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Chapter 6: Subcontracting

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CHAPTER 6: SUBCONTRACTING Objectives

The objectives are:

• Set up a Subcontractor. • Set up Subcontractor Cost by Subcontractor or by Process. • Set up a Routing with a Subcontractor. • Process a Production Order with a Subcontractor. • Determine when a Purchase Order is related to a Production Order. • Determine the status of Subcontractor Operations on Released

Production Orders.

Introduction Subcontracting is a strategic decision in many manufacturing companies. Subcontracting is defined as a vendor performing one or more operational steps in the production process. Subcontracting can either be a rare occurrence or an integral part of all production activities, depending on the company.

This course focuses on the different aspects of the subcontracting process from setting up the subcontractor and routing to the daily work routines in the system connected to using the subcontractor.

Microsoft Official Training Materials for Microsoft Dynamics ® Your use of this content is subject to your current services agreement

Manufacturing II in Microsoft Dynamics® NAV 2009

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Subcontracting Microsoft Dynamics® NAV 2009 provides several tools to manage subcontract work, including the following features:

• Work Centers with assigned vendor. The work center is set up and associated with the vendor (subcontractor). The vendor can be specified as an outside operation step on a routing, which allows easy handling of a subcontractor. In addition, the cost of the operation can be designated at the routing or at the work center level.

• Work Center cost based on units or time. This feature specifies if costs associated with the work center are based on the production time or a flat charge for each unit. Although subcontractors commonly use a flat charge for each unit to charge for their services, the program can handle both options (production time and flat charge for each unit).

• Subcontracting Worksheet. This feature finds the production orders with material ready to send to a subcontractor and automatically creates purchase orders for subcontract operations from production order routings. Then the program automatically posts the purchase order charges to the production order during the posting of the purchase order.

NOTE: Only production orders with a status of released can be accessed and used from a subcontracting worksheet.

Subcontract Work Centers

Subcontract work centers are set up the same as regular work centers, with additional information. They are assigned to routings in the same manner as other work centers. When the purchase order is received, it is the same as completing the operational step.

NOTE: If the subcontractor step is the last step in the routing, the output is posted when the purchase order is received.

Demonstration 1

The following steps show how to create a subcontract work center.

1. In the navigation pane, click the Departments button. 2. Go to Manufacturing > Capacities > Lists> Work Centers. 3. Click New. 4. In the No., field, enter 500. 5. In Name field, type Quality Inspection. 6. In the Work Center Group Code field, select 2.



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7. In the Subcontractor No. field, select 30000 (CoolWood Technologies).

8. In the Flushing Method field, select MANUAL. 9. In the Gen. Prod. Posting Group, select MANUFACT. 10. In the Unit Cost of Calculation, select Units. 11. Select the check box beside Specific Unit Cost. 12. In the Unit of Measure Code field, select MINUTES. 13. In the Shop Calendar Code field, select 2. 14. Accept the defaults for Capacity and Efficiency. 15. Click OK.

A Subcontractor work center card is created. Continue to use this work center card in subsequent examples.

The following are some of the fields on the Posting FastTab.

Unit Cost Calculation Field

The Unit Cost Calculation field is often set to Units on a subcontractor work center. The unit cost generated for a purchase order from a production order routing step is based on a unit charge rather than a measurement of time (such as for each hour).

Select Units in the Unit Cost Calculation field.

Specific Unit Cost Field

If the company has chosen to subcontract at a single rate for each vendor:

• Set up the cost on the Work center card by filling in Direct Unit Cost through Overhead Rate fields.

• Leave the Specific Unit Cost field blank.

If subcontracting with this vendor for a different rate for each process then select the Specific Unit Cost field.

This sets up a cost on each routing line and saves the time of reentering the information on each purchase order. The cost on the routing line is used in processing rather than the cost on the Work center cost fields.

For example, suppose several different processes are subcontracted to a vendor, with most having different unit costs. An example of this is a painting shop.

• The painter applies paint of different grades (epoxy/enamel) and colors, based upon the type of bicycle.

• Each different type of paint uses a unique process.



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• These factors combine to drive a high degree of variability in the unit costs for each process.

• Rather than having multiple Work center cards for each process, the cost of each specific process is indicated on the applicable routing operation.

To enable the system to calculate costs for this vendor by the routing operation, place a check mark in the Specific Unit Cost field.

A Subcontractor work center card is now created for use with Specific Unit Costs based on units.

FIGURE 6.1 WORK CENTER CARD

Demonstration 2

To continue with the demonstration and use the Subcontractor work center in a routing, perform the following steps to calculate the calendar for this work.

1. Open the work center that you have created. 2. Click Calendar. 3. In the View by field, select Month. 4. Click Show Matrix. 5. Go to Actions>Functions>Calculate. 6. Accept the default start and end dates. 7. In the Work Center FastTab, go to the No. field and select 500. 8. Click OK.

Use this Work center on a routing.



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Routings that use Subcontract Work Centers

In Microsoft Dynamics NAV 2009, Subcontractor work centers can be used exactly as the method used for operations on routings.

Set up a routing that uses an outside Work center as a standard operational step. Alternatively, modify the routing for a particular production order to include an outside operation. This may be needed in an emergency situation such as a machine breaking down or during a temporary period of higher demand, where the work normally performed in-house must to be sent to a subcontractor.

Demonstration 3

The following steps show how to set up a subcontractor work center in a routing.

1. In the navigation pane, click the Routings button. 2. Double-click routing no. 1000 (Bicycle) to open it. 3. Click Versions. 4. Click New. 5. In the Version Code field, type 1. 6. In the Description field, type Executive Bicycle. 7. In the Starting Date field, type 2/1/2010. 8. In the Type field, select Serial. 9. Go to the Lines FastTab and enter the following parameters:

Operation No. 10

Type Work Center

No. 500

10. Change the status to Certified and click OK.

Subcontracting Worksheet

The following is a demonstration showing how to use the Subcontracting Worksheet. First, review the Subcontracting Worksheet by going to: Departments>Manufacturing> Planning > Tasks> Subcontracting Worksheets.

This worksheet operates similar to the Planning Worksheet and the Requisition Worksheet; it quickly calculates information and allows the user to review it. Once the user approves the information, the relevant document, in this case a purchase order, is created.



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To calculate the information, go to Actions>Functions > Calculate Subcontracts. The Report Selection screen has three FastTabs. Setting filters on either of the first two FastTabs limits the information brought into the Subcontracting Worksheet.

FIGURE 6.2 CALCULATE SUBCONTRACTS

The Options FastTab has one field: Order Date. The date entered in this field flows to the Order Date field in the worksheet. The Due Date is calculated from this date.

On the Work Center FastTab, set filters on the Work Center Card information to focus on certain vendors or processes. The Work Center No. and Subcontractor No. default as filter fields.

The Production Order Routing Line FastTab has Prod. Order No. and Starting Date to focus on certain items being produced or a certain time frame.

Demonstration 4

To illustrate how the Subcontracting Worksheet can be a timesaving tool in managing outside operations, start by creating a Released Production Order for the item worked on previously. If the created routing is not associated with an item, add it to a produced item card now. Verify if the routing is in use.

Perform the following steps to create a firm planned production order.

1. In the navigation pane, click the Firm Planned Production Orders button.

2. Click New. 3. In the Description field, type Bicycle. 4. In the Source No. field, select 1000 (Bicycle). 5. In Quantity field, type 12.



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6. In the Lines FastTab, select item number 1000 (Bicycle). 7. In the Due Date field, type 02/10/2010. 8. Click Refresh to obtain the component and routing information. 9. Accept the default settings and click OK. 10. Highlight the item to select it, click the Actions icon (lightning bolt

symbol) and go to Line>Routing to see that the subcontractor work center (Quality Inspection) is included.

11. Close the Prod. Order Routing window and go back to your production order.

12. Add the Routing No. and Routing Version Code on the production order lines by using Choose Columns and adding the fields.

13. Click Change Status. 14. Check that the status is changed to Released. 15. Change the posting date to 20/11/2010 and click Yes. 16. Note the released production order number and click OK. 17. Close all open windows.

The next step is to generate a purchase order for any released production orders that have an outside work center as an operation. A purchase order cannot be duplicated because, once it is generated, it is "linked" to that order because of the Microsoft Dynamics NAV 2009 Order Tracking System.

1. In the navigation pane, click the Departments button. 2. Go to the Manufacturing > Planning >Tasks> Subcontracting

Worksheets. 3. Go to Actions>Functions>Calculate Subcontracts. 4. Accept the default settings and click OK.

The information in this worksheet comes from the Production Order and Production Order Routing Lines and flows to the Purchase Order when that document is created. Some of the fields are described in the following table.

Field Description

Type This is Item .

No. The item being produced by the Production Order shows in this field.

Accept Action Message

Selecting this field allows the user to choose Carry Out Action Message to make a Purchase Order. To keep a row in the worksheet for review, clear the checkmark in this field.

Action Message

This field says "New" to show that a new document is being created.

Prod Order No.

The Released Production Order No. is shown here.

Operation This shows the Operation No. from the Production Order



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Field Description No. Routing Lines.

Work Center No.

The Work Center No. is shown.

Description The Work Center Description is shown.

Quantity The Quantity for this line.

Direct Unit Cost

This field shows the "cost per." If choosing Specific Unit Cost on the Work Center Card, this cost comes from the Routing Line; otherwise, it comes from the Work Center Card. The Direct Unit Cost flows to the Purchase Order and is used to calculate the Line Amount in the Purchase Order.

Demonstration 5

The following demonstration shows how to create a Purchase Order from a Subcontracting Worksheet.

In a live situation, a person in the manufacturing or purchasing area reviews each row of information. As with the other worksheets, a user can delete a row from the worksheet without affecting the original information. The information appears the next time Calculate Subcontracts is chosen.

In the demonstration, make a Purchase Order for the row(s) of information. As with the Requisition Worksheet, one Purchase Order is created for each vendor. If all subcontracting operations are sent to the same vendor location, only one PO is created. If multiple vendors are named, multiple POs are created.

1. From the Subcontracting Worksheet, verify that the check box under Accept Action Message is selected and go to Actions>Functions> Carry Out Action Message to make the purchase order.

2. On the Options FastTab, the Purchase Order can be printed as it is created. Leave this field blank for this demonstration and click OK.

The information turned into a Purchase Order is deleted from the worksheet. Once a Purchase Order is created, the information does not appear again in the worksheet. This prevents the accidental creation of multiple Purchase Orders for the same process.

3. Close all open windows.



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The next step is to review the new purchase order.

1. In the navigation pane, click the Purchase Orders button. 2. Find and open the new Purchase Order. 3. Use the Show columns functionality and add these fields to the

Purchase Order Lines FastTab: Prod. Order No., Prod Order Line No., Operation No., and Work Center No., on the Purchase Order Lines.

The information that flowed from the Released Production Order to the Subcontracting Worksheet now shows in the Purchase Order.

The fields from Type through Direct Unit Cost in the previous example are the same as in the worksheet. Calculate the Line Amount by multiplying the Quantity by Direct Unit Cost.

The Production Order through the Work Center fields are the links that connect this Purchase Order to the Production Order. The line shows the source Production Order and capacity resource information. If the costs change when the Purchase Order is invoiced, the new costs flow to the correct Production Order WIP costs. Additional information concerning costs is available in the Manufacturing Costing course.

View the date fields Planned Receipt Date, Expected Receipt Date, and Order Date to determine how the scheduling information from the Production Order is carried through.

Posting Charges to Production Orders for Subcontract Purchase Orders

A Subcontract Purchase Order is used for work performed or services rendered. When a Subcontract Purchase Order is received, the inventory quantity of the parent item of the Production Order is not increased. The only exception to this is if the subcontract operation is the final step on the Production Order Routing. When the subcontractor step is the final operation, then posting the purchase order receipt is the same as posting output to the final step. Posting output to the final operational step is when inventory is increased.

Demonstration 6

The following demonstration shows how to post the Purchase Order and review the capacity entries.

1. From the purchase order, type 1/28/2010 in the Posting Date field. 2. In the Vendor Invoice No. field, type 123456. 3. Click Post. 4. Select Receive and click OK. 5. Press the Esc button.



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Before posting the invoice, review the Capacity Ledger Entries.

6. In the navigation pane, click the Released Production Orders button.

7. Open your production order. 8. Go to Related Information>Order>Entries>Capacity Ledger

Entries. 9. Check that the Quantity field is filled in and the Direct Cost field is

blank.

Continue posting the Purchase Order.

10. Close all open windows and go back to the Purchase Order. 11. Click Post. 12. Select Invoice and click OK.

Review the Capacity Ledger Entries again.

13. Go to the Released Production Order. 14. Go to Related Information>Order > Entries > Capacity Ledger

Entries.

The program automatically posts a Capacity Ledger Entry to the Production Order when the Purchase Order is received. The Direct Cost of the Purchase Order is posted to the Production Order when the Purchase Order is invoiced.

15. Close the Capacity ledger Entries window and go back to the production order.

16. From the Lines FastTab, click the Actions button (lightning bolt symbol) and go to Line > Production Journal to verify that the subcontractor operational step (Quality inspection) is posted.

17. Close all open windows.

Often, one or more components are sent to a subcontracted vendor to perform some type of assembly or manufacturing operation. To record the withdrawal of components from inventory, enter a manual Consumption Journal entry. To minimize the amount of data entry required:

• Have the program automatically remove the component from inventory by setting the component to be automatically flushed.

• Assign a Routing Link Code on the Production BOM and on the Subcontracting Routing Operation.

Alternately, set up a Routing where there is a "picking" operation immediately prior to the outside operation.



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Automatically flushed components:

• May be linked to the picking operation. This ensures that components are removed from inventory prior to the outside operation. A receiving operation may also be set up.

• Negative quantities on the Production BOM may be linked to the receiving operation. This results in an inventory increase of the components when they are received from the vendor. (The use of Flushing methods on work and machine centers is explained elsewhere in the manual.)

NOTE: If the subcontractor step is the last operational step on the Routing, and the Purchase Order is received and invoiced, the program automatically records that the parent item on the Production Order is finished. Therefore, if time for the earlier operational steps is not recorded in the Output Journal, the Routing cannot be exploded. The time must be manually recorded, line item by line item, in the Output Journal, and the Production Order Status must be manually changed to Finished.

Reports

Subcontractor - Dispatch List

This report lists all of the Released Production Order Lines for subcontract operations. The report shows when these operations are scheduled and whether a Purchase Order is created. To access this report, go to: Departments>Manufacturing>Execution>Reports>Subcontractor-Dispatch List.

Set the following filters when running the report:

• On the Vendor FastTab: o Enter a Vendor No. to limit the information for the vendor being

reviewed.

• On the Work Center FastTab: o Enter the Work Center Number(s) for the list to be printed.

• On the Prod. Order Routing Line FastTab:

o There are three default filter fields:



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Field Comments

Prod. Order No. The Production Order Number(s) for the printed list.

Starting Date A Starting Date to exclude Production Order Lines that starts before this date.

Ending Date A date to exclude Production Order Lines that ends after this date.

Click the Preview button to view the results of your report.

Summary This course reviews all of the different aspects of the subcontracting process from creating the subcontracting work center and routing to using the subcontractor worksheet, as well as creating the PO and posting it. Increasingly, processes are subject to outsourcing in the new economy, hence the importance of becoming familiar with the different aspects of the subcontracting process.



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Lab 6.1 - Subcontracting Scenario

Create a Subcontractor Work Center

1. Create a subcontracting work center-called Subcontract, with a unit of measure of days.

2. Set up the work center so that the costs are set up by units on the routing line.

Step by Step 1. In the navigation pane, click the Departments button. 2. Go to Manufacturing > Capacities > Lists> Work Centers. 3. Click New. 4. Select the General FastTab. 5. In the No., field, type Subcontract. 6. In Name field, type Subcontract. 7. In the Work Center Group Code field, select 2. 8. Go to the Posting FastTab. 9. In the Unit Cost of Calculation field, select Units. 10. Select the check box beside Specific Unit Cost. 11. In the Subcontractor No. field, select 30000 (CoolWood

Technologies). 12. Go to the Scheduling FastTab. 13. In the Unit of Measure Code field, select DAYS. 14. In the Shop Calendar Code field, select 2. 15. Click Calendar. 16. In the View by field, select Month 17. In the Column Set field, accept the default dates. 18. Click Show Matrix. 19. Go to Actions > Functions > Calculate. 20. In the Starting Date field, type 01/01/2010. 21. In the Ending Date field, type 12/31/2010. 22. Click OK. 23. Close all open windows.

Lab 6.2: Add Subcontractor to a Routing 1. Add Subcontract to routing number 1000 as operational step number

35. 2. Change the routing description to "Painting."



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Step by Step 1. In the navigation pane, click the Routings button. 2. Double-click Routing No. 1000 (Bicycle) to open it. 3. Select the General FastTab . 4. In the Status field, change the status to Under Development. 5. Go to the Lines FastTab. 6. Select operation 40. 7. Right-click and select New Line. 8. Type 35 in the Operation No. field 9. Under Type, select Work Center. 10. Type an S in the No. field and then press Tab. This chooses the

Subcontract work center. 11. Change the Description to Painting. 12. Enter a run time of 2. 13. Click the Actions icon (lightning bolt symbol) and select Choose

Columns. 14. Add Run Time Unit of Meas. Code to the list and click OK. Notice

that this work center's run time unit of measure is in days. 15. Change the status to Certified. 16. Click OK.

Lab 6.3: Start the Subcontractor Worksheet 1. Create a released production order, then create a new released

production order for a quantity of 3 for the item. 2. Establish the subcontracting worksheet and calculate subcontracts.

Step by Step 1. In the navigation pane, click the Released Production Orders

button. 2. Click New. 3. In the Description field, type Bicycle. 4. In the Source No. field, select 1000 (Bicycle). 5. In Quantity field, type 3. 6. In the Due Date field, type 1/28/2010. 7. In the Lines FastTab, select item number 1000 (Bicycle). 8. Click Refresh to get the component and routing information. 9. Accept the default settings and click OK. 10. Close the released production order. 11. In the navigation pane, click the Departments button.



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12. Go to Manufacturing > Planning > Tasks > Subcontracting Worksheets.

13. Go to Actions > Functions > Calculate Subcontracts. 14. In the Order Date field, type 1/28/2010. 15. Click OK.

There will be a row for 3 pieces of item 1000 for the work center, Subcontract.

Lab 6.4: Create PO and Post Receipt for Subcontractor 1. Create a purchase order. 2. Go to the purchase order and post the receipt. 3. View the capacity ledger entries for the production order.

Step by Step 1. From the Subcontracting Worksheet, make sure that the check box

under Accept Action Message is selected. 2. Go to Actions > Functions > Carry Out Action Message. 3. Click OK. 4. Close the Subcontracting Worksheet window. 5. In the navigation pane, click the Purchase Orders button. 6. Double-click the purchase order for your subcontractor, Coolwood

Technologies. 7. Click Post. 8. Select Receive and click OK. 9. In the Prod. Order No. header, click the drop-down arrow and click

Advanced. 10. From the Production Order List-Released window, go to Related

Information > Prod. Order > Entries > Capacity Ledger Entries. 11. Close all open windows.



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Quick Interaction: Lessons Learned Take a moment and write down three key points you have learned from this chapter

1.

2.

3.


Na2009 enus manii_06

Technology

subcontractor cost

unit cost of calculation

work center cost fields

vendor subcontractor

subcontractor work center

unit charge

subcontractor step

specific unit cost field