How to Track Co-Manufacturing Operations in Business Central for Canadian Food Producers

Estimated reading time: 8 minutes

Why Co-Manufacturing Creates an ERP Blind Spot

The typical co-manufacturing workflow looks simple on paper:

• You ship raw materials and packaging to the co-packer.

• The co-packer produces finished goods to your specifications.

• You receive finished goods back into your warehouse.

• You sell and distribute under your brand.

In practice, each step creates data gaps. Your raw materials sit at the co-manufacturer’s facility, but your ERP either still shows them at your location or has written them off entirely. Work-in-progress at the co-packer does not exist in your system. When finished goods arrive, your team manually enters the quantities, and the cost is whatever the co-packer’s invoice says plus a rough estimate of freight and quality testing.

For a plant-based protein manufacturer running six SKUs through two co-packers, this blind spot multiplies fast. Twenty-plus open material transfers, production runs at various stages, and inbound shipments to reconcile against purchase orders. Without system-level visibility, your inventory valuation is a fiction. Your CFO is making decisions based on numbers that do not reflect what is actually happening on the ground.

What CFIA Expects When You Outsource Production

Under SFCR, food safety compliance does not transfer to your co-manufacturer just because they are doing the manufacturing. The regulatory picture depends on who holds the SFC licence for which activities. If you hold the licence for manufacturing, processing, or interprovincial trade of the products your co-manufacturer produces, you carry the compliance obligations that come with that licence. Your co-manufacturer may also hold their own SFC licence with their own PCP and compliance requirements. But their licence does not remove yours.

The practical result: you need to be able to demonstrate compliance on your end regardless of what your co-packer has in place.

Specifically, this means:

Lot traceability must extend through the co-manufacturer. If CFIA asks you to trace a finished product lot, your traceability records must link the raw materials you shipped to the co-manufacturer and the finished goods you received back. SFCR’s one-step-forward, one-step-back records must be complete and accessible on your end.

Your PCP should address co-manufacturer oversight. Because Part 4 of SFCR requires you to identify and control hazards in your process, this logically extends to how you verify the co-packer follows your specifications, how you handle deviations, and how you manage quality inspection on received goods.

Your hazard analysis should address allergen cross-contact risks at co-manufacturing facilities. If your co-packer runs other allergens on the same lines, your PCP’s hazard analysis needs to account for that risk and document your control measures. For plant-based protein manufacturers working with co-packers who also process dairy, soy, and wheat, this documentation is extensive. This is not a standalone SFCR requirement, but it falls directly under the preventive control obligations in Part 4 of the regulations. CFIA expects your PCP to identify and control food safety hazards in your process, and allergen cross-contact at a shared facility is exactly that kind of hazard.

How Business Central Handles the Full Co-Manufacturing Workflow

BC supports co-manufacturing visibility through a combination of standard features that most implementations underutilize.

Material Transfer to Co-Manufacturer

Transfer orders move raw materials from your location to a co-manufacturer location code in BC. The inventory physically leaves your warehouse, and BC tracks it at the co-manufacturer’s location. You maintain ownership and visibility. The transfer order creates the audit trail CFIA needs for one-up traceability.

Tracking Work-in-Progress at the Co-Packer

Production routing in BC supports subcontracting through outside processing steps. You set up a work centre linked to the co-packer as a vendor, and the co-manufacturing operation appears as a routing step on the production order. This gives you WIP visibility: you can see what is in production at the co-manufacturer and at what stage. When the production order reaches the subcontracting step, BC generates a purchase order for the co-packer’s services through the subcontracting worksheet.

Receiving Finished Goods with Quality Inspection

When finished goods arrive back at your facility, BC handles receiving against the production order. As of the 2025 Wave 2 release (generally available April 2026), BC includes a Quality Management extension that supports quality checks on purchase receipts and production output, including quarantine procedures for non-conforming material. For environments on older versions, third-party ISV apps like Insight Works’ Quality Inspector provide similar capabilities. Either way, the goal is the same: trigger quality checks at receiving, hold goods until QA clears them, and assign lot numbers that link the finished goods back through the co-manufacturer’s production to your original raw material lots. The full traceability chain stays intact.

One note: the new Quality Management extension auto-installs on newly deployed BC environments. If you are on an existing environment, you will need to install it from AppSource. And if you need fully automated enforcement where non-conforming items cannot physically advance through warehouse workflows without QA release, you may still need an ISV solution on top of the extension.

Full Costing

This is where most co-manufacturing setups fall apart. The actual cost per unit includes raw materials (which you supplied), the co-packer’s per-unit or per-batch fee, freight both ways, packaging materials, and quality testing costs. BC captures the core components through the production order: material costs from inventory, and subcontracting fees from the purchase order linked to the routing step. For freight and quality testing, you allocate those costs using item charges on the associated purchase receipt lines or through manual cost adjustments to inventory. It takes some configuration, but the result is a cost of goods sold that reflects reality, not an estimate.

The Real-World Setup

From the manufacturing ERP configurations I have reviewed, the companies that handle co-manufacturing well share a few traits. They treat the co-packer’s facility as a real location in their system, not an off-book black box. They use transfer orders for every material movement, not just the big ones. And they insist on lot-level receiving with quality checks, even when the co-packer says “we already tested it.”

The setup in BC is straightforward. Separate location codes for each co-packer. Transfer orders for material movements. Production routing with subcontracted work centres linked to your co-packer vendors. Purchase orders for co-packing fees generated through the subcontracting worksheet. Quality inspection at receiving, whether through the new Quality Management extension or a third-party app.

The configuration takes a few days. The payoff is permanent visibility into what used to be a black hole in your supply chain.

What to Do Next

If you are a Canadian food producer using co-manufacturers, pull up your last co-packing run and ask three questions:

• Can you trace every finished product lot back to the raw material lots you sent to the co-packer, without calling anyone?

• Does your inventory valuation include accurate costs for co-manufactured products, including freight and testing?

• Does your Preventive Control Plan specifically address the food safety hazards in your co-manufacturing process?

If any answer is no, your current system has a gap that will surface during a CFIA inspection or the next time a customer asks for a full lot trace.

We configure Business Central to give you real-time visibility into co-manufacturing operations, from material transfer through quality inspection on received goods. If you want to map your co-manufacturing workflow and see how BC handles it, that conversation is worth having.