Subcontracting sends one or more operations in a production routing to an outside vendor, such as heat treatment, painting, or packaging. Business Central has always supported a basic version through subcontract work centers. The Subcontracting extension, generally available since update 28.3, adds component transfers to the vendor, subcontractor price lists, operation comments, and warehouse support. Version 29.0 made setup easier, carries subcontracting instructions into purchase orders, and added inventory put-aways and picks.
This guide sets up a subcontracted operation from scratch and runs one production order through it.
When to Use This
- An operation in your routing is done by a vendor, and you want its cost on the production order.
- You send components or semi-finished goods to the vendor and need to know what is at their site.
- Purchasing creates subcontracting orders by hand today and copies production order details into them.
Step 1: Install the Extension and Run the Guide
- Search for Extension Management and install Subcontracting if it isn’t installed.
- Search for Assisted Setup and select Set up Subcontracting.
- Set the default journal template and batch, whether to add production order information lines, the component cost source, and the component transfer lead time.
- Use the links in the guide to open the setup pages for work centers, vendors, locations, prices, and component supply methods.
- Select Finish.
The guide saves the defaults, but it doesn’t check that every vendor, location, or routing is ready. The steps below cover that.
Step 2: Review Manufacturing Setup
- Search for Manufacturing Setup.
- On the Subcontracting FastTab, check:
| Field | What it does |
|---|---|
| Create Prod. Order Info Line | Adds a text line with the production order description to the purchase order, so the vendor sees what the work belongs to |
| Subcontracting Component Transfer Lead Time | Subtracted from the component due date to set the transfer order receipt date |
| Subcontracting Journal Template Name and Subcontracting Journal Batch Name | Used when you create subcontracting directly from a production order routing line |
| Component Direct Unit Cost | Standard uses normal purchase prices. Prod. Order Component uses the cost from the production order component. |
Step 3: Set Up the Vendor and Its Location
Components and work in progress at the vendor need a location of their own.
- Create a location for the subcontractor, for example
SUB-PAINT. One location per subcontractor keeps stock at each vendor separate. - Open the Vendor Card and set Subc. Location Code to that location.
- Set up a transfer route with an In-Transit Code between your main warehouse and the subcontractor location.
Without a transfer route, Business Central creates direct transfers. Sending components works that way, but returning unused components fails when your warehouse requires receipts, put-aways, or directed put-away and pick. Also check Direct Transfer Posting on Inventory Setup.
Step 4: Set Up the Subcontract Work Center
- Open the Work Center Card for the subcontracted operation, or create one.
- Set Subcontractor No. to the vendor. This is what makes it a subcontract work center.
- For one rate per vendor, fill in Direct Unit Cost, Indirect Cost %, and Overhead Rate. For a different rate per operation, select Specific Unit Cost and set the cost on each routing line instead.
Direct Unit Cost is what you pay the vendor. Indirect Cost % and Overhead Rate are your own handling costs. The unit cost on the card is:
Unit Cost = Direct Unit Cost × (1 + Indirect Cost % / 100) + Overhead Rate
For prices that vary by item, use subcontractor price lists by vendor, item, and work center instead of fixed costs.
Step 5: Add the Operation to the Routing
- Open the routing for the item.
- Add a line for the subcontracted operation with Type set to Work Center and No. set to the subcontract work center.
- If the vendor needs components from you, enter a Routing Link Code on the line, for example
PAINT.
Machine centers don’t support subcontracting. Use a work center on the routing line, or pricing, location changes, and purchase order creation won’t work.
Instructions for the vendor: open Standard Tasks, select a task, and add instructions under Subcontracting Comments. Set Subc. Standard Task Code on the routing line to copy them. They carry over to the production order and then onto the purchase order as text lines.
Drawings and specs: on the routing, open Attachments, add the file, and turn on Document Flow Production and Document Flow Purchase. The file follows the operation to the purchase line.
Step 6: Set the Component Supply Method
On the production BOM, give the components the vendor uses the same Routing Link Code as the operation, then set Component Supply Method:
| Method | Use when | What Business Central does |
|---|---|---|
| Transfer to Vendor | You send exactly what each order needs | You create a transfer order from the purchase order. The component keeps its location until transferred. |
| Vendor-Supplied | The vendor buys the material | Adds a purchase line for the component on the subcontracting order and moves the component to the vendor location |
| Consignment at Vendor | You keep a stock of your own material at the vendor | Moves the component to the vendor location. You replenish that location with normal planning. |
For components consumed at the vendor, open the Stockkeeping Unit for the vendor location and set Flushing Method to Backward on the Replenishment FastTab. Consumption then posts automatically.
Step 7: Create the Subcontracting Purchase Order
From a single production order:
- Open the Released Production Order and select the line.
- Select Routing, then select the subcontracted operation.
- Select Create Subcontracting Order and confirm.
For many orders at once:
- Search for Subcontracting Worksheets.
- Select Calculate Subcontracts and filter on the work center or operation.
- Review the lines, then select Carry Out Action Message.
The worksheet groups lines for the same vendor location into one purchase order. Creating orders from several routing lines on the production order creates one purchase order per line.
On the purchase order, the Subcontracting Details FactBox shows the linked production order, operations, components, transfers, and prices. Select Print Subcontractor Dispatching List to print a list to send with the goods.
Step 8: Send Components to the Vendor
- Open the subcontracting purchase order.
- Select Create Transf. Ord. to Subcontractor.
- Post the transfer order shipment, and the receipt at the vendor location.
The transfer goes from the component’s location to the vendor’s Subc. Location Code, with the receipt date calculated from the transfer lead time.
If the vendor doesn’t use everything, select Create Return from Subcontractor on the purchase order to bring the rest back. You can create one return per purchase order line.
Step 9: Receive and Invoice
- Post the purchase order as received. This posts capacity to the production order.
- If the subcontracted operation is the last one on the routing, receiving also posts output for the production order.
- Post the invoice from the purchase order itself. The direct cost goes to the production order.
If the location requires warehouse handling, use Create Whse. Receipt or, for put-away without receipts, Create Inventory Put-away/Pick…. Inventory put-aways and picks for subcontracting came in version 29.0.
Subcontracting orders must be invoiced from the order. Get Receipt Lines on a separate purchase invoice doesn’t work for them, because the cost must reach the production order.
Automatic output on the last operation isn’t always wanted: the quantity received may differ from the real output. Add a final in-house operation, such as an inspection or packing step, to keep output posting under your control.
Example Configuration
| Setting | Value |
|---|---|
| Vendor | V-PAINT, Subc. Location Code SUB-PAINT |
| Work center | WC-PAINT, Subcontractor No. V-PAINT, Direct Unit Cost 45, Indirect Cost % 5 |
| Routing line | Operation 30, Type Work Center, No. WC-PAINT, Routing Link Code PAINT |
| BOM line | Primer, Routing Link Code PAINT, Component Supply Method Transfer to Vendor |
| SKU | Primer at SUB-PAINT, Flushing Method Backward |
| Final operation | Operation 40, in-house quality check |
Subcontracting builds on the routing and work center setup. If those are new to you, start with How to Set Up Routings and Work Centers in Business Central.