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

Estimated reading time: 9 minutes

Updated October 2026 for Business Central version 28. Quality Management arrived with version 28 and Microsoft’s Subcontracting app came in a later version 28 update.

Why Co-Manufacturing Creates an ERP Blind Spot

The typical co-manufacturing workflow looks simple on paper:

1. You ship raw materials and packaging to the co-packer.
2. The co-packer produces finished goods to your specifications.
3. You receive finished goods back into your warehouse.
4. You sell and distribute under your brand.

Each step creates data gaps. Your raw materials are 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 enters the quantities by hand. The cost is whatever the co-packer’s invoice says plus a rough estimate of freight and quality testing.

Take a plant-based protein manufacturer running six SKUs through two co-packers. The gaps add up fast, with 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 guess. Your CFO is making decisions on numbers that don’t match what is happening on the ground.

What CFIA Expects When You Outsource Production

Under SFCR, food safety compliance does not transfer to your co-manufacturer because they are doing the manufacturing. The regulatory picture depends on who holds the SFC licence for which activities. Trading food across provincial lines doesn’t need a licence on its own. If you hold an SFC licence for activities on these products, for example because you package or label them, you carry that licence’s obligations, including a Preventive Control Plan (PCP). If you don’t hold one, you still owe traceability records under SFCR section 90 when you send food across provincial lines, import it or export it. Your co-manufacturer may hold their own SFC licence with their own PCP and compliance requirements. Their licence does not remove your obligations.

You need to be able to show compliance on your end, whatever your co-packer has in place.

Specifically, this means:

Lot traceability should extend through the co-manufacturer: SFCR’s one-step-forward, one-step-back records must be complete and accessible on your end. To trace a finished lot for CFIA or run a recall, you’ll want records that link the finished goods you received back to the raw material lots you shipped to the co-manufacturer.

If you hold a licence, your PCP should address co-manufacturer oversight: Part 4 of SFCR requires you to identify and control hazards in your process. This 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 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. It comes under the preventive control obligations in Part 4 of SFCR. CFIA expects your PCP to identify and control food safety hazards in your process, including allergen cross-contact at a shared facility.

How Business Central Handles the Full Co-Manufacturing Workflow

BC supports co-manufacturing visibility through standard features that many implementations underuse. Production orders, routings and subcontracting are Premium features, so most of what follows needs the Premium licence.

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. BC tracks it at the co-manufacturer’s location, so you keep ownership and visibility. For lot-tracked items, the posted transfer gives you an audit trail of what went to which co-packer, by lot.

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. The co-manufacturing operation then appears as a routing step on the production order. This gives you some WIP visibility. You can see which orders have an open co-packing operation and how much is still outstanding on the co-packer’s purchase order.

BC doesn’t create that purchase order on its own. In the Subcontracting Worksheet, Calculate Subcontracts proposes purchase orders for open co-packing operations on released production orders. Carry Out Action Message creates them.

Receiving Finished Goods with Quality Inspection

When finished goods come back, you post the receipt on the co-packer’s purchase order. That receipt posts the output for the co-packing operation on the production order.

As of the 2026 release wave 1 (version 28, 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. Whichever tool you use, the goal is to trigger quality checks at receiving and hold goods until QA clears them.

For the lot chain, assign the finished lot on the production order line before you receive. The receipt takes the finished lot from there. Then post component consumption with lot numbers from the co-packer location. You can also set those components to backward flushing with the co-packing operation’s routing link, so receiving the co-packer’s order posts the consumption for you. Both routes need lot numbers on the component lines. The consumption entries are what link finished lots back to the raw lots you sent. Without them, a trace on the finished lot stops at the output.

Microsoft’s documentation says the Quality Management extension installs automatically on newly deployed environments. On an existing environment, you install it from Extension Management or AppSource. If the company uses approval workflows, open the Workflows page once after you install it. Until you do, receipts that should create an inspection fail with a missing workflow event error.

The co-packer’s receipt posts as production output, so put the Quality Management inspection rule on production output. A purchase-receipt rule fires too, but its inspection doesn’t carry the finished lot, so it can’t block that lot. Quality Management can stop a failed lot from being transferred or sold until it passes. Depending on how you set up the inspection results, it can also stop consumption, picks and moves. It only covers lot-, serial- or package-tracked items and it doesn’t stop inventory adjustments, so test your own flow before you add an ISV solution on top.

Full Costing

This is where most co-manufacturing setups fall apart. The real 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.

Freight and quality testing take more setup. Item charges work on raw-material purchase receipts and on transfer receipts to and from the co-packer. Charges on raw materials are passed to the finished goods through consumption and Adjust Cost. Without Microsoft’s Subcontracting app, BC won’t take an item charge on the co-packer’s subcontract receipt itself. For costs that belong only to the finished goods, receive the output at the co-packer location, transfer it home and put the charge on that transfer receipt. You can also use a revaluation journal on the finished goods. Revaluing a receipt entry also re-costs whatever has already shipped from it.

With Microsoft’s newer Subcontracting app installed (added in a version 28 update, with Legacy Subcontracting turned off in Manufacturing Setup), you can put the item charge on the subcontract receipt directly. The app also adds a subcontractor WIP ledger and a Transfer to Vendor supply method for sending components to the co-packer. The app is new, so try it in a test company before you change a working setup.

The costing setup takes some configuration. Once it’s in place, your cost of goods sold is built from posted costs.

The Real-World Setup

From the manufacturing ERP configurations I have reviewed, the companies that handle co-manufacturing well share a few traits. They set up the co-packer’s facility as a real location in their system. They use transfer orders for every material movement, small ones included. 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 on the Premium licence. 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 created from the subcontracting worksheet. Lot numbers on the production order line and on component consumption. Quality inspection at receiving, through the Quality Management extension or a third-party app.

The configuration takes a few days. After that, each co-packer’s stock, open operations and receipts are visible in BC.

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:

1. Can you trace every finished product lot back to the raw material lots you sent to the co-packer, without calling anyone?
2. Does your inventory valuation include accurate costs for co-manufactured products, including freight and testing?
3. If you hold an SFC licence, does your Preventive Control Plan address the food safety hazards in your co-manufacturing process?

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

We configure Business Central to give you 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.