to be processed have been received by the external manufacturer
• whether they have already been processed
• whether they are already on their way back or on their way to the next external manufacturer

The internal status contains information on the following:

• whether the items to be processed are already ready for dispatch
• whether they have already been dispatched to the external manufacturer
• whether they have already been received back

For a detailed description of the operations of this application and its fields, refer to the article External manufacturing operation postings.

Production orders application

When a production order is dispatched, external operations and material provided to vendor are also dispatched accordingly. A purchase order is generated for the External manufacturing item and Material provided to vendor line items in the background.

A bill of resources specifies the materials assigned to an external operation. For outside operation line items, the line item editor contains additional fields required for this processing:

• External manufacturing item – is automatically inserted into the purchase order when the dispatching occurs
• Supplier – the supplier that is to be used in the automatically generated purchase order
• Return delivery after processing – if this parameter is selected, the material is returned to the production plant after a specific external operation is completed. This basically means for the system that the subsequent operation is not an external operation.

The status of external operations is divided into an internal and external processing status. The internal status provides information on:

• readiness for delivery to the external manufacturer
• dispatch to the external manufacturer
• receipt of the processed item

The Return delivery after processing parameter is used to define whether or not another external operation will follow this outside operation. The external status provides information on:

• receipt of the object or the material provided to vendor to be processed
• progress of the processing
• return of the processed item to the company

The remaining fields of the line item editor correspond to those for a standard production order line item. For a detailed description of these fields, refer to the article Production orders.

Cockpit: Production orders/material line items application

In the Cockpit: Production orders view of the Cockpit: Production orders/material line items application, material line items can be restricted and searched for according to material provided to vendor.

In the Cockpit: Production orders/work line items view, work line items can be restricted and searched for according to external operations. The supplier of the assigned purchase order and the external manufacturing status are displayed in the result list.

Individual postings can be queried in the Cockpit: External manufacturing operation postings view.

Special features for identifier-managed material provided to vendor

Both the production item that is processed at the external manufacturer and the materials provided to vendor included in the delivery can be managed by identifier.

For production items, it is irrelevant to the external manufacturing process whether or not the production items are managed using identifiers.

For materials provided to vendor, however, a few special features must be observed and are described below.

The identifier where-used list in the external manufacturing process

Upon delivery of the materials provided to vendor, there is no a direct production issues posting of an identifier-managed material provided to vendor (with the reference to the production item). The identifier where-used list ends with the delivery to the supplier.

Therefore, the option must be taken to ask the supplier which identifiers of the items delivered to it have been used for the external manufacturing of a specific order. Likewise, some information is available on the side of the internal manufacturing. This includes the number of the delivery slip accompanying the items received by the supplier, the items and identifier numbers that the supplier has received, and of course the identity of the supplier. The supplier has information on which identifiers it has used, and in what quantities, for processing of the item of the current order/order quantity.
All of this information can be imported, including a plausibility check, as an identifier where-used list record.

For a detailed description on the import of the identifier where-used list, see the article Importing an identifier where-used list.

The following checks occur specifically for the external manufacturing:

• Was this item with these identifiers delivered to the supplier? (Here, it is not necessary that the delivery conforms to the order.)
• Does the specified delivery slip for the specified supplier exist?
  (If yes, the associated production order will be determined for this.)

Automatic reporting in the external manufacturing process

In order to post identifier-managed items, the identifier must be allocated. This occurs during the course of the delivery of the materials provided to vendor by means of the picking order (processed in the Picking orders application). However, if the delivery occurs in two steps, that is, by means of a transit warehouse from which the issue occurs on the receipt of goods from the external manufacturer, this allocation cannot take place. For this reason, in this case the production issue must occur manually by means of inventory postings with order reference. The status update of the production order occurs as usual.

Material provided to vendor managed by serial numbers

The delivery of the items to be processed and the material provided to vendor is made by means of delivery orders that are generated on their part from purchase orders. For this reason, all material provided to vendor line items are also transferred to the purchase order.
There is an exception for items managed by serial numbers that have been entered or dispatched in the production order with the quantity 1. In this special case, a serial number must not be entered in the production order. Otherwise, it will not be possible to generate the purchase order.