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Multi-tier Collaborative Outsourcing Manufacturing Process with SAP Business Network

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Why Outsourcing Manufacturing Process

Outsourcing manufacturing processes offers several benefits that can enhance a company’s operational efficiency, cost-effectiveness, and overall competitiveness.

  1. Cost Savings:
  • Lower Labour Costs: Outsourcing to countries with lower labour costs can significantly reduce production expenses.
  • Reduced Overhead: Outsourcing eliminates the need for investment in expensive machinery, factory space, and other infrastructure.
  1. Focus on Core Competencies:
  • Companies can concentrate on their core business activities, such as research and development, marketing, and sales, while leaving the manufacturing to specialized firms.
  1. Access to Expertise and Technology:
  • Outsourcing partners often have specialized skills, advanced technologies, and industry expertise that can improve product quality and innovation.
  1. Scalability and Flexibility:
  • Companies can quickly scale production up or down in response to market demand without the constraints of fixed costs associated with owning and operating manufacturing facilities.
  1. Risk Mitigation:
  • Outsourcing can spread risk by diversifying the supply chain, reducing the impact of localized disruptions.
  • It also reduces the financial risk of investing in manufacturing facilities and technology that may become obsolete.
  1. Faster Time to Market:
  • Specialized manufacturers can often produce goods more quickly due to their expertise and streamlined processes, speeding up time-to-market for new products.
  1. Access to Global Markets:
  • Outsourcing can provide access to international markets, enabling companies to establish a global presence and reach customers more effectively.
  1. Regulatory Compliance:
  • Outsourcing partners, particularly those with experience in international markets, are often well-versed in regulatory requirements, helping companies comply with local laws and standards.
  1. Capital Conservation:
  • By avoiding the large capital expenditures associated with building and maintaining manufacturing facilities, companies can conserve capital for other strategic investments.
  1. Enhanced Supply Chain Management:
  • Outsourcing can lead to more efficient supply chain management by leveraging the expertise of specialized firms in logistics and supply chain optimization.

Multi-tier Collaborative Outsourcing Manufacturing Process with SAP Business Network

Multi-tier Collaborative Outsourcing Manufacturing on SAP Business Network involves coordinated efforts across multiple tiers of suppliers and manufacturers, enhancing visibility, communication, and efficiency throughout the supply chain. This approach leverages the integration of SAP Business Network with SAP S/4HANA to facilitate seamless collaboration and optimize the entire production process.

  • Provide CMO’s with near real time visibility into demand forecast.
  • Enable CMO’s to commit to buyer’s requested forecast quantities to manage constrained planning process.
  • Visibility for CMOs WIP (Work-in-progress) Inventory data, Component inventory visibility , drop shipment process between Component Supplier and CMO etc.
  • Management of PO Batch # Assignment for batch genealogy, Earlier visibility into batch quality and results
  • Enables contract manufacturers to report receipt and consumption of components with relevant batch information or Serial no information as relevant.

Processes Steps

Planning Process

  • The Planner of the Buying Organization perform the planning for FG to be produced according to the planning cycle/ horizon. During the planning process, considering the In-house plant capacity and available resources planner take decision on In-house production as well as forecast the allocated Quantities to be manufactured by the by the CMO (Contract Manufacturers) in SAP IBP.
  • The Contract Manufactures can provide the commitment to the Forecast depending on available capacity. They can also provide upside/downside capacity availability on SAP Business Network.
  • The Planner of the buying organization can re-plan and adjust the allocation as per CMOs forecast commitments and capacity availabilities in SAP IBP.

Multi-tier Purchase Order for Components Process

  • The BOM (Bill of Material) explosions for the forecast committed Contract Manufacturing plan / quantity of FG (Finished Goods) is performed and the Quantity of each components required is derived. Based on availability of Inventory of the components, the multi-tier purchase order for components is released to the component suppliers and copy is shared with CMO for transparency and visibility.
  • The Component supplier would be directly shipping the components to the CMO location / plant as mentioned in the multi-tier purchase order.
  • The CMO would receive the components against the Multi-tier Component Purchase order on Business Network and corresponding receiving document would be created automatically in Buyer’s SAP S4HANA by giving visibility component inventory present at the CMO premise.

Copy Supplier – Multi-tier Purchase Order in SAP S4HANA

Drop Ship the Components to Directly to CMO

Multi-tier PO Visibility to CMO as well as Components supplier on SAP Business Network

Components Receipt by CMO referencing to ASN created by Componenet Supplier

Component Inventory at CMO Premise on SAP Business Network

Sub-Contracting Purchase Order for FG production to CMO.

  • The buyer would create a Sub-Contract Purchase Order (Item Type L) for manufacturing of FG (Finished Good) product to the CMO. The Sub-contract order would have BOM details / components required for production / assembly of FG product.
  • The CMO would start production process steps / assembly or fabrication process steps. CMO can share the WIP – Work-in-progress Inventory details using Manufacturing visibility functionality of SAP Business Network
  • The CMO can report the Realtime Component consumption details during the FG production processes. The SAP business network support both real time ( WIP level) consumption posting as well as Backflush scenario ( all Component consumption posting at the end of FG production).
  • This process provides component consumption tracking , Component inventory & WIP inventory visibility and reconciliation of Components etc.
  • During this process, batch genealogy or Serial number tracking are maintained as necessary. For perishable items, the self-life can be tracked too.
  • The Delivery of FG with ASN process as well as digital invoice submission for CMO is supported on SAP Business Network.

Sub-contracting PO on SAP Business Network

Component Consumption Reporting by CMO

Integrations between S4HANA and SAP Business Network for Sub-Contracting Process

Integrating SAP S/4HANA with SAP Business Network for the subcontracting process using the Cloud Integration Gateway (CIG) involves below steps.

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