Subcontract Order – Purchasing

A subcontract order refers to a purchase order for an operation performed by a subcontractor. Purchasing subcontract work functions according to the same principles used in purchasing material or services in the M3 Procurement module.

There are two types of subcontract orders in M3:

  • A subcontracting order integrated with a manufacturing order (MO).

A planned subcontract order is created when the MO is created, regardless of status.

  • Subcontracting order without MO.

This is designed for companies that do not have in-house production, but administrate operations chains using material either purchased directly or delivered to the subcontractor from an in-house inventory. This refers to items with item category 3 in 'Item. Open' (MMS001) and acquisition code 2 in 'Item. Connect Warehouse' (MMS002). This functionality is described in a separate section below.

Both types of subcontract order must be defined with order category 70 in 'PO Type. Open' (PPS095). M3 also supports delivery of material to the subcontractor.

Prerequisites

Subcontracting orders require the following settings:

Defining general purchasing settings (CRS780)

  • Parameter 07 - Requisition type for subcontracting. Specifies the requisition order type to be used when creating requisitions for delivery of material to the subcontractor.
  • Parameter 18 - Standard PO type for subcontracting. Specifies the PO type to apply for planned subcontract orders.
  • Parameter 21 - General costing method for subcontracting. Specifies the costing method to apply for the subcontract operations.
  • Parameter 32 - Planning policy for subcontract order. Specifies the planning policy values retrieved for all planned subcontract orders.

Defining PO type

PO types are defined in (PPS095). 0 or 2 must be entered for parameter 150 - Update material plan. Entering value 0 means that the subcontract purchase will not be displayed in the material plan. The value 2 means that the subcontract purchase is displayed in the material plan, showing actual status but projected on-hand balance is not adjusted upwards for it. Otherwise available on-hand balance would be adjusted upwards twice, since the MO does this. On-hand balance for items with subcontract orders without MO is adjusted upwards during the last operation, regardless of the value entered for this parameter.

Delivery address

A final destination address and any ship-via address must be specified for the subcontractor in order for the correct suggestion to be made. When no address is present, the subcontractor's mailing address is proposed.

Defining values for the requisition type (CRS200)

To connect integration to Transportation Planning, an appropriate Dispatch policy must be connected to the requisition order type. This integration is required for certain processing, such as for bills of lading, etc.

Basic data for production

The work centers that are subcontractors must be defined as resource type 2 (Subcontract) in 'Work Center. Open' (PDS010).

  • Operation Lines

The subcontract control field must be defined for the subcontract operation and subcontractor in 'Product Structure. Open' (PDS001). When several subcontract operations are defined in sequence, Next subcontractor should be specified in the subcontract operation. The address of the next subcontractor will then be entered as the delivery address in the purchase order for the first subcontractor. The value in the ‘Production days’ field will control the lead time for the operation.

  • Material Lines

The transaction control field must be defined for the material lines. This parameter determines whether material used in the subcontract operation should be requisitioned using an MO picking list or using the requisition routine. When the requisition routine is specified in this parameter, then the order type used is determined by parameter 07 in 'Settings – Purchasing' (CRS780).

Subcontract order integrated with MO

When entering an MO, a planned PO is created for operations with a work center having resource type 2 (subcontract). This is done regardless of status. However, the status of the planned PO is determined by the values in the planning policy. The planning policy is defined by parameter 32 in (CRS780).

If the value in Transaction control field (in the corresponding material lines) specifies that a requisition should be created, then this is done when the subcontract order is printed. Scheduled issue date for the requisition will then be the current date. When the requisition is created, the requisition reservation replaces the MO reservation. This is all displayed in 'Material Plan. Open' (MMS080).

After the PO is created, it is integrated in the following ways:

  • If a requisition is entered, the issued quantity as stated in the requisition is also updated into the MO.
  • When the start date, quantity manufactured, or completion date is changed in the MO or when the MO is deleted, then an automatic warning is given that a subcontractor order is included. The date is not changed automatically.
  • When the subcontract order is received, manufactured quantity and operation status in the MO are updated. Automatic receipt and material issue are also possible.

For items to be sent to a subcontractor, the product number is printed on the requisition. In this case, if the preceding operation was in-house, then that operation number is also printed on the requisition. However, the requisition line is not affecting inventory. Weight can be entered in the Initial weight field for the subcontract operation in 'Product Structure. Open' (PDS002/E).

The processing described above makes it possible for a complete picking list to be proposed. This includes proposed information about weight.

Subcontract order without an MO

This refers to items with item category 3. For these there is a structure for one or more levels with one or more subcontract operations. Importantly, only subcontract operations are use here. These structures are displayed using option 20=Subcontracting selection from 'Planned Purchase Order. Open' (PPS170/B). A structure is displayed for an indented bill of material with lines for material and operations.

  • Display of the material lines and proposed steps is affected by the value in the transaction control field. Material can be purchased directly to the subcontractor or delivered from in-house inventory.
  • Operation lines and delivery date for included material as stated in the planned PO, are based on the production days defined in the operation lines. Any changes made before release must be done manually.
  • Planned POs for material purchased directly to the subcontractor, and operations are created in (PPS171/E), when the planned PO is released using F14=Create planned PO. These planned orders function as normal purchase orders then.
  • A requisition for material to be issued is also created. This occurs when the first subcontract order or direct purchase connected to (the first seven positions in) the planned PO number becomes a purchasing order.
  • When the purchasing order is created, then all tracking can be done by inquiring for the planned order number in 'Purchase Order. Display Lines' (PPS220). This displays all purchase orders connected to the first seven positions in the planned PO number and their current status.
  • When the last subcontract operation is received, on-hand balance is updated for the item with item category 3 originally created in the planned PO.