Professional Documents
Culture Documents
Conclusion 43
The solution supports components that are provided by the contract manufacturer, and it allows the OEM to supply
some or all of the components to the contract manufacturer.
As the OEM, you will be able to track and monitor the manufacturing process in the contract manufacturer’s facility in
real time. You can also track the inventories at the contract manufacturer’s facility that are owned by you – be it
components or the finished goods.
Contract Manufacturer
» Define each contract manufacturer and the contract manufacturer’s site or location that you are dealing with as a regular supplier
and supplier site within your (OEM) enterprise.
» Define each contract manufacturer’s site as an inventory organization/warehouse within your (OEM) enterprise. This will allow you
to monitor the manufacturing process that will be carried out in the contract manufacturer’s facility. You will also be able to track
the inventories you own, be it finished goods or the components that are lying in the contract manufacturer’s facility.
» In the contract manufacturing finished good item bill of material, include the components that are supplied by you and components
that will be supplied by the contract manufacturer. Set the ‘Supply Type’ of the components supplied by the contract manufacturer
as “Supplier” and set the ‘Supply Type’ of the components that will be supplied by you as “Push."
» Also, include the contract manufacturing service item as one of the component in the contact manufacturing finished good bill of
material.
Having reviewed how each entity is modeled, the next section will describe how these entities work together in the overall solution.
As you can see in the above graphic, the OEM will receive supply creation requests for a contract manufactured item from either a
customer sales order or a planning forecast. Once the supply creation request is received, the OEM will create a work order on the
contract manufacturing finished good item in the contract manufacturing org in order to monitor the manufacturing process in the
contract manufacturer’s facility. The contract manufacturing organization is a virtual organization in the OEM’s enterprise representing
the contract manufacturer to whom the manufacturing is outsourced.
The OEM will then send a purchase order for the contract manufacturing service item to the contract manufacturer as part of
outsourcing the manufacturing.
On receiving the PO for the contract manufacturing service item, the contract manufacturer understands that the purchase order is to
manufacture the contract manufacturing finished good item. The contract manufacturer understands this because they will have
mapped the contract manufacturing service item to the contract manufacturing finished good item within their enterprise, based on the
agreement with the OEM. This could be achieved either by item cross referencing or any other means within their enterprise which is
outside the purview of this solution.
Once the contract manufacturer completes the manufacturing, they will stock the contract manufacturing finished good item in their
premises and will notify the OEM of production completion. The OEM will then initiate a receipt transaction on the purchase order
placed against the contract manufacturer, receive the contract manufacturing service item into the contract manufacturing virtual
organization, and complete the tracking work order that was created in the contract manufacturing organization.
Since the contract manufacturing service item is one of the components in the bill of material for the contract manufacturing finished
good item, and the CM service item is set for back flush/Assembly Pull, the CM service item will be auto-consumed into the work order.
In addition, the inventory for the CM finished good item will be created in the contract manufacturing org and the CM service item
inventory will be decremented from the contract manufacturing org.
Business Process:
A contract manufacturing flow could be initiated either to fulfill a customer sales order or a planned order generated based on forecast.
Contract manufacturing flow fulfilling a customer sales order is called a Back-to-Back Contract Manufacturing flow and the one fulfilling
a planned order is called as Plan-to-Produce Contract Manufacturing flow.
» The back-to-back contract manufacturing flow starts with an order entry specialist entering a customer sales order in order
management for a back-to-back enabled contract manufactured item.
» Once the sales order is entered, order promising (also known as Global Order Promising) is invoked automatically to schedule the
sales order. Order promising will send the scheduling details like ship from warehouse and scheduled shipment dates to order
management based on the Available to Promise (ATP) rules, sourcing rules and any constraints defined. On the sales order line,
the scheduled ship from warehouse will correspond to the contract manufacturing organization. If the item on the sales order is a
back-to-back enabled item, then order management will send a supply request with the demand picture to Supply Chain
Orchestration (SCO).Order promising will send supply recommendations to Supply Chain Orchestration (SCO) based on the
supply that is pegged against the sales order.
» Once SCO receives the supply recommendations from GOP and the demand picture from order management, SCO identifies that
the supply requested is for a Back-to-Back enabled contract manufacturing item based on the item attributes and destination
organization/warehouse which represents a contract manufacturer. SCO creates a supply order and automatically assigns a pre
seeded business process that will execute the back-to-back contract manufacturing flow. SCO also sends supply order details to
order management. This enables the order manager to view the status of supply creation process in real time and take necessary
corrective actions in case of any exceptions.
» When the pre seeded business process assigned to the supply order is launched in SCO, SCO sends a request to Manufacturing
to create a work order for the contract manufacturing finished good item in the contract manufacturing organization. This work
order is used to track the progress of manufacturing at the contract manufacturer’s facility.
» Once the work order is created in manufacturing, SCO will update the work order details in SCO workbench and then send a
request to Inventory to reserve the work order against the customer sales order. After the reservation is created in Inventory, SCO
will record the reservation details in SCO workbench.
» SCO will then send a request to Purchasing for creating a purchase order on the contract manufacturer for the contract
manufacturing service item. SCO will also send the work order details in the purchase request so that the work order details are
stamped on the purchase order that will be sent to the contract manufacturer. This will enable the contract manufacturer to report
the production progress against the work order that is being created in the OEM’s enterprise for tracking the manufacturing
process.
» In continuation of the previous process flow in Figure 3 where SCO sent a request to Purchasing to create a purchase order (PO),
Purchasing will create a PO for the contract manufacturing service item and send the PO to the contract manufacturer. The PO will
also contain the work order details and the work definition as an attachment. The work definition will communicate the milestone
operations at which the contract manufacturer will need to report the production progress.
» The contract manufacturer will receive the PO for the contract manufacturing service item from the OEM and will create a work
order internally in their enterprise on the contract manufacturing finished good item based on the item cross referencing that they
have built in their enterprise. Please note that the tasks represented in the last swim lane of Contract Manufacturer marked in a red
dotted box are the tasks performed within the contract manufacturer’s facility or enterprise application. There is no mandate for the
contract manufacturer to use Oracle Cloud Applications for this solution to work.
» The contract manufacturer will start the manufacturing process and will report the production progress on every milestone
operation to the OEM. There are several ways that the contract manufacturer could report the production progress. They can
either directly invoke the Operation Transaction & Material Transaction web services that are being exposed to them as a public
web services by the OEM, pre-formatted spreadsheet or they can report it via email or phone.
» Manufacturing will receive the production progress from the contract manufacturer. If the production progress is reported using
public web services then, the tracking work order in manufacturing is directly updated with the progress. But, if the production
progress is received via other means, then the production supervisor will manually update the tracking work order with the
progress. Based on the work order updates, manufacturing will also record the consumption of any OEM-supplied components in
the manufacturing process thus accounting for the component inventory in the contract manufacturing org.
» Once the contract manufacturer completes the manufacturing process, the contract manufacturing finished good item will only be
stocked in the contract manufacturing premises. The item will be shipped in response to the OEMs request. The contract
manufacturer will send the production completion report to the OEM. Manufacturing will receive the production completion report
from the contract manufacturer.
» When manufacturing receives a production completion report, it will automatically invoke Receiving within Logistics to initiate a
receipt of the contract manufacturing service item against the purchase order created on the contract manufacturer. Once the
receipt is complete, the inventory for the contract manufacturing service item will be incremented in the contract manufacturing
organization. Then, manufacturing will complete the last operation of the tracking work order, and the contract manufacturing
finished good item inventory is created in the contract manufacturing organization. On completion of the last operation, the contract
manufacturing service item is consumed in the work order, and inventory of the same is decremented in the contract
manufacturing organization as the contract manufacturing service item is set to ‘Assembly Pull’ at the last operation in the work
definition.
» Once the tracking work order is complete, SCO will record the work order completion in SCO workbench and will notify order
management that the supply is now available for shipping. The supply availability will be recorded in Order Management.
» In continuation of the previous process flow in Figure 5 where SCO notifies Order Management about the supply availability, order
management will record the supply availability, and will then send a shipment request to logistics. Logistics will receive the
shipment request and transmits the same to the contract manufacturer.
» The contract manufacturer will receive the shipment request from the OEM, ship the goods physically to the OEM’s customer, and
the goods will be received by the customer. The contract manufacturer will then transmit the shipment confirmation to the OEM.
» The Logistics application in the OEM’s enterprise will record the shipment confirmation from the contract manufacturer, which in
turn will decrement the contract manufacturing finished good item inventory in the contract manufacturing organization. Logistics
will then send a shipment confirmation to the order management system.
» Order management will record the shipment confirmation and will notify SCO that shipment is complete. SCO will record the
shipment completions and will close the supply order.
» To enable costing of the contract manufacturing finished good item, all the inventory and manufacturing transactions are
transmitted to costing application. Costing will compute the final costs for the contract manufacturing finished good item.
» A Plan-to-Produce contract manufacturing flow starts when the planner releases the planned orders to SCO that were generated
based on the forecast.
» Once SCO receives the planned order requests from Planning Central, SCO identifies that the supply requested is for a non back-
to-back enabled contract manufacturing item based on the item attributes and destination org/warehouse which represents a
contract manufacturer. SCO creates a supply order and automatically assigns a pre seeded business to execute a Plan-to-
Prouduce contract manufacturing flow.
» When the pre seeded business process assigned to the supply order is launched in SCO, the process flow will be identical to what
we have discussed so far for the Back-to-Back Contract Manufacturing Process flow except for the reservation step that you see in
the dotted box in red in Figure 3. In a plan-to-produce contract manufacturing flow, the supply is not hard pegged to the planned
order demand and hence there is no reservation of supply done. Also, in Plan-to-Produce Contract Manufacturing flow, once the
manufacturing is complete, the contract manufacturer will stock the goods in their facility and the flow ends here as shown in
Figure 4. The flow mentioned in Figure 5 is not applicable for Plan-to-Produce Contract Manufacturing flow. Except for this, the
remainder of the flow will be identical to the back-to-back contract manufacturing flow.
Note: The setups steps shown above are the bare minimum steps required to run the contract manufacturing flow. For detailed setup
steps for setting up a supplier and supplier site, please refer to Procurement Cloud Implementation/User guides.
Navigate to Setup and Maintenance > Manage Locations / Manage Inventory Organization Locations
Note: The setups steps shown above are the bare minimum steps required to run the contract manufacturing flow. For detailed setup
steps for setting up an Inventory Organization Location, please refer to Inventory Management Cloud Implementation/User guides.
» Define the organization name and code. You may name the org with contract manufacturer’s name for easy identification.
» Set organization usage as ‘Inventory Management’
» Choose your Management Business Unit and Legal Entity
» Select the Inventory Organization Location that you defined for your contract manufacturer’s site as the Location Address
» Set it as an External organization
» Set the organization as a manufacturing plant
» Set ‘Organization represents a contract manufacturer’ to ‘Yes’
» Select the contract manufacturer and contract manufacturer’s sites that are modeled as a Supplier and supplier site
Note: The setups steps shown above are the bare minimum steps required to run the contract manufacturing flow. For detailed setup
steps for setting up an Inventory Organization, please refer to Inventory Management Cloud Implementation/User guides.
Note: The setups steps shown above are the bare minimum steps required to run the contract manufacturing flow. For detailed setup
steps for setting up subinventories and locators, please refer to Inventory Management Cloud Implementation/User guides.
Note: The setups steps shown above are the bare minimum steps required to run the contract manufacturing flow. For detailed setup
steps for setting up Plant Parameters, please refer to Manufacturing Cloud Implementation/User guides.
Note: The setups steps shown above are the bare minimum steps required to run the contract manufacturing flow. For detailed setup
steps for setting up Receiving Parameters, please refer to Procurement Cloud Implementation/User guides.
Note: For setting up the shipping parameters, please refer to Inventory Management Cloud Implementation/User guides.
» Search for an existing implementation project which has ‘Manufacturing and Supply Chain Materials Management’ offering
included. If not, create a new implementation project and include ‘Manufacturing and Supply Chain Materials Management’
offering.
» Open the implementation project and expand ‘Manufacturing and Supply Chain Materials Management’ offering.
» Then, expand ‘Define Cost Account’.
» Then expand ‘Define Subledger Accounting Rules.
» Then expand ‘Define Subledger Accounting Methods’.
» Go to ‘Manage Mapping Sets’ click on ‘Go to Task’ and set the scope to ‘Cost Management’.
» Now set the charge accounts for the following accounts:
Accrual Account – Organization
Figure 24. Define Charge Account for Invoice Price Variance Account - Organization
Note: The setups steps shown above are the bare minimum steps required to run the contract manufacturing flow. For detailed setup
steps for setting up Charge Accounts, please refer to Procurement Cloud Implementation/User guides.
Navigate to Product Management > Product Information Management > Create Item
Figure 28. Contract Manufacturing Finished Goods Item Definition – Manufacturing Attributes
Figure 29. Contract Manufacturing Finished Goods Item Definition – Sales and Order Management Attributes
CONTRACT MANUFACTURING: A GUIDE TO KEY APPLICATION SETUPS
20
Figure 30. Contract Manufacturing Finished Goods Item Definition – General Planning Attributes
Figure 31. Contract Manufacturing Finished Goods Item Definition – MPS MRP Planning Attributes
Navigate to Product Management > Product Information Management > Create Item
» While creating an item, select the Item template ‘Contract Manufacturing Service Component”. For easy identification of the service
item, enter the item number/description with the contract manufacturing finished goods item suffixing the contract manufacturer’s
name or initial. Under Manufacturing attribute group, set the ‘Build in WIP’ flag to ‘No’ and ‘Contract Manufacturing’ flag to ‘Yes’.
Set the ‘Supply Type’ to ‘Assembly Pull’.
» Under Sales and Order Management attribute group, set the ‘Back-to-Back Enabled’ flag to ‘No’.
» Under Planning attribute group, set ‘Make or Buy’ to ‘Buy’. In addition, set the ‘Planning Method’ to ‘Not Planned’.
» Under Purchasing attribute group, set ‘Purchased’ & ‘Purchasable’ flags to ‘Yes’. Enter a list price for the contract manufacturing
service item.
Figure 34. Contract Manufacturing Service Item Definition – Sales and Order Management Attributes
Figure 36. Contract Manufacturing Service Item Definition – MPS MRP Attributes
Navigate to Product Management > Product Information Management > Create Item
Figure 40. OEM Supplied Pre-Positioned Component Definition – Sales and Order Management Attributes
Figure 41. OEM Supplied Pre-Positioned Component Definition – General Planning Attributes
Navigate to Product Management > Product Information Management > Create Item
Figure 45. OEM Supplied Synchronized Component Definition – Sales and Order Management Attributes
Figure 47. OEM Supplied Synchronized Component Definition – MPS MRP Attributes
Navigate to Product Management > Product Information Management > Create Item
Figure 50. Contract Manufacturer Supplied Component Definition – Sales and Order Management Attributes
Figure 52. Contract Manufacturer Supplied Component Definition – MPS MRP Attributes
Navigate to Product Management > Product Information Management > Manage Items
Figure 54. Define Item Structure for Contract Manufacturing Finished Goods Item – Components & CM Service Item Included
Figure 56. Work Definition - Contract Manufacturing Service Item associate to Last Operation
Navigate to Manufacturing > Work Definition > Print Work Definition Report
Figure 61. Blanket Purchase Agreement (BPA) – PO Auto Creation & Approval Controls
Navigate to Value Chain Planning > Planning Central > Manage Planning Source Systems
Navigate to Value Chain Planning > Planning Central > Collect Planning Data
» Select all the required entities reference entities that need to be collected. At a minimum, following are the reference entities that
need to be collected.
Items
Item Structures
Work Definitions
Subinventories
Suppliers
» Submit the collections job and note the process number
» Navigate to the Scheduled Processes and search by the process number and verify the collections are run successfully.
» Verify the collected data by going to “Plan Inputs”
Navigate to Value Chain Planning > Planning Central > Maintain Supply Network Model
Navigate to Value Chain Planning > Order Promising > Manage ATP Rules
Navigate to Value Chain Planning > Order Promising/Planning Central > Manage Sourcing Rules
» Define a Local Sourcing Rule. Set the ‘Organization Assignment Type’ to ‘Local’ and under ‘Organization’ select the contract
manufacturing organization.
» Select the effective dates.
» Under Sources, select ‘Make At’ for ‘Type and select the contract manufacturing organization for ‘Organization’.
» Go to Manage Assignment Sets task
» Search for your default Assignment Set, select and click on Edit icon
» Assign the Sourcing Rule to the default Assignment Set Level in the Assignment Set.
» Select the desired Assignment Level and choose ‘Sourcing Type’ as Sourcing rule and assign the sourcing rule that you just
created.
» Define a Global Sourcing Rule for the contract manufacturing finished goods item. Set the ‘Organization Assignment Type’ to
‘Global’.
» Select the effective dates.
» Under Sources, select ‘Transfer From’ for ‘Type and select the contract manufacturing organization for ‘Organization’.
» Assign the Sourcing Rule to the default Assignment Set Level in the Assignment Set.
» Select the desired Assignment Level and choose ‘Sourcing Type’ as Sourcing rule and assign the sourcing rule that you just
created.
Navigate to Value Chain Planning > Order Promising/Planning Central > Manage Sourcing Rules
» Define a Local Sourcing Rule. Set the ‘Organization Assignment Type’ to ‘Local’ and under ‘Organization’ select the contract
manufacturing organization.
» Select the effective dates.
» Under Sources, select ‘Transfer From’ for ‘Type and select the desired OEM’s internal Organization for ‘Organization’.
» Assign the Sourcing Rule to the default Assignment Set Level in the Assignment Set.
» Select the desired Assignment Level and choose ‘Sourcing Type’ as Sourcing rule and assign the sourcing rule that you just
created.
» Please note that, for Planning Central to recommend a transfer order to transfer the OEM supplied synchronized components to
the contract manufactuer, you may have to define the Interorg parameters and transit times between your internal Organization
and the contract manufacturing organization. Please refer to Inventory Min-Max Release trainings for additional information.
Figure 72. Local Sourcing Rule Definition for OEM Supplied Synchronized Components
Conclusion
That concludes all the required setups for contract manufacturing solution. This solution will allow you as an Original Equipment
Manufacturer (OEM) to completely outsource your manufacturing process to a contract manufacturer. This solution supports
outsourcing of manufacturing jobs in a build to plan or build to order manufacturing strategies.
Apart from getting some of the components from the contract manufacturer, it also allows you to supply some or all the components to
the contract manufacturer.
You will also be able to track and monitor the manufacturing process in the contract manufacturer’s facility at real time.
It also enables you to track the inventories that you own at the contract manufacturer’s facility– be it components or the finished goods.
CONNECT W ITH US
blogs.oracle.com/oracle
Copyright © 2017, Oracle and/or its affiliates. All rights reserved. This document is provided for information purposes only, and the
contents hereof are subject to change without notice. This document is not warranted to be error-free, nor subject to any other
facebook.com/oracle warranties or conditions, whether expressed orally or implied in law, including implied warranties and conditions of merchantability or
fitness for a particular purpose. We specifically disclaim any liability with respect to this document, and no contractual obligations are
formed either directly or indirectly by this document. This document may not be reproduced or transmitted in any form or by any
twitter.com/oracle
means, electronic or mechanical, for any purpose, without our prior written permission.
oracle.com Oracle and Java are registered trademarks of Oracle and/or its affiliates. Other names may be trademarks of their respective owners.
Intel and Intel Xeon are trademarks or registered trademarks of Intel Corporation. All SPARC trademarks are used under license and
are trademarks or registered trademarks of SPARC International, Inc. AMD, Opteron, the AMD logo, and the AMD Opteron logo are
trademarks or registered trademarks of Advanced Micro Devices. UNIX is a registered trademark of The Open Group. 0417