Set up and process a subcontracting operation

This article illustrates ways to use the Contoso Coffee demo data with the Subcontracting app. The scenarios explain how to set up a production scenario where a subcontractor handles the first assembly operation, while you transfer components and track work-in-progress items and then receive the partially assembled output from the vendor for in-house finishing.

Scenario

You're the production planner at Contoso Coffee, and you need to produce 12 units of item SP-SCM1009, Airpot. You outsource the item's body assembly (the first routing operation) to a subcontractor, while you do the electrical wiring, testing, and packing in-house. You send components to the subcontractor, track the work-in-progress item as it moves between facilities, receive the subcontracted output, and return unused materials.

Prerequisites

To complete this scenario, you need:

• The Contoso Coffee Manufacturing demo data installed with opening balances posted.
• The Subcontracting app installed from Marketplace. Here's a link to the app's download page.

Important

This scenario modifies the routing and production BOM for item SP-SCM1009. If you plan to run the other subcontracting scenarios, component supply methods or pricing and item charges, run them in order or reset the BOM and routing between scenarios.

Set up the demo data

Assign the subcontracting routing to the item

1. Select the icon, enter Items, and then select the related link.

2. Open the item card page for item SP-SCM1009, Airpot.

3. On the Replenishment FastTab, set the Routing No. field to SP-SCM1009-SUB-1.

   This routing has four operations. The first operation uses Work Center 500 (Subcontractor). The remaining three operations (electrical wiring, testing, packing) are performed in-house.

Configure the production BOM for component transfers

1. On the item card page for item SP-SCM1009, select the Production BOM action to open BOM SP-SCM1009.

2. In the Status field, choose Under Development.

3. On the Lines FastTab, find the line for SP-BOM1101, Housing Airpot. Set the following fields:

   Field	Value
   Routing Link Code	500
   Component Supply Method	Transfer to Vendor

4. Find the line for SP-BOM1102, Coffee filter basket. Set the following fields:

   Field	Value
   Routing Link Code	500
   Component Supply Method	Transfer to Vendor

These two components are now linked to the subcontracting operation and will transfer to the subcontractor's location when needed.

1. In the Status field, choose Certified.
2. Close the Production BOM.

Set up work-in-progress transfer on the routing

1. Select the icon, enter Routings, and then select the related link.

2. Open routing SP-SCM1009-SUB-1.

3. In the Status field, choose Under Development.

4. On operation 10 (Work Center 500, Body assembly), set the following fields:

   Field	Value
   Transfer WIP Item	Yes
   Transfer Description	Airpot - body assembled (WIP)

When you create a transfer order for the subcontractor, Business Central includes a line for this work-in-progress item. The WIP item appears on transfer documents for tracking purposes but doesn't create item ledger entries.

1. In the Status field, choose Certified.
2. Close the routing.

Set the subcontracting location code on the vendor

1. Select the icon, enter Vendors, and then select the related link.

2. Open the vendor card for 82000, Subcontractor.

3. In the Subcontracting Location Code field, enter 82000.

   This field tells Business Central where the subcontractor's facility is located. Without this information, the production order refresh fails because Business Central can't determine where to send components.

Create and refresh the production order

1. Select the icon, enter Released Production Orders, and then select the related link.

2. Select the New action, and then fill in the fields as described in the following table.

   Field	Value
   Source Type	Item
   Source No.	SP-SCM1009
   Quantity	12
   Location Code	MAIN

3. Select the Refresh Production Order action, and then select OK.

Inspect the routing and components

1. On the production order, select the Components action.

   The two components you configured with the Transfer to Vendor supply method (SP-BOM1101 and SP-BOM1102) have MAIN in the Location Code field. This is the location from which they transfer to the subcontractor.

2. Close the components and select the Routing action.

   The Subcontracting Routing Details FactBox shows the status of the subcontracting work for the selected routing line. It shows purchase order quantities, transfer order quantities, and quantities received.

   Operation 10 has the Subcontracting toggle enabled.

Create the subcontracting purchase order

1. Select operation 10.

2. Select the Functions action, and then select Create Subcontracting Order.

   A purchase order is created for vendor 82000 (Subcontractor).

3. Open the purchase order.

   The Lines FastTab shows the subcontracting work line. If you turn on the Create Production Order Info Line toggle on the Manufacturing Setup page, a comment line with the production order line description also appears.

   The Subcontracting Details FactBox (visible only on subcontracting orders) shows the related production order, routing, and component information.

Transfer components to the subcontractor

1. On the purchase order, select the Actions action, and then select Create Transf. Ord. to Subcontractor in the Subcontracting group.

   A transfer order is created with two types of lines:

   • Component lines: the raw materials (SP-BOM1101 and SP-BOM1102) being transferred from MAIN to location 82000 (Subcontracting).
   • WIP item line: the work-in-progress item (SP-SCM1009) with the description "Airpot - body assembled (WIP)" that you defined on the routing.

2. Post the transfer order. Because it's set up as a direct transfer, it posts the shipment and receipt together.

3. To verify, select the icon, enter Item Ledger Entries, and then select the related link. Filter on the transfer order number. There are shipment and receipt entries for the component items (SP-BOM1101 and SP-BOM1102). The WIP item doesn't appear in item ledger entries because it's tracked separately.

Receive subcontracted output

1. Go back to the purchase order. In the Qty. to Receive field on the subcontracting line, enter 8 to simulate a partial delivery.
2. Select the Post action, and then select Receive.
3. Go back to the production order and open the Routing. You can also select the production order link in the Subcontracting Details FactBox on the purchase order. The Subcontracting Routing Details FactBox now shows 8 in the Quantity Received field.

Return unused materials from the subcontractor

1. Go back to the purchase order. Select the Actions action, and then select Create Return from Subcontractor under the Subcontracting group.

   Business Central calculates how many components were transferred versus how many were consumed by the 8 units received, and suggests returning the surplus quantity.

2. Review the transfer order lines with the return quantities.

3. Post the return transfer order.

Invoice the purchase order

1. Go back to the purchase order. In the Vendor Invoice No. field, enter an invoice number (for example, SC-2026-001).

2. Select the Post action, and then select Invoice.

   The subcontracting cost is now recorded against the production order. To verify, go back to the production order and select the Statistics action. On the Cost tab, you can see the Expected subcontracting cost from the routing and the Actual cost from the posted purchase invoice.

Related information

Introduction to Contoso Coffee Manufacturing
Use Different Component Supply Methods in Subcontracting
Set Up Subcontracting Prices and Allocate Item Charges
Subcontracting overview