Overview of subcontracting

Companies can decide to involve a subcontractor and subcontract part of their activities. The subcontractor carries out the work and returns the products to your company.

In LN, subcontracting is considered as purchasing labor from a third party. Therefore, if a manufacturer wants to subcontract work, he must generate a purchase order to start the subcontracting process.

Subcontracting without material flow support

The simplest form of subcontracting is to generate a subcontracting purchase order to record the operations outsourced to a subcontractor. The subcontracting purchase order only represents the administrative handling of the subcontracting process.

When the subcontracted item is received back from the subcontractor, you must close the subcontracting purchase order, which is the signal to continue with the production process. Neither the physical handling of the subcontracted item nor sending material to the subcontractor is supported.

For more information, refer to Operation subcontracting without material flow support.

Subcontracting with material flow support

A more extensive way of subcontracting in LN includes not only outsourcing work, but also the supply and receipt of the required material.

LN supports the physical and administrative flow of subassemblies as well as the required material. After the subcontractor has finished the activities on the subcontracted items the items are shipped back to the manufacturer.

You can choose between the following types of subcontracting:

  • Operation subcontracting, where part of production process (one or more operations) is subcontracted.
  • Item subcontracting, where the entire production process is subcontracted.
Note: If you use the Enterprise Modeler Content Pack with LN, consider using the MPU2010 (Subcontracting with Material Flow) wizard to set up subcontracting with material flow. You can execute this predefined wizard from the Wizards by Project Model (tgwzr4502m000) session after you specified the business function model for your company.

Unplanned subcontracting

In case of unplanned subcontracting, you take the decision to subcontract work after the creation of a production order. If you choose to subcontract the entire production, you must convert the production order to a purchase order in the Subcontract Production Orders (tisfc2201m000) session. If you want to subcontract a number of operations, you must replace the work centers on those operations with subcontracting work centers in the Subcontract Operations (tisfc2210m000) session.

Costs and prices

The Source of Price for Operation Subcontracting field in the Items - Purchase (tdipu0101m000) session is used to determine the method to calculate subcontracting purchase prices or subcontracting cost prices.

The method can be:

  • Subcontracting Rate. For more information, refer to Subcontracting rates.
  • Price Book / Contract. For more information, refer to Subcontracting in Procurement.