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3rd party co-packing and handling of raw goods inventory

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Posted on by 19

Hi,

We have the following situation we are having a tough time to solve.

We purchase a liquid sauce in 1000L bulk containers from one supplier and ship that to a co-packer where it is bottled into 250ml & 500ml bottles and extra 1000L bulk inventory is stored for various time frames.

  1. One purchase order is created for the bulk 1000L raw goods
  2. Then at time of bottling another purchase order is created for the bottled products as needed.  This purchase order has the cost for the bottles and the cost for the bottling itself.
  3. The product is then shipped to our 3pl warehouse where it is received

Up to now we have handled this by adding the cost of the raw goods to the overhead cost in business central and then doing a negative inventory adjustment on the used raw goods.  Those raw goods are inventoried in a unique location in business central for the co-packer

Example We create a purchase order for the raw goods of 3000L, once it arrives at the co-packer we create a purchase order to them for 2000 500ml bottles and then do an inventory adjustment - 1000L on the raw goods.  the 2000 bottles are shipped to our 3pl warehouse where they are received and we are left with 1000L raw goods that we warehouse at the co-packer  

This of course creates some accounting problems and we would like to do this in a  "correct" way.

We are in the midst of setting up an integration with our 3pl warehouse for purchase orders (today handled manually), as most of our goods are simply purchased from the manufacturer and received in by the 3pl warehouse this is a straight forward integration but the question is how to handle for the small number of items where we purchase the raw goods and send them to a co-packer.

In order to keep things simple we would like to be able to continue to create a purchase order for the bottled product that the 3pl warehouse handles via the integration as it would any other "standard" item but the question is how to then properly handle the raw goods.

Any help greatly appreciated.

Thanks

Joe

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  • Suggested answer
    MahGah Profile Picture
    MahGah 15,395 on at
    RE: 3rd party co-packing and handling of raw goods inventory

    Hi

    Ben recommendation is the best method that I saw.

    I also saw one company that used the following method

    they had item no (to match your example) for 500 ml bottle with all cost included. Anytime they wanted to create PO they created a usual PO. But to handle inventory they create SO for co packer let say for 1000 L. The cost of SO was $0 but they used the same location that co packer received the 3000L. Then they shipped the 1000L and invoice it. This way they adjusted their inventory without normal adjustment. But of course you will see loss on that item because it had purchase cost but sold for $0. it was much simpler method.  

  • Suggested answer
    Ben Baxter Profile Picture
    Ben Baxter 3,964 Super User on at
    RE: 3rd party co-packing and handling of raw goods inventory

    Joe,

    This might add to much complexity for you, but here is how you could handle it:

    Create an Item for the 500 ml bottles.  It is a produced item (manufacturing process).  The BOM contains the 1000L raw material in the appropriate "Quantity Per".  The Routing is to your co-packer to produce the 500 ml bottles.

    Process Flow (steps 2 & 3 can be run together):

    1. Demand is created for the 500 ml bottles (i.e. Sales Order entered)
    2. MPS (Planning Worksheet) creates the required Production Order.
      1. Prod. Order Components creates the demand for the Raw Material.
    3. MRP (Planning Worksheet) creates the Purchase Order for the Raw Material.
      1. The Location of the Raw Material should be your co-packer location.
    4. Sub-Contracting Worksheet creates the Purchase Order to the co-packer for the 500 ml bottles.
      1. Receipt on the PO posts Output against the Production Order, which can backflush consume the raw materials.
      2. Again, the use of Locations is important for the backflush and output.

    If you use Locations properly, you will be able to track the material available at the co-packers location.  If the co-packer ships the product to your end customer, you could automate (customization) the shipping of the Sales Order when the Purchase Order is Received (similar to Drop-Ship).

    The process outlined requires the use of the "Premium" license model for Business Central.  You should discuss your needs with your partner so they can best guide you on making a working process for your business.

    Best Regards,

    Ben Baxter

    Accent Software Inc

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