Subcontracting in Business Central

In a previous post, we covered some of the key fields in a Work Centre Card. I considered putting this field within that blog but I quickly became aware that this warranted its own blog. Subcontracting can be a staple to a business’ manufacturing process. If you take out the part of your business process which isn’t in your skillset, the increased efficiency will usually outweigh the cost of subcontracting. Given the normality of using subcontractors in a manufacturing environment, it’s imperative Business Central has the necessary tools to account for varying subcontracting instances.

Subcontracting setup

The first thing to establish is that subcontractors are set up as vendors in Business Central. So before anything else, make sure the appropriate Vendor Card has been created.

The Routing Lines must take into account the subcontracting part of the manufacturing process. When creating your Routing Lines, be sure to order them appropriately using the Operation No. field, considering the order of activity within the creation of the product. Given typical examples of subcontracting in a manufacturing space include painting, galvanising or welding, it’s unlikely these would be the first Operation Line. But the flexibility to put it in chronological order is there.

In the above image, see the Routing shows what is trying to be achieved (make a ‘Painting’). The first and third Routing Lines take place at our Work Centre. The second, at ‘Picasso’s Painting’, the subcontractor’s location. The subcontractor here is ‘Pablo Picasso’. In our example, we are imagining step one to be getting the parts together, then painting and then finally putting it together. The Item it’s for is ‘Painting’, which is made up of the BOM below.

Using subcontractors at irregular intervals

It’s not uncommon that subcontractors are a staple part of the manufacturing process of a particular item, but for one reason or another aren’t required. This may be where you don’t typically have the capacity to do the routing alone. Alternatively, where time is limited, you may choose to hire a subcontractor where you otherwise wouldn’t. In instances like these, you add or remove the Subcontractor No. on the Production Order Routing, not in the setup (i.e. Item Routing). You may also change the times here too. For example, if the subcontractor can complete the Routing Line twice as quickly.

Different costing calculation options

In the Subcontractor’s Work Centre, establish the Unit Cost. This value may be based on time but equally where where you are paying per action, like each Painting painted, you can set a price for the cost per Item. For instances where the cost of using the subcontractor’s services are based on time, you input the Run Time on the Routing and the Cost on the Work Centre. You establish whether you are paying based on Units or Time in the Work Centre Card, using the Unit Cost Calculation field.

Option one

The first option for calculating the cost I will show is with a Unit Cost Calculation of ‘Time’ and Specific Cost Calculation of ‘On’. See the image below. It’s taken from the ‘Statistics’ subpage on a Released Production Order once it has been generated. The calculated Subcontracted Cost is the sum of multiplying the Unit Cost Per on the Routing Line (£15) by the Run Time (four hours), giving the cost of £60.

Option two

Image two has a Unit Cost Calculation of ‘Unit’ and Specific Cost Calculation is ‘On’. As we said, when it’s on ‘Unit’, the Run Time is meaningless from a costing perspective. So here, it’s looking at the cost of producing one painting using the routing cost.  

Option three

Image three has a Unit Cost Calculation of ‘Time’ and Specific Cost Calculation is ‘off’. The Work Centre Unit Price per hour is £100. As the Run Time for this is four hours, it comes to £400. 

Option four

The fourth image has a Unit Cost Calculation of ‘Unit’ and Specific Cost Calculation is ‘off’. There’s only one painting being made and the Work Centre Unit Cost per hour is £100 and so it comes out at £100. These four variations show how you can customise the way in which the prices are generated, showing starkly different results. 

The Production Order

The final step after establishing how the subcontractor is charging you is to create the Released Production Order. Enter the relevant details and then click ‘Refresh Production Order’. You can then check the ‘Statistics’ subpage to see if the data is correct. To do this, click ‘Order’ and then ‘Statistics’. You can also check the Routing for the Item by clicking ‘Line’ and then ‘Routing’.

After the Released Production Order is refreshed, go to the ‘Subcontractor Worksheets’ and click ‘Process’ and ‘Calculate Subcontracts’. This should generate a line in relation to the Work Centre and Run Time you’ve input. When you are happy with it, click ‘Carry Out Action Message’ and then it will be made into a Purchase Order. This Purchase Order will be treated as an Item. This is why it’s important that the Routing Description makes it very clear it’s a subcontract so the Purchasing team know it’s not an Item they are trying to buy. The Purchase Order is created but not communicated or posted. Next, make sure to Personalise the page to add onto the Line the ‘Prod. Order No.’ and ‘Prod. Order Line’ as a reference to which Production Order this Purchase Order is for. These two fields can’t be edited which is good. Finally, you can post. 

Concluding remarks

We really hope that this blog has better helped you understand the topic of subcontracting and how you can make it your own in Business Central. This ties in with other articles we’ve published, like costing methods. We’d love to hear any thoughts or questions you have, so contact us here.

Leave a Comment