How to Handle Assemblies in NetSuite for Outsourced Manufacturing

NetSuite Tips & Tricks

How to handle assemblies in NetSuite for outsourced manufacturing

Want to learn how to handle assemblies in NetSuite for outsourced manufacturing?

Many companies use third-party manufacturing companies to build their finished goods from raw materials owned by the company. With the use of the NetSuite manufacturing module (that includes features such as Assembly Items and Work Orders), your organization can achieve proper inventory control and costing even when an outside organization creates the finished good.

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The basic process flow is this:

  • Company has inventory of raw materials on hand
  • An Assembly Item/Bill of Materials exists that defines the finished good.
  • A “Vendor Consigned Inventory” location exists within NetSuite and has the “Make Inventory Available” flag set to checked
  • A Vendor Bill is created to capture the cost of shipping raw materials to the vendor so that those costs can be factored into finished good
  • Company creates a Transfer Order to transfer inventory of raw materials to Vendor Consigned Inventory location
  • Typically the finished goods are sent to the company with a bill for the manufacturing service, shipping, etc. With the quantity of finished goods known, the company performs an Assembly Build (standalone or via a Work Order) to replenish inventory in the amount of the received finished goods and deplete inventory of the component, raw materials items. Since the location of the raw materials is in “Vendor Consigned Inventory”, the Assembly Build will be created within that location.
  • Once the Assembly Build is complete, any additional vendor bills for any freight-in charges must also be entered before the final transfer from “Vendor Consigned Inventory” to the physical warehouse location. This is to ensure that landed costs are reflected accurately in the item.
  • Another Transfer Order is created to move inventory and current costs from “Vendor Consigned Inventory” to the physical inventory location.

This flowchart illustrates this process:


1. Establish Raw Material (Component) Item “On Hand” Quantities

Use a Purchase Order –> Item Receipt or a Vendor Bill to bring in inventory of the Raw Materials into the physical inventory location

2. Create Assembly Item/Bill of Materials (BOM) for the Finished Good

Include all component items with quantities and unit of measure

3. Create a Vendor Bill for the Transfer Shipping Charges (HQ to Manufacturer)

When creating the vendor bill, if you use Landed Costs (recommended), make sure on the line items of the bill to call out the Landed Cost Category so that those costs can be allocated to the item properly.

* Note that when using Transfer Orders when you want to items costs to be included in the Transfer Order, the preference to “Use Item Cost as Transfer Cost” must be enabled. This feature is enabled via Setup –> Accounting –> Accounting Preferences –> Order Management –> Transfer Orders.

4. Transfer Components to Vendor (Consignment) Warehouse

  • Create Transfer Order
    • Input component items to transfer
    • Enter quantities to transfer
    • Enter the Lot # of the items to transfer, if your components are Lot-Numbered inventory items
    • Save the Transfer Order
  • Approve the Transfer Order
  • Fulfill Transfer Order (ship items to the manufacturing company)
    • Select items to be transferred
    • Enter shipping info, if necessary but do not enter shipping cost if you are tracking landed costs
    • Save. The items (and costs) are moved from inventory asset account to Inventory In Transit account
  • Receive Transfer Order (items are received in the manufacturing facility location)
    • Select items to be received
    • For tracking landed costs, use the Landed Cost subtab (or line item landed cost checkbox) to enter the shipping costs
    • Select the desired cost allocation method (weight, value, or quantity)
    • For the Landed Cost Categories applicable from your Vendor Bill (in this example, Freight) under “Source” choose “Other Transaction” and in the drop-down menu that appears, search for the Vendor Bill containing the freight charges.
      * Note that your Vendor Bill must have a Reference Number or Memo or the vendor bill will not be clickable in the list that appears
    • Save the Transfer Order Item Receipt. Items are moved from Inventory In Transit and Freight expense accounts to Inventory Consignment asset location

5. Perform Assembly Build

Create and process the assembly build within the “Vendor Consigned Inventory” location

6. Enter Vendor PO and Bill for Manufacturing and return freight

When the manufacturer send the finished goods back to your company, you will at the same time receive their bill. Their bill can include freight, or you may have used your own account within the shipping company, in which you will get a separate bill for the freight. On the Item Receipt (or the subsequent Vendor Bill) you will want to apply any service, shipping, or tax vendor bills as Landed Costs on the receipt so that the landed costs can be allocated to the received goods.

7. Transfer Finished Goods back to the Physical Inventory Fulfillment Location

At this point you have finished goods still in the “Vendor Consigned Inventory” location however you should move this inventory over to the fulfillment location which is where you will be fulfilling orders from. You will use a Transfer Order to perform this.

  • Create a new Transfer Order
  • Enter the finished goods/Assembly items to transfer, along with quantities and lot information if you are using Lot-Numbered Assembly Items
  • Save the Transfer Order
  • Approve the Transfer Order
  • Fulfill the Transfer Order
  • Receive the Transfer Order (this final step is what actually moves the inventory over)
  • On the Item Receipt, use the Landed Cost subtab to apply any of the costs from Step 6 onto the receipt of the finished goods

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