Subcontracting

Subcontracting

Outsourcing has become a common practice with manufacturing companies. Subcontracting takes three basic forms depending on the type of product and the services provided by outside contractor suppliers. There can be a significant variation in processes depending on supplier involvement and ownership of material involved.

DAZ consultants take a systemic approach to build business processes, optimizing the use of people, process and technology for the most effective process flow in subcontracting operations.

Subcontractor Supplier Management is Key

A subcontractor's definition of responsibility and the events triggering supplier communications is important in establishing processes. Various tools and documents can be used including contracts, work orders, purchase orders, forecasts, ECOs, EDI and perhaps a supplier portal. Ownership and accountability of material is also an important factor in establishing a smooth process.

Subcontracting processes are grouped in one of three categories and any supplier could provide multiple services.

The basic process involves outsourcing a specific production operation to a supplier that has special equipment. Due to cost or skill set, it is not justified to produce internally. The supplier is paid for their value added services.

Companies may also choose to do turnkey outsource of an assembly where the supplier provides all the raw materials and production services and assembly is simply purchased.

The third approach is to outsource complete manufacturing operations to a manufacturing partner. Raw materials can be supplied by the OEM in chargeable subcontracting when it retains the ownership of material used on its books until it is converted into the finished product. The partner is paid for the services rendered.

A hybrid approach is buy or sell subcontracting where the raw material is sold to a manufacturing partner, who in turn sells the finished assembly back to OEM.

These options require different types of communication and documents to track material and ownership. The process of subcontracting integrated with planning and manufacturing suites is necessary to attain overall effective subcontracting processes.

Key Process Influencers

  • Multi-step Outside Operations
  • Turnkey Contracting
  • Material Ownership
  • Timing
  • Type of Manufacturing Partners

DAZ can provide a unique combination of proven project approaches, industry extensions, and related services. To discuss what we can do for your business, contact the DAZ Sales Team.