When specifiying material movements you have to pay special care to monitoring sub-contracting. Let us take a look at the scheme of material movements in subcontracting and imagine where could the problems occur.

To monitor subcontracting in a correct way it is important that you set specifications accordingly. For more information see Set up Subcontracting in Specifications.

Performing Sub-contracting

Let us for example take a look at managing sub-contracting a classical way. First let us deliver materials to a subcontractor (that is, material, semi-finished products or even products themselves). We marked such a document as 2K.

The subcontractors first stores the material at warehouse. When carrying out sub-contracting it issues material from warehouse to production (see document 3K in scheme). Material gets processed by rendering of subcontractor's service (1L, see follow-up).

Having finished the process of subcontracting finished products (eitther materials, semi-finished products or even products) are delivered back to production (see document 1K in scheme).

If the subcontractor delivers products gradually (e.g. in batches by 100) and invoices them on a monthly basis, you have to set up a method allowign you to check whether the partial recapitulations correspond to services charged. Open collective invoicing (see 1Z in scheme) using which you can collect individual recapitulations (1L).

See Collective Invoicing for methods used in collective billing.

Set production cell for subcontracting as shown in the above scheme. That is, input of material together with material consumption (event 3K). This is further processed by services rendered (document 1L) and finally issued directly back to product warehouse.

In resources set which type of document will be used in creating work order (in this case 6K). Besides the subject (subcontractor) set also document type (6K) used for work orders in sub-contracting.

Using this setting you can track sub-contracting with a special module which by receiving finished movements (document 1K) automatically generates movements (documents) 6K, 3K and 1L (according to the price list for operations as entered under services in the Items register). More information on sub-contracting module can be found in the instructions for monitoring manufacturing.

What is the result of such organization?

An important item in monitoring manufacturing is adequate valuation which serves as a basis for calculating the cost price. Products delivered according the above-mentioned method are valuated using the formula (in the same way as in other work orders).

This way products produced in subcontracting will be delivered by the price including both the cost of material as well as cost for services charged. For more information in valuating manufacturing see Calculating Cost Price in Work Orders.

Using collective invoicing brings about another advantage. By receiving it is not required to have the price of services rendered by subcontractor. Use value 0. After subcontractor issues you a collective invoice (1Z), change prices in internal documents of issue (1L) linkd to the document. Having changed prices in document (1L), where you are entering cost of services rendered, cost price is changed accordingly by recalculating movements (only by incomplete period).