NetSuite Outsourced Manufacturing: Subcontract Work Order Flow
how to set up outsourced manufacturing subcontracting in NetSuite
Also searched as
- NetSuite subcontract work order purchase order
- NetSuite outsourced assembly vendor components
- NetSuite send components to subcontractor
- NetSuite outsourced manufacturing cost variance
Short answer
NetSuite outsourced manufacturing lets you buy a finished or processed assembly from a vendor while supplying the components yourself. A purchase order drives a linked work order, components are sent to the vendor, and the item receipt brings in the assembly with component cost plus the vendor charge. It works well once the item, vendor charge and component location are set correctly.
Applies to: NetSuite with the Outsourced Manufacturing feature and assembly items enabled; field labels vary slightly by release, so confirm in your account
How to set up and run a subcontract order
- 1Enable the feature under Setup > Company > Enable Features > Items & Inventory and confirm Work Orders and Assembly Items are also on.
- 2Create the assembly item with its bill of materials and mark it as outsourced to a vendor, with the item purchased from that vendor and the vendor charge handled as an other-charge or service item.
- 3Enter the vendor on the item's purchasing data and set the purchase price for the processing charge, not for the components you supply.
- 4Create a purchase order for the outsourced assembly. NetSuite creates the linked work order that holds the component requirements.
- 5Send components to the subcontractor by transferring stock to the vendor's location, or by shipping from the work order with the issue transaction, depending on how you track vendor-held stock.
- 6Record the vendor's progress, then receive the finished assembly against the purchase order using an item receipt.
- 7Review the GL impact: components move out of inventory, the assembly is received at component cost plus the vendor charge, and the vendor bill matches the charge.
- 8Close the work order and check for variance between planned and actual component consumption.
How the order flows
The purchase order is the commercial document and the work order is the production document. They are linked, so changing the PO quantity changes the work order requirement, and the work order lists the components that must be at the vendor to build the quantity ordered.
The vendor charge covers the value they add. The components are your property and stay on your books, which is why the received assembly cost is components plus charge rather than a purchase price alone. Any scrap the vendor reports needs a separate decision on who bears the cost.
Controlling stock at the subcontractor
The most common design is a location for each subcontractor, set up as a non-nettable location so the stock is visible but not available to your planners. Components move there by transfer order, and consumption is recorded when the assembly is received or when you post an issue against the work order.
If you skip that and simply ship components against a work order without a vendor location, the stock disappears from your reporting while still being yours. Reconcile each month by subcontractor, using a saved search of inventory balance by location, and ask the vendor for a physical count when a mismatch appears.
-- Saved search: stock held at subcontractor locations -- Type: Inventory Balance -- Criteria: Location : Name contains SUBCON -- Results: Location, Item, Inventory Number, On Hand, Total Value
Costing and variance
The received cost is the sum of component cost drawn from the work order and the vendor charge from the bill or the purchase order. If the vendor invoice differs from the purchase order charge, the difference follows your normal purchase price variance setup and depends on the item costing method.
Component variance arises when the vendor uses more or less than the bill of materials planned. Decide up front whether you accept the actual consumption they report, adjust the work order on receipt, and bill back scrap beyond an agreed allowance. Without that policy, variance accumulates unseen.
Planning and lead time
Supply planning can propose purchase orders for outsourced assemblies, and the dependent component demand then flows to your own purchasing. The lead time on the item should include the transit to the vendor and back, not just their processing time, or components arrive late.
Multi-step outsourcing, such as plating then heat treating, is harder. It is usually modelled as separate outsourced items in sequence, each with its own purchase order, or as a routing with an operation per vendor if your edition supports it. Test the simplest chain end to end before building further.
Common pitfalls
- !Putting the full finished price in the vendor charge, which double counts components you supply.
- !Shipping components without a vendor location, so subcontractor stock cannot be reconciled.
- !Leaving lead time at the vendor's processing time and ignoring transit.
- !Not agreeing a scrap and overuse policy, so variance has no owner.
- !Closing the work order before the vendor bill is matched.
How an ERP-grounded AI assistant handles this
A grounded assistant can list open subcontract purchase orders, show components still at each vendor, and flag orders where components have not shipped against a due date, all from NetSuite data. ERPray runs read-only, shows the query and follows the user's role, so a buyer sees only their vendors. Posting transfers and receipts stays a human step. NetSuite saved searches cover the same if you track only a few subcontractors.
Frequently asked questions
What is the difference between outsourced and subcontract manufacturing in NetSuite?
They describe the same pattern. You buy a processed or finished assembly from a vendor while supplying components. NetSuite handles it with the Outsourced Manufacturing feature linking a purchase order to a work order for the components.
How do I send components to the subcontractor?
Use a transfer order to a location representing the subcontractor, or ship against the work order if your process uses that route. A dedicated vendor location keeps the stock visible and reconcilable.
How is the received assembly valued?
At the cost of components consumed from the work order plus the vendor charge. If the vendor bill differs from the purchase order, the difference follows your standard purchase price variance treatment for the item's costing method.
Can planning create outsourced purchase orders?
Yes, supply planning can suggest purchase orders for outsourced assemblies and generate component demand. Check lead times include transit, and that the component items are planned too, or the vendor will wait for stock.
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