Setting up operation subcontracting

Select the Subcontracting with Material Flow check box in the Implemented Software Components (tccom0500m000) details session.

If you need to identify subassemblies uniquely, you can select the Demand Pegging or the Project Pegging check box in the same session.

Define an administrative warehouse in the Warehouses (whwmd2500m000) session. The administrative warehouse reflects the external warehouse at the subcontractor's location. Define the subcontractor data in the Sold-to field and the Ship-to field. This data is necessary to create subcontracting purchase orders during the subcontracting process.

Consider the following check boxes:

• Inventory Management

  If you clear the Inventory Management check box, you indicate that the subcontractor carries out the warehouse's inbound activities, which is a logical choice in case of subcontracting. You must complete the inbound procedure in one of the following ways:

  • Use automatic warehousing procedures. For more information, refer to Warehousing orders.
  • Update the inventory based on Receive Delivery messages. For more information, refer to Receipt delivery messages.

  If you clear the Inventory Management check box, and select the Manual Inbound Process Allowed check box, inventory management is not carried out, but you can do a manual inbound.

  Note that if you select the Inventory Management check box, you must also use automatic warehousing procedures.

• Include in Enterprise Planning

  Select the Include in Enterprise Planning check box.

• End item

  In the Item - Production (tiipd0101m000) session, find the end item for which you subcontract one or more operations, and for which you want to support the material flow. Select the Subcontracting with Material Flow check box for this item.

  Calculate the end item's standard cost (top-down) in the Calculate Standard Cost (ticpr2210m000) session.

• Subassemblies

  In the Items (tcibd0501m000) details session, define two items for which the Customized check box is selected. These items represent respectively the subassembly sent by the manufacturer to the subcontractor, and the subassembly sent back by the subcontractor after work is done. If you want to leave open the possibility to produce the item yourself instead of sending it to a subcontractor, set the item type of the subassembly that you receive back from the subcontractor to Manufactured or Product.

  If the manufacturer sends no subassembly to the subcontractor but only material, you just need to define an item code for the subassembly created by the subcontractor.

  Define the following data for the subassemblies:

  • Warehouse

    In the Items - Ordering (tcibd2100m000) session, find the defined subassemblies. For the subassembly that you will send to the subcontractor, enter in the Warehouse field the warehouse from which you send the subassembly. For the subassembly that you receive back from the subcontractor, enter the warehouse in which you receive the subassembly.

  • Standard Cost

    To generate an effective cost component structure, define the assemblies' costing data in the Item - Costing (ticpr0107m000) session. Calculate and actualize the standard cost in the Calculate Standard Cost (ticpr2210m000) session while the Actualize Standard Cost and Revalue Inventory check box is selected.

  • Supply

    Subassemblies are sent to the subcontractor by means of a purchase subcontracting order, which is an order-specific supply. In the Item Data by Warehouse (whwmd2510m000) details session, you must therefore define the supply system Order Controlled / Single for the correct combination of the subassembly that you will send to the subcontractor and the administrative warehouse. Note that for a subassembly, this is the only supply system you can use.

  • Price

    For the item that is sent back by the subcontractor, you must determine the price you will pay to the subcontractor. In the Item - Purchase session, use the Source of Price for Operation Subcontracting field to choose between Subcontracting Rate and Price Book / Contract to determine the price. Note that if you subcontract the last operation, you must define the price for the end item instead of for the subassembly.

    If the Source of Price for Operation Subcontracting field in the Item - Purchase session is Subcontracting Rate, you must define subcontracting rates in the Subcontracting Rates (ticpr1160m000) session. Define the rate by task for the correct combination of project, price calculation code, parent item or subcontractor.

    If the Source of Price for Operation Subcontracting field is Price Book / Contract, the Subcontracting Rates (ticpr1160m000) session is also relevant, because the tasks' cost components are defined in this session. You can leave the Parent item, and Subassembly fields empty.

Regulate the supply of components to the subcontractor. There are two ways:

• Order specific supply

  Order specific supply means that supply is linked to the subcontracting purchase order. The supplied quantity is the quantity required for the purchase order. To use order specific supply, the component's supply system in the Item Data by Warehouse (whwmd2510m000) session must be Order Controlled/Single, for the correct combination of component and administrative warehouse.

  Order specific supply can exist between manufacturer and subcontractor, or directly between supplier and subcontractor:

  Supplier - subcontractor

  • Clear the Supply from Warehouse check box in the Item Data by Warehouse (whwmd2510m000) details session, for the correct combination of component and administrative warehouse.
  • Enter the supplier in the Ship-from Business Partner field and the Buy-from Business Partner field.
  • Supply takes place by purchase order.

Define terms and conditions in the following cases:

• If components are shipped by sales orders.
• If you, the manufacturer, are responsible for the components' planning.

Perform the following steps:

1. By means of the Terms and Conditions (tctrm1100m000) session, start the Terms and Conditions (tctrm1600m000) session to define a terms and conditions agreement. The Terms and Conditions Type field must be Sales.

2. Define a terms and conditions search level for which the Search Attribute 1 field is Item Group, and the Search Attribute 2 field is Warehouse. Select the Order check box and the Planning check box.

3. Double-click the defined search level to start the Terms and Conditions Search Level (tctrm1610m000) session. In this session, define the items to which the agreement applies.

4. Double-click the defined items to start the Terms and Conditions Line (tctrm1620m000) session. On the Planning tab or in the Planning Terms and Conditions (tctrm1135m000) session, select the Responsible for Supply Planning check box. On the Order tab or in the Order Terms and Conditions (tctrm1130m000) session, select Sales Order Transfer in the Transfer Type field.

For more information about agreements, refer to Setting up terms and conditions.

If components are planned by the subcontractor or shipped by sales order, define a contract in the Sales Contracts (tdsls3500m000) session. The Sold-to Business Partner field must contain the subcontractor code. Use the Terms and Conditions ID field to link the applicable terms and conditions agreement.

Define the rest of the contract in the Sales Contract Lines (tdsls3501m000) session.

Define your user profile in Purchase Control so that LN can generate and handle subcontracting purchase orders properly.

In your LN system, you must define a subcontracting work center to represent the place where subcontracting operations are carried out. In the Work Centers (tirou0101m000) session, define a subcontracting work center with work center type Subcontracting.

Link the following information to the subcontracting work center:

• In the Subcontractor field, enter the subcontractor code.
• In the Shop Floor Warehouse field, enter the administrative warehouse, which can be a normal warehouse or a shop floor warehouse. This warehouse represents the warehouse at the subcontractor's location, and is used to monitor the subassemblies' and components' inventory levels.

In the Routing Operations (tirou1102m000) session, link the defined subassemblies, warehouses, and subcontracting work centers.

In the Bill of Material (tibom1110m000) session, use the Supplied by Subcontractor check box to determine how the subcontractor is provided with material for subcontracting activities.

In the Operation field, enter the operation number for which the subcontractor requires the material.