Outside Labour Operation - An Alternative.

Dear Peter,



An alternative method to the outside operation or Shop Floor Control method
described would be to consider using a more Inventory based approach.



You could create a bill of material for the processed item which would have
2 components - your purchased item and an item representing the cost of the
labour. You could create a warehouse and location for your supplier and
transfer your unprocessed components to that warehouse keeping visibility of
items you have sent "offsite". When the processed items return you would
need to perform a PO receipt for the "labour charge" item, then a Receipt
with backflush of the processed item which would backlfush (reduce the
inventory) of the unprocessed item and the labour charge item.



The benefits are that

. your inventory accurately reflects the state of your inventory
(onsite and offsite)

. the cost of the labour charge item is managed just like a regular
item (piece pricing for the labour charge , purchasing quotes & contracts if
required , purchase schedules, standard costs vs actual cost for the labour
charge etc.)

o Purchasing dept can treat it like a piece price

o Accounts dept can treat it like a piece price

. if the supplier consumes ,damages or loses your product in the
process, you see a remainder at the location when the backflush is complete
which needs to be adjusted / claimed for

.

The only downside is that you have 2 transactions on receipt of the
Processed items back to your warehouse - the PO receipt of the component and
the Manufacturing receipt with backflush. Depending on volumes / value of
the transactions there are tools out there to allow you streamline this.



I've used this approach many times with clients with great effect but it
depends on your business and how you treat the labour charge (piece price
?). Happy to provide more details offline.

Kind regards,

Andrew



Andrew Guy

Cedar Support Ltd