Video walkthrough
External Manufacturing Orders: Fully Outsourced Production
This video walks through creating a fully outsourced manufacturing order from start to finish, including linking the service item, setting material supply sources, picking self-supplied inventory, and completing the order.
Overview
A fully outsourced manufacturing order (XMO) is used when a vendor handles the entire production job, not just a single step. Digit still treats the output as a manufactured item, giving you full cost visibility and inventory tracking throughout the process.
If you're looking to outsource a single routing step rather than the full job, see External Manufacturing Orders: Outsourcing Production Steps
📘 Before you begin: You'll need a service item created to represent the outsourced job before setting up the MO. See Items: Creating and Managing Items for a full walkthrough on creating service items.
Vendor-supplied vs self-supplied materials
When setting up a fully outsourced MO, you choose who supplies each material on the bill of materials the vendor or you.
Scenario | Who provides materials? | What Digit Tracks |
Vendor-Supplied | Vendor sources everything | PO + link to MO, vendor cost, finished goods receipt
|
Self-Supplied | You send your own materials | Materials allocation, inventory leaving the warehouse, WIP location tracking, vendor cost, and finished goods receipt |
How service items tie into full outsourcing
In full outsourcing, the service item represents the entire manufacturing job not a single step. This is the key difference from partial outsourcing.
| Partial Outsourcing | Full Outsourcing |
Service item represents | One external routing step | The entire manufacturing job |
Materials | You own all materials; MO handles planning | Either you supply, or the vendor does |
PO generated | For the vendor service on one step | For the vendor's full manufacturing service |
Cost rollup | External step cost → MO | For the vendor's full manufacturing service Full vendor cost → MO |
Setting up a fully outsourced manufacturing order
Step 1: Create the manufacturing order
📘 Note: If a sub-assembly modal appears after selecting your item, click Skip. Sub-assemblies are not covered in this workflow.
Navigate to Production from the left sidebar.
Click Create MO in the top right corner.
In the Select Item modal, search for the item you'll be producing externally and select it.
On the Create Manufacturing Order screen, locate the Order Details panel on the right side. Set the Job Type field to Outsource.
An Output Location field will appear. Select the location where the finished goods will be received.
Fill in the remaining order detail fields relevant to your setup.
Step 2: Set material supply sources
📘 Note: For top-level BOM items, you can select Vendor or Self from the drop-down. If an item has child components, expanding the parent disables the parent's drop-down and makes each child individually selectable.
In the Materials table, scroll all the way to the right to find the Supplied By column.
For each material, select Vendor (vendor provides it) or Self (you supply it to the vendor).
Once everything looks correct, click Create MO.
Step 3: Link the service item and purchase order
📘 Note: If you're not ready to link the PO now, click Skip for now. You can create and link the PO later from within the MO.
Immediately after the MO is created, a New Linked Purchase Order modal will appear.
Click the Service Item field and search for the service item that represents the outsourced job.
If a preferred vendor is already defined for that service item, the Vendor field will prefill automatically. You can always update it if needed.
Click Save to create the PO and link it to the MO.
Back on the MO screen, click the Links To drop-down on the right side to open the linked PO.
Inside the PO, fill in the Vendor Address, Bill To, and Ship To fields.
Check Billing same as shipping if both addresses are the same.
Enter the Quantity and Unit Cost for the job, then click Save.
Picking self-supplied materials and completing the order
📘 Note: Only materials marked as Self can be picked. If inventory isn't available, you'll see options to Buy (opens a new PO) or Make (creates a new MO), depending on how the item is configured.
Once self-supplied materials are available, pick inventory and work through the work orders. When you reach the last work order:
Select the container type and bin location where the finished product will be stored, then click Create Container.
Enter the quantity and click Add to Container. Repeat for additional containers as needed.
When all quantities are logged, click Complete Work Order.
✅ Best practice: Check the Output Location field on the right side of the work order screen to confirm it shows the connected manufacturing order. This confirms everything is wired up correctly before completing.
Your outsourced production order is complete
Once the last work order is completed, the manufacturing order is automatically marked as Completed. The linked PO is also automatically closed.
To review the full cost breakdown, including materials, labor, and the external vendor cost, navigate to the Costing tab on the manufacturing order. You can access this at any time, even before the order is completed.
