Tracking Cost for Contract Manufacturing

Overview

If you outsource your manufacturing, controlling cost is often a key requirement. Versa can help you tracking your cost related to manufacturing.

If you purchase raw material and send to your contract manufacturer, you would want to track current inventory levels at your manufacturer's warehouse. It is recommend you create a separate facility in Versa to track the inventory at the manufacturer. This will give you insight in the inventory levels. The inventory levels need to be keep up to date by continuing receiving inventory update from your manufacturer.  If manufacturer is providing their own raw material, then your process is very simple. You would just issue a purchase order to purchase the finished goods. Receive the PO when the goods arrive and you are done.

Steps

You would create a BOM (bills of material) in Versa to list the raw material needed to build the finished product. See here on how Bills of Material module works. The raw materials used in the BOM will be the inventory you are tracking at your manufacturer's warehouse.

To start the manufacturing process, first create a new production build from Production menu, new production build and select the correct BOM. Enter the total quantity planned to be produced. This system will estimate the materials needed for this production build. The actual inventories used will be entered later. The production build is configured to produce finished goods at the facility created for your manufacturer in the system.

Create a non-inventoried product to be used when you issue purchase order to the manufacturer . This product can have a similar name to the finished product being produced.

Next you would create a purchase order for this manufacturing run and put the non-inventoried product created earlier on the PO. When the PO line with the manufacturing service is being added, make sure you select the production build via Link To Production Build. The linked PO will appear in the production build as a reference.

Once the manufacturing is done and you receive details from your manufacturer on what was produced and how much raw material is depleted, you would enter the raw material used in the production build created earlier.  Commit the inventories to the build will reduce the inventories of the raw materials being tracking in the system. Next go receive the PO for the manufacturing run. Upon receiving, the cost on the PO is included as cost in the production build. Versa can also track labor and machinery cost as part of the production build, you can enter such cost if required.

Closing

Once all the data is entered and doubled checked, you can close out the production build . By closing the production build, all the costs tracked in the cost will be record as inventory cost of the finished product. By incorporating all possible cost of making the finished products,the system can accurately record COGS (cost of goods sold) when the finished product is sold.

The finished product will be sitting at your manufacturer's warehouse and Versa is tracking it in the manufacturer's facility in the system. To move the finished products from your manufacturer to your warehouse for sale, you can use a Transfer Order to transfer the products. If there are costs associated with the transfer, you can also book the additional expenses against the incoming inventory. This will be done when you post a bill (for the expenses) and reference the inventory received.