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Hello -
A new contract manufacturer will supply important components of our finished goods. We would like to track these components by including them on the BOM. At the same time, since we will be billed for the components on the production invoice (not on a separate purchase order), we will never carry stock. Ideally, we would like to receive the components in inventory and backflush them out via the same subcontracting PO in one clean step. Is there a way to do that?
Thank you!
Salva
Sal-Va,
Yes, this is possible. You would use an Operation with a sub-contracted Work Center to manage the costs of the Vendor's service. You would have the raw material listed as components on the BOM. You would set a Routing Link Code on the Route and the BOM to consume those raw materials during the Output phase of the linked Routing Operation. When you "Receive" against the Subcontractor Purchase Order it will Post against the Production Order as Output, triggering the backflush.
Now you need to decide how you want to track that material. Do you want visibility to raw material at the Vendor Location? If so, you'll set it up as a Location and process a Transfer Order to ship the material to the Vendor. In this case, be sure you set the component Location of the raw materials being flushed at the Vendor to the Vendor's Location. If you drop ship material straight to the Vendor, you can also "Receive" the material to the Vendor's Location. In this case, you would want to get some delivery confirmation to keep the timing accurate.
Yes, you can achieve this by setting up a subcontracting purchase order in Dynamics 365 Finance and Operations. Here are the general steps you can follow:
Create a BOM for your finished goods and include the new components from the contract manufacturer.
Set up a vendor account for the contract manufacturer and ensure that the vendor is set up for subcontracting.
Create a purchase order for the subcontracting service, with the finished goods item as the product, and the contract manufacturer as the vendor.
On the purchase order line, add the components as a subcomponent, and set the "Subcontracting" checkbox to "Yes". This will allow the system to automatically receive the components into inventory when they are delivered by the vendor.
When the finished goods are produced, the components will be backflushed from inventory and consumed on the production order. The cost of the components will be included on the production invoice, as you mentioned.
This process will allow you to track the components on the BOM, receive them into inventory, and backflush them out via the same subcontracting PO in one clean step.
Samantha73, thank you for your answer. Let me clarify: by tracking, I mean being able to record usage and purchases - so yes, I'd prefer to have these components as inventory items, especially if the positive transaction can be part of the subcontracting PO. Your suggestion of a sub-assembly got me interested: in our case, we would purchase the items (not produce them) and then use them in the next steps. We also wouldn't need to track them. Can you please say more on how to have multiple steps in subcontracting? And on how to have inventory items (instead of charges) on a subcontracting PO? Thank you!
Hi Ben, thanks for your answer. I am OK with the items hitting inventory, as long as they can be part of the subcontracting process - since these components will only be purchased in conjunction with a production order carried by the contract manufacturer.
I was thinking of including the subcontracted materials in the routing, but that would make them "operations" - or services as you said.
What I am trying to figure out is if the subcontracting PO can include materials too - not just G/L accounts as we have today. Then I could add the components in the BOM and backflush them out each time they are received in inventory. Do you know if this is doable?
I think you need to clearly define what "track these components" means as without having the item as inventory, you cannot properly track. However you can include comments or customisation to capture data purely for reporting. Another option is to separate the sub-contracting step to a new sub-assembly where you actually produce the item and then use it in the next step. This way you can manage the output item with lot/serial etc enabling standard tracking functions. End of the production process you will consume this interim item so no stock remaining
You are asking for two separate things. If you want to be able to receive the Item into Inventory, it is a standard PO process. If you don't want the Item to hit inventory, but rather treat the purchase like a service performed, it is a sub-contracting PO. You cannot have it both ways. In either case Business Central can suggest the creation of the Purchase Order, but you need to decide if you want to treat it as an Item (aka BOM Component) or a Service (aka Operation on the Routing).
Hello,
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