Overview of subcontracting

Operation subcontracting

Operation subcontracting entails subcontracting one or more operations to the subcontractor. These types of operation subcontracting are available:

• 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.

• With material flow support

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

  LN supports the physical and administrative flow of subassemblies as well as the required material. After completing the activities on the subcontracted items, the subcontractor sends the items back to the manufacturer.

  For more information, refer to Operation subcontracting in Procurement.

Product subcontracting

For product subcontracting, an item's entire production process is subcontracted. Therefore, it is always used with material flow support. If you apply product subcontracting, no production order is created.

Subcontracting order lines are generated in Enterprise Planning or created manually. The material supply lines are generated from the bill of material (BOM) lines, which are specified in the Materials tab of the Product Subcontracting Model (tisub1600m000) session.

When a planned subcontracting order is transferred in Enterprise Planning, it changes into a purchase order and the order lines are marked as subcontracted.

Unplanned subcontracting

Normally, subcontracting is planned. Sometimes, however, you may have decide to subcontract work even 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.

Production sites and subcontractor sites

A manufacturer can have several production sites, and a subcontractor can have several subcontracting sites.

For each production site, multiple subcontractors with multiple subcontracting sites can be available to perform subcontracting. Each subcontracting site can have its own prices, terms, and lead times.

A subcontractor site can be available for multiple production sites.

The subcontractor site can be modeled in the same cluster as the production site, or in an external cluster. If modeled in an external cluster, the subcontractor can be available for multiple production sites in different planning clusters. See General subcontracting setup for details.

A manufacturer may produce the same item at different production sites. The manufacturer can choose to subcontract the item, or some operations, to different subcontractors.

If a manufacturer subcontracts multiple operations of a production order, each operation can be subcontracted to a different subcontractor.

Subcontracting costs and prices

The subcontracting costs and prices are determined in different ways for operation subcontracting and product subcontracting.

• Operation subcontracting

  The Source of Price field in the Items - Purchase by Site (tdipu0181m000) session is used to determine the method used to calculate subcontracting purchase prices or subcontracting cost prices.

  The method can be:

  • Subcontracting Rate This method applies only to operation subcontracting. For more information, refer to Subcontracting rates.
  • Price Book / Contract. For more information, refer to Subcontracting in Procurement.

• Product subcontracting

  The product subcontracting price is defined in the Items - Purchase by Site (tdipu0181m000) session. This is used for the order costs. For the standard cost, in the Cost Calculation Codes (ticpr1100m000) session, you can use the product subcontracting price priority settings to select the prices that must be used:

  • Simulated Price, defined in the Simulated Product Subcontracting Prices (ticpr1171m000) session.
  • Current Price, defined as described earlier in the Items - Purchase by Site (tdipu0181m000) session.
  • Average Price
  • Latest Price.

Service subcontracting

For service subcontracting, work on an item to be maintained or repaired is subcontracted. This work entails the entire repair process, or only a part of it. Service subcontracting can be used with or without material flow support.

To supply material to the subcontractor, supply orders must be generated from the material supply lines in the Purchase Order Material Supply Lines (tdpur4116m000) session, or in the Generate Supply Orders for Subcontracting (tdpur4216m000) session.

Consumed material is issued from inventory and the material consumption is updated by Service. Financial transactions are also generated by Service.

For more information, refer to Service subcontracting in Procurement.

Availability of subcontracting functionality

The activation status of the multisite concepts determines the extent to which the subcontracting functionality is available.

You can view the activation status in the Enterprise Structures tab of the Implemented Software Components (tccom0100s000) session.

The full subcontracting functionality is available if the Resources by Site concept is activated.

If this concept is not activated, or if you are using a version older than 2022.05, fewer features are available and there are differences in the subcontracting setup and procedures.

For details, see chapter Older versions or multisite inactive in this guide.