Co-manufacturing operation is the outsourcing of part of the manufacturing process or full production process of a product to a third-party. More specifically, contract manufacturing is an outsourcing of certain production activities that were previously performed by the manufacturer to a third-party. In simple words, co-manufacturing is a process when a manufacturer purchases a finished good or service from another manufacturer.

Co-manufacturing can include:

1. Full co-manufacturing - when manufacturer outsources the finished good for the full production cycle.
   •  When a company performs no production in house, a co-manufacturing order can be triggered from a purchase order without all of the set up required for more complex production processes. See Raise a co-manufacturing order from a purchase for instructions.
2. Partial co-manufacturing - when manufacturer outsources part of the production process of a finished good. 

Production BOMs can contain a single co-manufacturer to carry out part or all of the production process, or multiple co-manufacturers each handling different production operations. 

NOTE: Production BOMs and Production Orders are an advanced manufacturing feature. You will need to add the advanced manufacturing module to your DEAR base subscription to use this feature. See Getting Started with the Advanced Manufacturing module for more information. 

Prerequisites

• Getting Started with the Advanced Manufacturing module(required)
  • Advanced manufacturing module subscription is required.
• Production BOM (required)
• Managing Production Orders (recommended)
• Finished products - Primary products, coproducts, byproducts, joint production products (recommended if one production process produces multiple finished products)
• Your co-manufacturing provider will need to be added to DEAR as a supplier. 
• Permission:
  • Users will need the Inventory - Products & Families and Production Bill of Materialspermission to add/edit production BOM. 
  • Users will need the Production - Capacity Planner permission to add and edit work centres. 
  • Users will need the Settings - Your Company – General Settings to configure co-manufacturing procurement settings.
  • Users will need the Settings - Stock – Locations to add and edit co-manufacturing locations.
  • Users will need the Inventory - Products & Families setting to edit dropship settings for an SKU. 

Table of Contents

• Configure co-manufacturing procurement settings
  • Sell components - Buy finished products
  • Transfer components - Buy finished products
  • Purchase components - Buy finished products
• Add co-manufacturing locations
• Connect work center with co-manufacturing location
• Add a co-manufacturing operation to a production BOM
  • Add multiple co-manufacturers to a production BOM
• Components issue quantity (Manual or backflush method)
• Dropshipping
  • Dropship components to co-manufacturer
  • Dropship finished product from co-manufacturer to customer
• Execution of co-manufacturing operations
  • Co-manufacturing execution scenarios
    • 1: Transfer components - co-man operation is the last operation 
    • 2: Transfer components - co-man is the last operation, two finished products and one output
    • 3: Transfer components - co-man is the last operation with input
    • 4: Transfer components - co-man operation is in the middle and contains only service
    • 5: Transfer components - co-man operation is in the middle and contains service and output
    • 6: Transfer components - full co-manufacturing (only operation)
    • 7: Sell components - co-man operation is the last operation
    • 8: Sell components - full co-manufacturing (only operation)
    • 9. Purchase components - full co-manufacturing
    • 10. Purchase components - mixed co-manufacturing
    • 11. Transfer components - multiple co-manufacturers
    • 12. Purchase components - multiple co-manufacturers

Configure co-manufacturing procurement settings

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The first step is to configure your co-manufacturing procurement settings. This setting can be configured from the General Settings → Production Process Customisation page. This control how components are procured for the co-manufacturer and affects how costs of components are included in cost of the finished goods. 

This will be the default procurement setting applied to co-manufacturers, but you can set different procurement settings for each co-manufacturer, which will be shown later in this article.  It is best to select your procurement setting before continuing with the next co-manufacturing setup steps.

The procurement for co-manufacturing can be carried out in three ways:

• Sell components - Buy finished products: Select when components and semi-finished products listed in a co-manufacturing production operation are sold to co-manufacturer. The finished or semi-finished product is then bought from the co-manufacturer. In this procurement mode, co-manufacturing suppliers also require a customer entry which DEAR will generate automatically. The co-manufacturer is the owner of the components, not the merchant, and the cost of the finished product does not include the cost of the components.
• Transfer components - Buy finished products: Select when components are transferred to co-manufacturer for production of a finished product. The merchant is the owner of the components, not the co-manufacturer, and the cost of the finished product includes the cost of the components.

These two modes work well for a merchant who possesses his or her own warehouse and shopfloor. However, for merchants without these facilities these modes are unnecessarily complex. 

The third procurement mode is for when production is fully outsourced and components are not stored in the merchant’s location

• Purchase components - Buy finished products. Components can be drop-shipped from supplier to co-manufacturer but the merchant retains ownership of the components. The cost of the components is included in the cost of the finished products.

DEAR users can use different procurement modes with different suppliers. The procurement mode of a supplier can be changed from the default mode from the Work Centres page, Production → Production Settings → Work Centres.

If the co-manufacturer box is checked for a work centre, the procurement Mode can be changed. If the co-man box is not checked, this field will display N/A. Once a work centre is in use by one or more production BOMs the co-manufacturing procurement mode can no longer be changed.

Sell components - Buy finished products

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Buy/Sell co-manufacturing is a business practice where all components listed in co-manufacturing operations are sold to the co-manufacturer.  

• Type:Input cannot be added to a co-manufacturing operation of a production BOM. If a component produced in the previous operations should be sold as component in a co-manufacturing operation, the component should be listed as Finished Product in the non co-manufacturing operation.
• Sale Price tier must be selected for Buy/Sell co-manufacturing operations in a production BOM.

When a co-manufacturing operation is started, a sales order is automatically generated, the co-manufacturer is the Customer. Sales order is created in authorised status unless there is missing mandatory information (e.g. Sales Rep) in which case it will be created in draft status.

• The required components for the co-manufacturing operation are added to the sales order. Components sales prices are retrieved from price tiers in DEAR. The price tier for co-manfacturing components is set from the Production BOM of the finished product. 
• COGS for the product are calculated up until the point where the product is sold to the co-manufacturer. 

A purchase order for the finished or semi-finished product is automatically generated, the co-manufacturer is the Supplier. Any services are added to the purchase order as additional costs. 

• Received product’s cost base will contain full amounts mentioned on the purchase invoice. Any additional costs from manufacturing will be added as manual journals to the finished product/s sale and distributed accordingly to the finished product. 

NOTE: With this method, costs are calculated for the product at the point where it is sold to the manufacturer. For example, the manufacturer produces butter which is then sent to the co-manufacturer for packaging. All production costs will be assigned to the raw butter, and only the costs associated with packaging are then distributed to packaged butter. 

DEAR will complete the co-manufacturing operation automatically if all expected finished products and outputs have been received. If no other operations require completion in the production run, DEAR will complete the production run and calculate product’s cost base, distributing the amounts accumulated on WIP account.

• COGS are calculated based on what is spent and allocated to production of this product if this sold product was produced within previous operations. If the product is not produced in the previous operations, then based on purchase costs.
• The co-manufacturing operation can be completed when the stock is received. No Invoice authorisation is needed to complete co-manufacturing operation, but costs will be 0 until the invoice is authorised. Once the invoice has been authorised, the cost for finished product will be updated. If this finished product has already been sold, COGS for the finished product will be updated with the calculated production costs.

Transfer components - Buy finished products

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Transfer of components is a business practice where any components and inputs for a co-manufacturing production operation are transferred from manufacturer to the co-manufacturer. This mode is also suitable for transferring inputs/outputs of an operation from one co-manufacturer to another. 

When a co-manufacturing operation is started, an authorised transfer order is automatically generated to the co-manufacturing location. 

• The required components and inputs are added to the transfer order. Costs are recorded to In Transit account when components are sent, then moved to co-manufacturing inventory when components are received, then moved to WIP account when co-man operation is completed.
• If a component has Always Dropship, a purchase order will be created from the supplier of this product (set up in Product) to the co-manufacturing location. If a component has Optional Dropship enabled, the purchase order will be created only if there is no stock at the components location connected to shopfloor in logistics path. See Dropship components to co-manufacturer for more information. 

A purchase order for the finished or semi-finished product is automatically generated, the co-manufacturer is the Supplier. Any services are added to the purchase order as additional costs. 

• Received product's cost base will only contain amounts defined on the purchase invoice for services provided by the co-manufacturer. No component costs will be distributed at this moment.
• The co-manufacturing operation can be completed when the stock is received. No Invoice authorisation is needed to complete co-manufacturing operation, but costs will be 0 until the invoice is authorised. Once the invoice has been authorised, the cost for finished product will be updated. If this finished product has already been sold, COGS for the finished product will be updated with the calculated production costs.

Purchase components - Buy finished products

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Purchase of components is a business practice where any components for a co-manufacturing production operation are purchased by the merchant, but sent from the supplier directly to the co-manufacturer. This mode is also suitable for transferring inputs/outputs of an operation from one co-manufacturer to another.

NOTE: Supplier for each component should be configured in Product → Supplier before using this procurement mode. 

When a co-manufacturing operation is started, an authorised purchase order is automatically generated from the supplier to the co-manufacturing location. 

• The required components are added to the purchase order. Co-manufacturing can contain many components which should be purchased from different suppliers. In this case several purchase orders for components will be generated. 
  • Products are grouped into one purchase order if they have one common supplier. 
  • If products have several common suppliers, the supplier which is the common for the highest number of products is selected.
  • If products have several common suppliers, they are grouped by the supplier alphabetically. 
  • If no suppliers are configured for a component, an error will occur and no purchase order will be generated. 
• When Purchase Order for components is completed, the cost for components is not allocated to WIP account, although the stock is added to the co-manufacturing location. 

A purchase order for the finished product is automatically generated, the co-manufacturer is the supplier. Any services are added to the purchase order as additional costs. 

• All costs are allocated at the moment when the finished product is marked as received by the merchant. 
• When the purchase order for finished product is received and invoice is added, the cost is allocated via manual journal and the co-manufacturing operation is completed. 

Add co-manufacturing locations

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Locations can be added and specified as co-manufacturing locations from General Settings → Reference Books → Locations. This location type defines the external location where a co-manufacturing operation should be executed. 

As this type of location is a purely informational, to notify a user during a Production Run where components should be transferred for contract manufacturing, co-manufacturing locations have some special properties:

• Bins cannot be added to a co-manufacturing location.
• The Default, Allow Reorder Stock Level, and Shop Floor checkboxes are disabled for co-manufacturing locations.
• Co-manufacturing locations are not considered in any stock replenishment activities, e.g. Reordering (smart, reorder, backorder). 
• Co-manufacturing locations cannot be selected in any task that is not connected to co-manufacturing. 
  • When creating sale orders, purchase orders, transfer orders, assembly/disassembly orders, and production order (for top level production location), co-manufacturing will not be available.
  • When a purchase order, sales order or transfer order is generated by a co-manufacturing operation, the location will automatically be set to the co-manufacturing location.

Connect work centre with co-manufacturing location

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Work Centres define the area where a production operation takes place within the business (for example, a specific workshop, room or section of the shop floor). Work Centres are set up from the Settings of the Production module: Production → Settings → Work Centres. Here, you will specify if a work centre is a co-manufacturing location and where the required components should be delivered. 

1. Click the + button to add a new work centre. 
2. Enter a unique Work Centre Code. 
3. Check the box to show that the work centre is a co-manufacturing location. 
4. In the Name field, select your co-manufacturing provider. Your co-manufacturing provider will need to be added to DEAR as a supplierin order for it to be shown in the dropdown field. You will then be able to select your co-manufacturing provider and connect it to the work centre. 
   • If the Sell components - buy finished products procurement method is selected, this supplier will then be converted automatically into a customer to be used in Sales Order.
   • If the Transfer components - buy finished products procurement method is selected, the supplier will not be automatically converted to a customer (it is not necessary as no sales orders are created with this method). However, if procurement settings are later changed to Buy/Sell, you will need a customer with the exact name as the supplier, or you will receive an error during Production Order execution. You can do this by:
     • Manually creating a customer with the exact same name as the Supplier.
     • Adding a new work centre and connecting a supplier in Buy/Sell mode to create the customer automatically. 
     • Add a new supplier to an existing work centre in Buy/Sell mode to create the customer automatically.
5. Consumption Bin defines where components should be delivered to execute the production process. Select a co-manufacturing location from the dropdown menu. 
6. Co-manufacturing locations cannot specify an Output Bin, co-manufacturing outputs will be put away to the shop floor by default. It is possible to manually select any bins from any existing shop floor location when finished product output is received.
7. Save your changes.

Add a co-manufacturing operation to a production BOM

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When an operation is added to a product's Production BOM, the operation can be specified as Type:Co-manufacturing. A Work Centre for the operation must be selected from your co-manufacturing locations. Finished products can be dropshipped directly to the customer, see Dropship finished product from co-manufacturer to customer for more information. 

A Co-manufacturing operation can contain:

• Component: A component which is forwarded to the co-manufacturer for production of finished product.
• Input: A semi-finished product which is forwarded to the co-manufacturer for production of the finished product. The output of a previous production operation for the same Production BOM.
  • NOTE:Type:Input cannot be added to a co-manufacturing operation if procurement type is Buy/Sell. If a component produced in the previous operations should be sold as component in a co-manufacturing operation, the component should be listed as Finished Product in the non co-manufacturing operation.
    
• Output: An expected result of the operation which will be used in a later production operation for the same Production BOM. See Using Inputs and Outputs - Intermediate or semi-finished products for more information.
• Finished product: the expected from co-manufacturer result. Finished product can be Stock and Service product. It is recommended to only use Service product as Finished product when co-man operation is the last operation in the production process.
• Attachments
• Notes

NOTE: A co-manufacturing operation MUST contain an output or finished product. Even if the Production BOM is for a single finished product, this finished product must be explicitly defined in the co-manufacturing operation. 

Add multiple co-manufacturers to a production BOM

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In some production processes, multiple co-manufacturers take part in the same process, semi-finished products from one to another. Multiple co-manufacturers can be specified in a single production BOM so long as all co-manufacturers have one of either Transfer components - buy finished products or Purchase components - Buy finished products as their procurement mode. 

Input and Output products are used to indicate that a semi-finished product should pass from one co-manufacturer operation to another. The output product for one co-man operation can be the same as in the input product for the next or defined as a different quantity. This will allow the system to generate transfer orders and purchase orders for output products and record stock movements. Please see Scenario 11: Transfer components - and scenario 12: Purchase components for detailed information about how stock movements and documents are generated by these workflows. 

Co-manufacturing Components Movement Summary is a report to o track the movement of semi-finished products as they travel from one co-manufacturer to another, showing quantities and costs in and out of each co-manufacturing location. 

Components issue quantity (Manual or backflush method)

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Components for co-manufacturing can be issued manually or using backflush costing. This will affect the quantity of components used for the quantity of manufactured product. 

Using the manual method, all components listed as required for the co-manufacturing operation will be used for the output quantity. 

• E.g. 1000 bottles of juice are ordered from a co-manufacturer, required components are 100kg of apples, 50kg of bananas. The same quantity of components will be consumed whether the final number of bottles is 1100, or 900.

The backflushing method allows the issue of components during production based on the output quantity of the finished product. The finished product quantity is used to calculate the component quantities based proportionally on the bill of materials for one unit of finished product, plus any wastage specified in the BOM. 

• E.g. 10 tables are ordered from a co-manufacturer, requiring 40 table legs. 40 legs were sent to the co-manufacturer. The co-manufacturer partially completed the order, returning 5 tables and consuming 20 table legs. The unused 20 table legs would remain at the co-manufacturer location to be used in future production orders.

Backflushing method can be applied to entire production BOMs, components in one or more production operations, or single components. For some operations, it would make sense to backflush some components but not others. 

• E.g. 1000 bottles of juice are ordered from a co-manufacturer, required components are 100kg of apples, 50kg of bananas, and 1000 glass bottles. The same quantity of fruit will be consumed whether the final number of bottles is 1100, or 900, but the number of bottles will change according to the final quantity. In this example, backflush can be applied to the bottle component only. 

Backflushing can only be turned on at the production BOM, however, it is possible to edit whether it is applied to the whole BOM, to operations, or to components during the production run.

Please see Issue components based on production output quantity (Backflushing method) for more information. 

Dropshipping

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With DEAR co-manufacturing, it is possible to have components dropshipped directly from the supplier to the co-manufacturer and also have finished products dropshipped from the co-manufacturer to the customer. 

Dropship components to co-manufacturer

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Dropship of components supposes the scenario when components are purchased but delivered to the co-man location directly without delivery to shop floor or warehouse.

Dropship components to co-manufacturer can only take place if procurement mode setting is Sell components - Buy finished products or Purchase components - Buy finished products. 

• In sell components mode, the component ownership passes to the co-manufacturer. The cost of the components is not included in the cost of the finished products.
• In purchase components mode, the component ownership remains with the merchant. The cost of the components is included in the cost of the finished products.

In sell components mode, If a component has Always Dropship or Optional Dropship enabled (go to DEAR Inventory → Inventory → Products → [selected product] to change a component's dropship settings), it can be delivered directly to the co-manufacturer from the supplier. 

• Optional Drop Ship: A purchase order with drop ship will be created automatically only when there are no components available in warehouse, connected to the co-manufacturing location.
• Always Drop Ship: A dropship purchase order will be created automatically even if there are components available.

The dropship purchase order will be generated automatically when a co-manufacturing operation is started. If components are purchased from multiple suppliers, dropship purchase orders are generated for each supplier.

In purchase components mode, the co-manufacturer location is treated as a merchant location, and all components can be delivered regardless of dropship status as the purchase will be treated as a regular purchase order. If components are purchased from multiple suppliers, a purchase order is generated for each supplier.

Dropship finished product from co-manufacturer to customer

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Dropship of finished products supposes the scenario when products are delivered to the customer directly from co-manufacturer. Dropshipping of a co-manufactured finished product can be specified from that product's Production BOM (DEAR Inventory → Inventory → Products → [selected product] → Production BOM). The dropshipping option can only be enabled if the Production BOM product is specified as a finished product in the co-manufacturing operation. 

When this flag is enabled, the Dropship option on the General tab of the product page displays the read-only value Co-manufacturer Drop Ship. 

When a sales order is created for this product, and there are no available products in stock, the product will be marked as non-inventory in the sale and a production order generated for the product. 

When the co-manufacturing operation starts, a dropship purchase order is created for the co-manufacturer. This dropship purchase is connected to the sales order for the finished product. Once the invoice for this Drop Ship Purchase is Authorised, the co-manufacturing operation in the Production Run is considered completed.

Execution of co-manufacturing operations

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Starting a co-manufacturing operation of a production order or production run will automatically create a purchase order for any finished products or output of that operation. This can be a simple purchase, service purchase or dropship purchase depending on the finished products, outputs and components of the co-manufacturing operation. If the finished products or outputs of the co-manufacturing operation are service products, they will be added as additional charges to the purchase order or a service purchase will be generated (if no stock items are produced). The supplier of the purchase order will be the co-manufacturer that is connected to the work center where co-manufactuing operation will be executed. 

Purchase order will be created in authorised status, unless order approval is enabled in which case it will be created in draft status. The purchase order will appear in the Related Orders tab of the production order. By default, the Account for stock and services will be set to the Finished Goods account from the production order. 

NOTE: Purchase orders generated by co-manufacturing operations cannot be voided without first voiding the relevant co-manufacturing operation.

When stock is received:

• Finished products will be stocked at the location indicated on the Stock Received tab. (If Always Dropship is enabled for the finished product, finished product will be delivered directly to customer. See Dropshipping finished product from co-manufacturer to customer)
• Output products are received to the indicated location with costs for output posted to the WIP account specified for the production order.
• Service products are not stocked, but additional charges are moved to the WIP account specified for the as manual journals for production order operation from expense to WIP.
• Actual output of the production run operation will updated with actual quantities of received products.

DEAR will complete the co-manufacturing operation automatically if all expected finished products and outputs have been received. If no other operations require completion in the production run, DEAR will complete the production run and calculate the finished products' cost base, distributing the amounts that have accumulated on the WIP account.  

No Invoice authorisation is needed to complete co-manufacturing operation, but costs will be 0 until the invoice is authorised. Once the invoice has been authorised, the cost for finished product will be updated. If this finished product has already been sold, COGS for the finished product will be updated with the calculated production costs.

Co-manufacturing execution scenarios

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In this section we will provide some examples of different co-manufacturing scenarios in different modes (Transfer vs Buy/Sell). We will show in detail which actions are executed, the logical flow order, and how costs are allocated to the finished product. 

Transfer mode means that our company is the owner of any transferred components. As the co-manufacturer produces the product from our components, we set the transferred component type as Input or Component. 

In Buy/Sell mode, the ownership of the components is transferred to the co-manufacturer. The co-manufacturer produces the finished product from its own components. We set the sold component type as a finished product, which can be stocked and sold.

1: Transfer components: Partial co-manufacturing. Co-manufacturing operation finishes production process with one finished product.

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This scenario supposes that the finished product is received from the co-manufacturer, but that our company also takes part in its production and assumes some costs of production. 

Example: Our company produces packaged tea. The company produces unpacked tea, by acquiring the fresh tea leaves, drying the leaves, and sorting the leaves. The unpacked tea and packaging materials (components) is transferred to the co-manufacturer, who provides a packing service (output) and sends back the packed tea (finished product). Therefore, our company produces semi-finished tea and co-manufacturer produces the finished tea product. 

In this production process, we do not track intermediate inputs/outputs of the production operation (unpacked tea).

Pre-conditions:

• Co-man operation is the last operation in production BOM

Co-manufacturing operation contains:

• Finished product = product for which bom is created = Packaged Tea 1kg
• Output = service product = Packing Service
• Component = product = Packing materials

Execution steps:

1. The production order is created and released. 
2. The first and second (non-coman) operations are started, then completed. 
3. Costs for the resources and components of the non-coman operations are posted to the WIP account.
4. Co-man operation Start button is pressed. After pressing start the following events happen:
   • DEAR creates a purchase order for finished product and output.
   • DEAR creates a transfer order for the components required by the co-man operation, from the Shopfloor (production location) to the co-man location. 
5. The user then completes the transfer order:
   1. User presses Send button for transfer order: the components costs are moved to In Transit account since the components left the production location and are on the way to the co-manufacturer. 
   2. User presses Complete button for transfer order when they arrive at the co-man location: the components costs are moved to Inventory account and the components are listed in stock at co-man location.
6. User then completes the purchase order:
   1. DEAR creates the purchase order in Authorised status (or Need Approve if this is set in General Settings for purchase orders). The purchase order contains:
      • Finished product with 0 price (payment is for the service - packing tea - not the product, and the product is the result of the service) is a purchase order line because this product is what we expect to receive from the co-manufacturer. The user can change the price on the purchase invoice if needed.
      • Output service product is an additional costs line because this is the service provided by the co-manufacturer to complete the finished product. The price is taken from the service product's price details. The Price Tier for the service product is specified in the finished product production BOM. 
   2. The purchase invoice is not yet authorised. The invoice is pre-filled with data copied from the purchase order:
      • Finished product with 0 price in the order grid (payment is for the service - packing tea - not the product, and the product is the result of the service). The user can change the price if nneded. 
      • Output service product is an additional costs line.
      • IMPORTANT: The Account field will be the Finished good account specified in the production order. This will allocate the costs of the co-manufacturing operation to the finished product. If the account is changed manually to any other account, the costs will not be allocated to the finished products. 
   3. User authorises the purchase invoice. This records the costs to the WIP account.
   4. When user authorises stock received, DEAR  creates and authorises a manual journal to the purchase order to allocate the costs accumulated on WIP account to the finished product.
      • Costs from WIP account (resources + components of non-coman operations, costs of components transferred to co-manufacturer, and costs of service output) are allocated to the finished product.
7. This completes the co-manufacturing operation.
   • Components are consumed from the co-manufacturing location.
8. DEAR fills and completes the Output tab of the production order. This completes the production order.

2: Transfer components: Partial co-manufacturing. Co-manufacturing operation finishes production process with several finished products. 

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This scenario supposes that we receive two finished products from the co-manufacturer, but that our company also takes part in its production and assumes some costs of production. When multiple finished products are manufactured, costs must be allocated between the finished products. 

Example: Our company produces packaged tea. The company produces unpacked tea, by acquiring the fresh tea leaves, drying the leaves, and sorting the leaves. The unpacked tea and packaging materials (components) is transferred to the co-manufacturer, who provides a packing service (output) and sends back two sizes of packed tea (finished products). Therefore, our company produces semi-finished tea and co-man produces finished tea product. 

In this production process, we do not track intermediate inputs/outputs of the production operation (unpacked tea).

Pre-conditions:

• Co-man operation is the last operation in production BOM

Co-manufacturing operation contains:

• Finished product = product for which bom is created = Packaged Tea 1kg
• Finished product = co-product produced by co-man = Packaged Tea 500g
• Output = service product = Packing Service
• Component = product =  Packaging materials

Execution steps:

1. The production order is created and released. 
2. The first and second (non-coman) operations are started, then completed. 
3. Costs for the resources and components of the non-coman operations are posted to the WIP account.
4. Co-man operation Start button is pressed. After pressing start the following events happen:
   • DEAR creates a purchase order for finished products and output.
   • DEAR creates a transfer order for the components required by the co-man operation, from the Shopfloor (production location) to the co-man location. 
5. The user then completes the transfer order:
   1. User presses Send button for transfer order: the components costs are moved to In Transit account since the components left the production location and are on the way to the co-manufacturer. 
   2. User presses Complete button for transfer order when they arrive at the co-man location: the components costs are moved to Inventory account and the components are listed in stock at co-man location.
6. User then completes the purchase order:
   1. DEAR creates the purchase order in Authorised status (or Need Approve if this is set in General Settings for purchase orders). The purchase order contains:
      • Finished product 1 with 0 price (payment is for the service - packing tea - not the product, and the product is the result of the service) is a purchase order line because this product is what we expect to receive from the co-manufacturer. The user can change the price on the purchase invoice if needed. 
      • Finished product 2 with 0 price is a purchase order line because this product is what we expect to receive from the co-manufacturer. The user can change the price on the purchase invoice if needed.
        
      • Output service product is an additional costs line because this is the service provided by the co-manufacturer to complete the finished product. The price is taken from the service product's price details. The Price Tier for the service product is specified in the finished product production BOM. 
   2. The purchase invoice is not yet authorised. The invoice is pre-filled with data copied from the purchase order:
      • Finished product 1 with 0 price in the order grid, the user can change the price if needed.
      • Finished product 2 with 0 price in the order grid, the user can change the price if needed. 
      • Output service product is an additional costs line.
      • IMPORTANT: The Account field will be the Finished good account specified in the production order. This will allocate the costs of the co-manufacturing operation to the finished product. If the account is changed manually to any other account, the costs will not be allocated to the finished products. 
   3. User authorises the purchase invoice.  This records the costs to the WIP account.
   4. When user authorises stock received, DEAR  creates and authorises a manual journal to the purchase order to allocate the costs accumulated on WIP account to the finished product.
      • Costs from WIP account (resources + components of non-coman operations, costs of components transferred to co-manufacturer), are allocated to finished product 1 and finished product 2 according to cost allocation type specified in the production BOM.
      • Costs of service output is allocated to the finished products in proportion with their costs.
        • If price of finished product 1 line = price of finished product 2 line, the costs of the service output will be allocated evenly. 
        • If the price of finished product 1 line is 30 and price of finished product 2 line is 10, 75% of the costs of service output will be allocated to finished product 1, 25% to finished product 2. 
        • NOTE: This allocation is split proportionally based on order line price, not SKU price. 
   5. This completes the co-manufacturing operation.
      • Components are consumed from the co-manufacturing location.
   6. DEAR fills and completes the Output tab of the production order. This completes the production order.

The CORE difference from the previous scenario:

• The production BOM in this scenario is for two finished products or co-products. Production costs can be allocated between co-products either according to sales value or net realisable value. This is specified in the production BOM. See Finished products - cost calculations for more information on how this works.
• The costs accumulated on the WIP account during production are allocated to the finished products (Packaged tea 1kg and packaged tea 500g) according to the allocation type specified in the production BOM: sales value or NRV.

3: Transfer components: Partial co-manufacturing. Co-manufacturing operation finishes production process with one finished product. Semi-finished products are transferred to the co-manufacturer. 

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This scenario supposes that the finished product is received from the co-manufacturer, but that our company also takes part in its production and assumes some costs of production. In this scenario our company defines the semi-finished product sent to the co-manufacturer. 

Semi-finished products are products at an intermediate stage of production. They can be defined as the input or output of a production operation. Including intermediate entries can improve accuracy and transparency when costing and reporting yield and wastage.

Example: Our company produces packaged tea. The company produces unpacked tea (a semi-finished output), by acquiring the fresh tea leaves, drying the leaves, and sorting the leaves. The unpacked tea is transferred to the co-manufacturer (a semi-finished input), who provides a packing service (output) and sends back the packed tea (finished product). Therefore, our company produces semi-finished tea and co-man produces finished tea product.

Pre-conditions:

• Co-man operation is the last operation in production BOM

Co-manufacturing operation contains:

• Finished product = product for which bom is created = Packaged Tea 1kg
• Output = service product = Packing Service
• Input = product produced in previous operations (unpacked tea)

Execution steps:

1. The production order is created and released. 
2. The first and second (non-coman) operations are started, then completed. This produces an output of unpacked tea (semi-finished product). This will then be used as an input in the co-manufacturing operation.
   
3. Costs for the resources and components of the non-coman operations are posted to the WIP account.
4. Co-man operation Start button is pressed. After pressing start the following events happen:
   • DEAR creates a purchase order for finished product and output.
   • DEAR creates a transfer order for the components (in this case, the semi-finished output/input product) required by the co-man operation, from the Shopfloor (production location) to the co-man location.
5. The user then completes the transfer order:
   1. User presses Send button for transfer order. The transfer order contains the input (semi-finished product), but doesn't create any transactions since input is a "virtual" type of product which is not stocked and doesn't have costs (all input costs are accumulated in WIP account). Thus, input doesn't have costs.
6. User then completes the purchase order:
   1. DEAR creates the purchase order in Authorised status (or Need Approve if this is set in General Settings for purchase orders). The purchase order contains:
      • Finished product with 0 price (payment is for the service - packing tea - not the product, and the product is the result of the service) is a purchase order line because this product is what we expect to receive from the co-manufacturer. The user can change the price on the purchase invoice if needed.
      • Output service product is an additional costs line because this is the service provided by the co-manufacturer to complete the finished product. The price is taken from the service product's price details. The Price Tier for the service product is specified in the finished product production BOM. 
   2. The purchase invoice is not yet authorised. The invoice is pre-filled with data copied from the purchase order:
      • Finished product with 0 price in the order grid, the user can change the price if needed. 
      • Output service product is an additional costs line.
      • IMPORTANT: The Account field will be the Finished good account specified in the production order. This will allocate the costs of the co-manufacturing operation to the finished product. If the account is changed manually to any other account, the costs will not be allocated to the finished products. 
   3. User authorises the purchase invoice. This records the costs to the WIP account. 
   4. When user authorises stock received, DEAR creates and authorises a manual journal to the purchase order to allocate the costs accumulated on WIP account to the finished product.
      • Costs from WIP account (resources + components of non-coman operations and costs of service output) are allocated to the finished product. 
7. This completes the co-manufacturing operation. 
8. DEAR fills and completes the Output tab of the production order. This completes the production order.

When invoice is authorised, the costs are recorded. When the Receive is authorised, the manual journal to allocate the costs accumulated on WIP account are posted to finished product and co-man operation is completed.

4: Transfer components: Partial co-manufacturing. Co-manufacturing operation is in the middle of the production process, no finished product is produced in co-manufacturing process. 

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This scenario supposes that an intermediate operation is outsourced and a completed service is expected. Our company also takes part in the production and assumes some costs. 

Example: Our company produces packaged citrus tea. The company acquires and sorts the fresh leaves. The fresh leaves with citrus peel (components) are transferred to the co-manufacturer, who provides a drying service (output) and sends back the unpacked tea. The company then packs the tea to finish the production process. 

In this production process, we do not track intermediate inputs/outputs of the production operation (fresh leaves/dry leaves). 

Pre-conditions:

• Co-man operation is NOT the last operation in production BOM

Co-manufacturing operation contains:

• Component = product = Citrus peel
• Output = service product = Drying Service

Execution steps:

1. The production order is created and released. 
2. The first and second (non-coman) operations are started, then completed.
3. Costs for the resources and components of the non-coman operations are posted to the WIP account.
4. Co-man operation Start button is pressed. After pressing start the following events happen:
   • DEAR creates a service purchase order for the output service product.
   • DEAR creates a transfer order for the components required by the co-man operation, from the Shopfloor (production location) to the co-man location. 
5. The user then completes the transfer order:
   1. User presses Send button for transfer order: the components costs are moved to In Transit account since the components left the production location and are on the way to the co-manufacturer. 
   2. User presses Complete button for transfer order when they arrive at the co-man location: the components costs are moved to Inventory account and the components are listed in stock at co-man location.
6. User then completes the service purchase order:
   1. DEAR creates the service purchase order in Authorised status (or Need Approve if this is set in General Settings for purchase orders). The purchase order contains:
      • Output service product is an additional costs line because this is the service provided by the co-manufacturer. The price is taken from the service product's price details. The Price Tier for the service product is specified in the finished product production BOM. 
   2. User authorises the purchase invoice.  This records the costs to the WIP account.
   3. This is a service purchase so no stock is received. 
7. This completes the co-manufacturing operation.
   • Components are consumed from the co-manufacturing location.
8. When all further operations are completed, Output tab is completed and the costs accumulated in the WIP account are allocated to the finished product and the production order is completed. 
   • Costs from WIP account (resources + components of non-coman operations and costs of service output) are allocated to the finished product.

5: Transfer components: Partial co-manufacturing. Co-manufacturing operation is in the middle of the production process, semi-finished product is produced in co-manufacturing process.

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This scenario supposes that an intermediate operation is outsourced and a completed service is expected. The company also defines the product output of the co-manufacturing operation, but this is not the finished product. Our company also takes part in the production and assumes some costs. 

Example: Our company produces packaged citrus tea. The company acquires and sorts the fresh leaves. The fresh leaves with citrus peel (components) are transferred to the co-manufacturer, who provides a drying service (output) and sends back the dry leaves (semi-finished output). The company then packs the tea to finish the production process. 

In this production process, we do track intermediate outputs of the co-manufacturing operation (dry leaves). 

Pre-conditions:

• Co-man operation is NOT the last operation in production BOM

Co-manufacturing operation contains:

• Component = product = Citrus peel
• Output = service product = Drying Service
• Output = semi-finished product = Dry leaves

Execution steps:

1. The production order is created and released. 
2. The first and second (non-coman) operations are started, then completed.
3. Costs for the resources and components of the non-coman operations are posted to the WIP account.
4. Co-man operation Start button is pressed. After pressing start the following events happen:
   • DEAR creates a purchase order for the output service product.
   • DEAR creates a transfer order for the components required by the co-man operation, from the Shopfloor (production location) to the co-man location. 
5. The user then completes the transfer order:
   1. User presses Send button for transfer order: the components costs are moved to In Transit account since the components left the production location and are on the way to the co-manufacturer. 
   2. User presses Complete button for transfer order when they arrive at the co-man location: the components costs are moved to Inventory account and the components are listed in stock at co-man location.
6. User then completes the purchase order:
   1. DEAR creates the purchase order in Authorised status (or Need Approve if this is set in General Settings for purchase orders). The purchase order contains:
      • Output semi-finished product with 0 price (payment is for the service not the product, and the product is the result of the service) is a purchase order line because this product is what we expect to receive from the co-manufacturer. The user can change the price on the purchase invoice if needed.
        
      • Output service product is an additional costs line because this is the service provided by the co-manufacturer. The price is taken from the service product's price details. The Price Tier for the service product is specified in the finished product production BOM. 
   2. The purchase invoice is not yet authorised. The invoice is pre-filled with data copied from the purchase order:
      • Output semi-finished product with 0 price. The user can change the price on the purchase invoice if needed.
      • Output service product is an additional costs line.
      • IMPORTANT: The Account field will be the Finished good account specified in the production order. This will allocate the costs of the co-manufacturing operation to the finished product. If the account is changed manually to any other account, the costs will not be allocated to the finished products. 
   3. User authorises the purchase invoice. This records the costs to the WIP account.
   4. When user authorises stock received, co-man costs will be posted to the WIP account.
      
7. This completes the co-manufacturing operation.
   • Components are consumed from the co-manufacturing location.
   • The output product of the co-manufacturing operation (dried leaves) can now be specified as an input in the next operations. This way, the co-man has identification of expected product and the further operations use this product.
8. When all further operations are completed, the costs accumulated in the WIP account are allocated to the finished product.
   

6: Transfer components: Full co-manufacturing.

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This scenario supposes that the finished product is received from the co-manufacturer and our company does not take part in the production process. 

Example: Our company produces packaged tea. The company buys and sends the unpacked tea (components) to the co-manufacturer, who provides a packing service (output) and sends back the packed tea (finished product). Therefore, the co-manufacturer carries out the only production operation. 

Pre-conditions:

• Co-man operation is the only operation in production BOM

Co-manufacturing operation contains:

• Finished product = product for which bom is created = Packaged Tea 1kg
• Output = service product = Packing Service
• Component = product = Unpacked tea

Execution steps:

1. The production order is created and released. The co-manufacturing operation is the only operation. 
2. Co-man operation Start button is pressed. After pressing start the following events happen:
   • DEAR creates a purchase order for finished product and output.
   • DEAR creates a transfer order for the components required by the co-man operation, from the Shopfloor (production location) to the co-man location. 
3. The user then completes the transfer order:
   1. User presses Send button for transfer order: the components costs are moved to In Transit account since the components left the production location and are on the way to the co-manufacturer. 
   2. User presses Complete button for transfer order when they arrive at the co-man location: the components costs are moved to Inventory account and the components are listed in stock at co-man location.
4. User then completes the purchase order:
   1. DEAR creates the purchase order in Authorised status (or Need Approve if this is set in General Settings for purchase orders). The purchase order contains:
      • Finished product with 0 price (payment is for the service - packing tea - not the product, and the product is the result of the service) is a purchase order line because this product is what we expect to receive from the co-manufacturer. The user can change the price on the purchase invoice if needed.
        
      • Output service product is an additional costs line because this is the service provided by the co-manufacturer to complete the finished product. The price is taken from the service product's price details. The Price Tier for the service product is specified in the finished product production BOM. 
   2. The purchase invoice is not yet authorised. The invoice is pre-filled with data copied from the purchase order:
      • Finished product with 0 price in the order grid, the user can change the price if needed. 
      • Output service product is an additional costs line.
      • IMPORTANT: The Account field will be the Finished good account specified in the production order. This will allocate the costs of the co-manufacturing operation to the finished product. If the account is changed manually to any other account, the costs will not be allocated to the finished products. 
   3. User authorises the purchase invoice. This records the costs to the WIP account. 
      
   4. When user authorises stock received, DEAR  creates and authorises a manual journal to the purchase order to allocate the costs accumulated on WIP account to the finished product.
      • Costs from WIP account (costs of components transferred to co-manufacturer, and costs of service output) are allocated to the finished product.
5. This completes the co-manufacturing operation.
   • Components are consumed from the co-manufacturing location.
6. DEAR fills and completes the Output tab of the production order. This completes the production order.

7: Sell components: Partial co-manufacturing. Co-manufacturing operation finishes the production process with one finished product. 

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This scenario supposes that the finished product is received from the co-manufacturer, but that our company also takes part in its production and assumes some costs of production. 

NOTE: The difference in Buy/Sell mode flow from Transfer mode flow is in the transactions connected with selling components to co-man. Buy/sell mode requires at least one finished product to be defined before the co-manufacturing operation. This finished product is used as a sold component in the co-man operation.

Example: Our company produces packaged tea. The company produces unpacked tea, by acquiring the fresh tea leaves, drying the leaves, and sorting the leaves. The unpacked tea and packaging materials (components) are sold to the co-manufacturer, who provides a packing service (output) and sends back the packed tea (finished product). Therefore, our company produces semi-finished tea and co-manufacturer produces the finished tea product. 

In this production process, we do not track intermediate inputs/outputs of the production operation (unpacked tea).

Pre-conditions:

• Co-man operation is the last operation in production BOM

Co-manufacturing operation contains:

• Finished product = product for which bom is created = Packaged Tea 1kg
• Output = service product = Packing Service
• Component sold = finished product = Packing Materials

Execution steps:

1. The production order is created and released. 
2. The first and second (non-coman) operations are started, then completed. These produce a finished product (unpacked tea) which will then be sold to the co-manufacturer.
3. Costs for the resources and components of the non-coman operations are posted to the WIP account.
4. Co-man operation Start button is pressed. After pressing start the following events happen:
   • DEAR creates a purchase order for finished product and output.
   • DEAR creates a sales order for the components required by the co-man operation. 
5. The user then completes the sales order:
   1. Sales order is created for the Warehouse location specified in the logistics path, but the components can be picked from any of the company's locations.
   2. The co-manufacturer is the customer.
   3. The price tier for the sold components is selected in the Production BOM.
      
   4. The user completes the pick/pack/ship and sales invoice for the sale order. DEAR calculates the COGS transaction for the costs of these products when Ship is authorised. 
   5. IMPORTANT: Stock is consumed at the moment of Sales Order fulfillment for the components listed in Sales Order.
6. User then completes the purchase order (this is the same as for transfer mode):
   1. DEAR creates the purchase order in Authorised status (or Need Approve if this is set in General Settings for purchase orders). The purchase order contains:
      • Finished product with 0 price (payment is for the service - packing tea - not the product, and the product is the result of the service) is a purchase order line because this product is what we expect to receive from the co-manufacturer. The user can change the price on the purchase invoice if needed.
        
      • Output service product is an additional costs line because this is the service provided by the co-manufacturer to complete the finished product. The price is taken from the service product's price details. The Price Tier for the service product is specified in the finished product production BOM. 
   2. The purchase invoice is not yet authorised. The invoice is pre-filled with data copied from the purchase order:
      • Finished product with 0 price in the order grid, the user can change the price if needed. 
      • Output service product is an additional costs line.
      • IMPORTANT: The Account field will be the Finished good account specified in the production order. This will allocate the costs of the co-manufacturing operation to the finished product. If the account is changed manually to any other account, the costs will not be allocated to the finished products. 
   3. User authorises the purchase invoice. This records the costs to the WIP account.
   4. When user authorises stock received, DEAR fills and completes the Output tab of the production order.
      • DEAR creates and authorises a manual journal to the purchase order to allocate the output service product cost to the finished product.
      • Costs from the WIP account (resources + components) from production order are propagated for the finished product sold and produced outside the co-man operation.
7. This completes the co-manufacturing operation.
8. This completes the production order.

8: Sell components: Full co-manufacturing.

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This scenario supposes that the finished product is received from the co-manufacturer and our company does not take part in the production process.

Example: Our company produces packaged tea. The company buys and sells the unpacked tea (components) to the co-manufacturer, who provides a packing service (output) and sends back the packed tea (finished product). Therefore, the co-manufacturer carries out the only production operation. 

Pre-conditions:

• Co-man operation is the only operation in production BOM

Co-manufacturing operation contains:

• Finished product = product for which bom is created = Packaged Tea 1kg
• Output = service product = Packing Service
• Component = product = Unpacked tea

Execution steps:

1. The production order is created and released. The co-manufacturing operation is the only operation. 
2. Co-man operation Start button is pressed. After pressing start the following events happen:
   • DEAR creates a purchase order for finished product and output.
   • DEAR creates a sales order for the components required by the co-man operation. 
3. The user then completes the sales order:
   1. Sales order is created for the Warehouse location specified in the logistics path, but the components can be picked from any of the company's locations.
   2. The co-manufacturer is the customer.
   3. The price tier for the sold components is selected in the Production BOM.
      
   4. The user completes the pick/pack/ship and sales invoice for the sale order. DEAR calculates the COGS transaction for the costs of these products when Ship is authorised. 
      
   5. IMPORTANT: Stock is consumed at the moment of Sales Order fulfillment for the components listed in Sales Order.
4. User then completes the purchase order (this is the same as for transfer mode):
   1. DEAR creates the purchase order in Authorised status (or Need Approve if this is set in General Settings for purchase orders). The purchase order contains:
      • Finished product with 0 price (payment is for the service - packing tea - not the product, and the product is the result of the service) is a purchase order line because this product is what we expect to receive from the co-manufacturer. The user can change the price on the purchase invoice if needed.
        
      • Output service product is an additional costs line because this is the service provided by the co-manufacturer to complete the finished product. The price is taken from the service product's price details. The Price Tier for the service product is specified in the finished product production BOM. 
   2. The purchase invoice is not yet authorised. The invoice is pre-filled with data copied from the purchase order:
      • Finished product with 0 price in the order grid, the user can change the price if needed. 
      • Output service product is an additional costs line.
      • IMPORTANT: The Account field will be the Finished good account specified in the production order. This will allocate the costs of the co-manufacturing operation to the finished product. If the account is changed manually to any other account, the costs will not be allocated to the finished products. 
   3. User authorises the purchase invoice. This records the costs to the WIP account.
   4. When user authorises stock received, DEAR fills and completes the Output tab of the production order.
      • DEAR creates and authorises a manual journal to the purchase order to allocate the output service product cost to the finished product.
   5. This completes the co-manufacturing operation.
   6. This completes the production order.

9. Purchase components - full co-manufacturing

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This scenario supposes that our company does not take part in the production process, all production takes place at the co-manufacturing location, components are delivered to co-manufacturer from the supplier and the finished product is delivered directly to the customer.

Example: Our company is selling the packs of tea. The company produces packs of tea, fully outsourcing the process.  Creating a sale order for packs of tea creates a production order for the co-manufacturer to produce the packs of tea. However, the tea itself is purchased from the supplier, delivered directly to the co-manufacturer in the required quantity. The produced packs of tea should be delivered to the customer directly. Thus, our company doesn’t have any physical location for storing the tea or the tea packs. The whole process is fully outsourced. 

Pre-conditions:

• Co-manufacturing location is created (Location with co-man checkbox checked)
• Logistics path: Retail-Retail-Retail
• Work center connected to the supplier and co-manufacturing location, Purchase mode is selected for the work center
  
• Production BOM with one operation: Co-manufacturing is created. Drop Ship is checked for Co-manufacturing operation (finished product will be delivered directly to customer).
  

Co-manufacturing operation contains:

• Finished product = product for which bom is created = Packaged Tea 1kg
• Output = service product = Packing Service
• Component = product = Unpacked tea

Execution steps:

1. A sale order is created and authorised for the customer. 
2. This raises a production order for the sale order with a single co-manufacturing operation. The production order is released and a production run is created.
   
3. Co-man operation Start button is pressed. After pressing start the following events happen:
   • DEAR creates a purchase order for components from the supplier to the co-manufacturing location IF there are not enough components in stock at the co-manufacturing location. 
   • DEAR creates a purchase order for finished product.
4. Purchase order for components is received to the co-manufacturing location. Stock availability will show this stock at the co-manufacturing location.
   
5. Purchase order for finished product is completed, finished product is received to location specified on the purchase order. Receiving completes the co-man operation. The stock from co-manufacturing location is consumed and costs are posted to WIP account.  
   
6. Costs are allocated for the finished product from the WIP account when Production Run is completed. when Production Run output is completed, these WIP costs are posted to Finished good account by the Purchase order for finished product.
   
7. Sale Order is completed with drop ship to send the finished product from the co-manufacturer to the customer.

10. Purchase components - mixed co-manfuacturing

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This scenario supposes that our company does part of the production process while the co-manufacturer does another part.

Example: Our Company is selling the packs of tea. The company produces packs of tea partially in-house production and partially co-manufacturing. The tea leaves are purchased from a supplier and delivered to the company's warehouse for use in the tea production process. However, packing of the produced tea is outsourced to be executed by co-manufacturer. In its turn, the packing for co-manufacturer is purchased from another supplier and should be delivered to co-manufacturing location.

When the sale order for packs of tea is authorised , the production order should be created to produce the packs of tea. The produced packs of tea should be delivered to the warehouse where they are stocked before delivering to the customer.

Pre-conditions:

• Co-manufacturing location is created (Location with co-man checkbox checked)
• Logistics path: Warehouse-Shop floor-Retail
• Work center is created connected to the supplier and co-manufacturing location, purchase mode is selected for the work center
• Work center is created for in-house production operations
• Production BOM with the following operations is created:
  • Operation 1: Manufacturing of the tea
  • Operation 2: Co-manufacturing for packing the tea

Execution steps:

1. A sale order is created and authorised for the customer. 
2. This raises a production order for the sale order. The production order is released and a production run is created. 
   • Purchase order is created for the components of the in-house production operation. 
   • Components are received and the stock is transferred to shopfloor. In-house production operation is started.
   • In-house production operation is completed. 
3. Co-man operation Start button is pressed. After pressing start the following events happen:
   • DEAR creates a purchase order for components from the supplier to the co-manufacturing location if there are not enough components in stock at the co-manufacturing location. 
   • DEAR creates a purchase order for finished product 
4. Purchase order for components is received to the co-manufacturing location. Stock availability will show this stock at the co-manufacturing location.
5. Purchase order for finished product is completed, finished product is received to location specified on the purchase order. Receiving completes the co-man operation. The stock from co-manufacturing location is consumed and costs are posted to WIP account.  
   
6. Costs are allocated for the finished product from the WIP account when production run is completed. when production run output is completed, these WIP costs are posted to finished good account by the purchase order for finished product.
   
7. Sale order is completed from the company warehouse to the customer. 

Sale Order is completed with drop ship to send the finished product from the co-manufacturer to the customer.

11. Transfer components - multiple co-manufacturers

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This scenario supposes that multiple co-manufacturers take part in the production process, with the finished product is received from the final co-manufacturer and our company does not take part in the production process. 

Example: Our company produces packaged coffee. There are 3 co-manufacturers who take part in the process of production: Co-manufacturer 1 (roasts coffee), co-manufacturer 2  (grinds coffee), and co-manufacturer 3 (packs coffee). 

The coffee beans are stored at the company location and transferred (transfer components) to the co-manufacturer. The first co-manufacturer roasts coffee beans and transfers it to the second co-manufacturer. The second co-manufacturer grinds roasted coffee beans and transfers it to the third co-manufacturer. The third co-manufacturer packs the ground coffee and transfers it to the Company. Since the company owns the costs of the coffee beans, the company would like to track the whole process and quantities of the semi-finished products passed from one co-manufacturer to the other.

Pre-conditions:

• Only co-man operations in the production BOM
• Output in one co-manufacturing operation is input for the next. 

Co-manufacturing operation 1 contains:

• Component = product = Raw beans
• Output = semi-finished product = Roasted beans 
• Output = service product = Roasting service

Co-manufacturing operation 2 contains:

• Input = semi-finished product = Roasted beans
• Output = semi-finished product = Ground beans 
• Output = service product = Grinding service

Co-manufacturing operation 3 contains:

• Input = product = Ground beans
• Finished product = production BOM parent product = Packaged coffee beans 
• Output = service product = Packing service

Execution steps:

1. The production order and production run is created and released. There are three co-manufacturing operations. 
2. Co-man operation Start button is pressed. After pressing start the following events happen:
   • Core creates a transfer order for the components required by the co-man operation, from the Shopfloor (production location) to co-man location 1. 
   • Core creates a service purchase order for the roasted coffee output and roasting service. This is essentially a purchase order without stock receive. 
   • Core creates a transfer order for the roasted coffee output from co-man location 1 to co-man location 2. 
3. The company user then completes the transfer order:
   • User presses Send button for transfer order: the components costs are moved to In Transit account since the components left the production location and are on the way to the co-manufacturer. 
   • User presses Complete button for transfer order when they arrive at the co-man location: the components costs are moved to Inventory account and the components are listed in stock at co-man location.
4. OFF THE SYSTEM: Co-manufacturer 1 completes the roasting operation. Co-manufacturer 1 sends 900g roasted coffee to co-manufacturer 2 and informs our company. Co-manufacturer 2 receives 800 grams of roasted Coffee and informs our company that 800 grams were received.
5. Company user then completes the purchase order:
   1. Core creates a service purchase order in Authorised status (or Need Approve if this is set in General Settings for purchase orders). The service purchase order contains:
      • Output product with 0 price (payment is for the service - roasting coffee - not the product, and the product is the result of the service) is a purchase order line because this product is what we expect to receive from the co-manufacturer. The user can change the price on the purchase invoice if needed.
        
      • Output service product is an additional costs line because this is the service provided by the co-manufacturer to roast the beans. The price is taken from the service product's price details. The Price Tier for the service product is specified in the finished product production BOM. 
   2. The purchase invoice is not yet authorised. The invoice is pre-filled with data copied from the purchase order:
      • Output product with 0 price in the order grid, the user can change the price if needed. 
      • Output service product is an additional costs line.
   3. User authorises the purchase invoice, changing the quantity to show the received quantity of 800g. This records the costs to the WIP account. This completes the service purchase as there is no stock received section, records the operation output and completes co-manufacturing operation 1.
      
6. Company user starts co-man operation 2 (grinding) entering the actual input reported from the co-manufacturer. 
   1. No transfer order is created. 
   2. Service purchase order is created for output: ground coffee and output: grinding service.
7. OFF THE SYSTEM: Co-manufacturer 2 completes the grinding operation. Co-manufacturer 1 sends 800g ground coffee to co-manufacturer 3 and informs our company. Co-manufacturer 3 receives 800 grams of ground coffee and informs our company that 800 grams were received.
8. User completes the service purchase order without changing the quantity. This records the costs to the WIP account. This completes the service purchase as there is no stock received section, records the operation output and completes co-manufacturing operation 2. 
9. Company user starts co-man operation 3 (packing) entering the actual input reported from the co-manufacturer. 
   1. No transfer order is created. 
   2. Purchase order is created for finished product: packed coffee and packing service.
10. Co-manufacturer 3 completes the packed coffee and sends it to the company. 
11. Company user receives the finished products and completes the purchase order. This completes the co-manufacturing operation, the production run. 
12. DEAR fills and completes the Output tab of the production order. This completes the production order.

Co-manufacturing Components Movement Summary Report can be used to track movement of stock between co-manufacturers.

12. Purchase components - multiple co-manufacturers

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This scenario supposes that multiple co-manufacturers take part in the production process, with the finished product is sent to the customer directly from the final co-manufacturer. Our company does not take part in the production process at all or even store components - fully outsourced production. 

Example: Our company sells packaged coffee. There are 3 co-manufacturers who take part in the process of production: Co-manufacturer 1 (roasts coffee), co-manufacturer 2  (grinds coffee), and co-manufacturer 3 (packs coffee). 

The coffee beans are purchased by the company and drop shipped directly (purchase components) to the first co-manufacturer. The first co-manufacturer roasts coffee beans and transfers it to the second co-manufacturer. The second co-manufacturer grinds roasted coffee beans and transfers it to the third co-manufacturer. The third co-manufacturer packs the ground coffee and drop ships it directly to the customer. Since the company owns the costs of the coffee beans, the company would like to track the whole process and quantities of the semi-finished products passed from one co-manufacturer to the other.

Pre-conditions:

• Only co-man operations in the production BOM
• Output in one co-manufacturing operation is input for the next. 

Co-manufacturing operation 1 contains:

Component = product = Raw beans

Output = semi-finished product = Roasted beans 

Output = service product = Roasting service

Co-manufacturing operation 2 contains:

Input = semi-finished product = Roasted beans

Output = semi-finished product = Ground beans 

Output = service product = Grinding service

Co-manufacturing operation 3 contains:

Input = product = Ground beans

Finished product = production BOM parent product = Packaged coffee beans 

Output = service product = Packing service

Execution steps:

1. A sale order is created and authorised for the customer.  
2. This raises and releases a production order and production run. There are three co-manufacturing operations. 
3. Co-man operation Start button is pressed. After pressing start the following events happen:
4. Core creates a transfer order for the components required by the co-man operation, from the Shopfloor (production location) to co-man location 1. 
   • Core creates a purchase order for components from the supplier to the co-manufacturing location IF there are not enough components in stock at the co-manufacturing location. 
   • Core creates a service purchase order for the roasted coffee output and roasting service. This is essentially a purchase order without stock receive. 
   • Core creates a transfer order for the roasted coffee output from co-man location 1 to co-man location.
5. Purchase order for components is received to the co-manufacturing location. Stock availability will show this stock at the co-manufacturing location.
6. OFF THE SYSTEM: Co-manufacturer 1 completes the roasting operation. Co-manufacturer 1 sends 900g roasted coffee to co-manufacturer 2 and informs our company. Co-manufacturer 2 receives 800 grams of roasted Coffee and informs our company that 800 grams were received.
7. Company user then completes the purchase order:
   1. Core creates the service purchase order in Authorised status (or Need Approveif this is set in General Settings for purchase orders). The service purchase order contains:
      1. Output product with 0 price (payment is for the service - roasting coffee - not the product, and the product is the result of the service) is a purchase order line because this product is what we expect to receive from the co-manufacturer. The user can change the price on the purchase invoice if needed. 
      2. Output service product is an additional costs line because this is the service provided by the co-manufacturer to roast the beans. The price is taken from the service product's price details. The Price Tier for the service product is specified in the finished product production BOM. 
   2. The purchase invoice is not yet authorised. The invoice is pre-filled with data copied from the purchase order:
      1. Output product with 0 price in the order grid, the user can change the price if needed. 
      2. Output service product is an additional costs line.
8. User authorises the purchase invoice, changing the quantity to show the received quantity of 800g. This records the costs to the WIP account. This completes the service purchase as there is no stock received section, records the operation output and completes co-manufacturing operation 1.
9. Company user starts co-man operation 2 (grinding) entering the actual input reported from the co-manufacturer. 
   1. No transfer order is created. 
   2. Service purchase order is created for output: ground coffee and output: grinding service.
10. OFF THE SYSTEM: Co-manufacturer 2 completes the grinding operation. Co-manufacturer 1 sends 800g ground coffee to co-manufacturer 3 and informs our company. Co-manufacturer 3 receives 800 grams of ground coffee and informs our company that 800 grams were received.
11. User completes the service purchase order without changing the quantity. This records the costs to the WIP account. This completes the service purchase as there is no stock received section, records the operation output and completes co-manufacturing operation 2. 
12. Company user starts co-man operation 3 (packing) entering the actual input reported from the co-manufacturer. 
    1. No transfer order is created. 
    2. Purchase order is created for finished product: packed coffee and packing service.
13. Co-manufacturer 3 completes the packed coffee, informing the company. Purchase order for components is received to the co-manufacturing location. Stock availability will show this stock at the co-manufacturing location. 
14. Costs are allocated for the finished product from the WIP account when Production Run is completed. when Production Run output is completed, these WIP costs are posted to Finished good account by the Purchase order for finished product. 
15. Sale Order is completed with drop ship to send the finished product from the co-manufacturer to the customer.

Co-manufacturing Components Movement Summary Report can be used to track movement of stock between co-manufacturers.