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LN North American User Group 2024

LN Subcontracting for Production

Wednesday, 15 May 2024

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Robert Eakins Background

Over 30 years of experience in Information Technology, of which 18 years are with Infor BaaN and LN.
Hands-on Manufacturing and Distribution Center experience. Managed factory, warehouse, planning & procurement operations.
Multiple BaaN and LN implementations using Manufacturing Subcontracting.
Current Role: LN Solution Architect for PCG Services

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Key Take-Aways

Learn the different models of manufacturing subcontracting available in LN.
Understand which model of subcontracting is best suited to the requirements.
Understand the configuration and maintenance for each Model

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Definitions

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What is Production Subcontracting?

The purchase of manufacturing services from an outside supplier. The cost of the services is included in the manufacturing cost of the finished good.
Examples

Outside supplier performs conformance testing on-site as part of the company manufacturing process.

Outside supplier performs electroplating on a good manufactured by the company.
Outside supplier performs manufacturing process not available internally, such as specialized welding.

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Operation Subcontracting

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Use-Case: Operation Subcontracting

When to use…

The company does not need to ship any material to the subcontractor, or if material is sent, it does not need to be tracked in LN.
The cost of the subcontractor’s services should be included in the manufacturing cost.
The company sometimes needs to subcontract an internal manufacturing operation (ad hoc subcontracting).

Outside supplier provides a specialized service, such as conformance testing, during the manufacturing process.

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Job Shop BOM
Job Shop Routing

Job Shop Production Order

Subcontracting Operation

Generate Subcontracting Purchase Order

Subcontracting Service

Issue Purchase Order to Subcontractor

Production Operation Completed

Receive Subcontracting Service

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Operation Subcontracting Set-up

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Create an Item to represent the subcontracted service on the Purchase Order

(Item Type= Subcontracted Service)

Create a Work Center linked to the Business Partner that will perform the subcontracting

(Work Center Type= Subcontracting)

Maintain the Job Shop Routing to include the Subcontracting Operation linked to the Subcontracting Work Center

Maintain Subcontracting Rate

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Item Subcontracting

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Use-Case: Item Subcontracting

When to use…

The company uses the material to produce stocked finished goods in more than one form, e.g., galvanized, painted (red, white, black, etc.)
The company sometimes uses the material in a more complex product structure (and not in its coated form)
The company often switches between internal manufacturing and subcontracting for the same item.

Outside supplier puts a coating, such as galvanizing, on material manufactured or purchased by the company.

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Manufacture materials
Purchase materials

Subcontracting Purchase Order for Finished Good

Subcontracted Service Cost

Issue Purchase Order to Subcontractor

Material Supply Line(s)

Ship Materials to Subcontractor

Finished good to inventory
Materials consumed

Receive Finished Good

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Item Subcontracting Set-up

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Create External Site for Subcontractor

Create Warehouse linked to External Site for Subcontractor

Create Item for each Finished Good

(Source= Subcontract)

Create Item – Purchase Business Partner relationship on the finished good for the Subcontractor

Maintain Product Subcontracting Model for each Finished Good

(BOM Contains Company-supplied Materials. No Routing.)

Configure Material Supply to Subcontracting Warehouse in Item Data by Warehouse

Maintain Subcontracting Pricing

Note: The Product Subcontracting Model may also be generated from a Production Bill of Material, making it easy to create both an internally manufactured and subcontracted version.

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Operation Subcontracting with Material Flow

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Use-Case: Operation with Material Flow

When to use…

The company needs to use LN to support the warehouse processes to move the subassembly to and from the subcontractor.
The company needs to monitor the location of the shipped subassemblies.
The subassembly leaving or arriving at the company warehouse should be subject to LN Quality process (e.g., inspection).
The company sometimes needs to subcontract an internal manufacturing operation (ad hoc subcontracting).

Outside supplier performs specialized welding work on a subassembly manufactured internally.

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Job Shop BOM
Job Shop Routing

Job Shop Production Order

Subcontracting Operation

Generate Subcontracting Purchase Order

Subcontracting Service

Issue Purchase Order to Subcontractor

Material Supply Line(s)

Ship Materials to Subcontractor

Production Operation Completed
Subassembly consumed

Receive Subcontracted Good

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Operation with Material Flow Set-up

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Create External Site for Subcontractor

Create Warehouse linked to External Site for Subcontractor

Create Item for each Subassembly to be sent

(Subassembly= Yes)

Maintain the Job Shop Routing to include the Subcontracting Operation linked to the Subcontracting Work Center

Maintain the Subassembly Item and Source Warehouse on the prior and Subcontracting Operations

Configure Material Supply to Subcontracting Warehouse in Item Data by Warehouse for the Subassembly

Maintain Subcontracting Pricing

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Summary and Questions

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Subcontracting Model Comparison

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	Operation Subcontracting	Item Subcontracting	Operation with Material Flow
Supports LN Quality	No*	Yes	Yes
Supports Material Tracking	No	Yes	Yes
Supports Multiple Subcontracting Steps on Same Finished Good	Yes	No	Yes
Requires Production Order	Yes	No	Yes
Special Configuration	Subcontracted Service Item	External Site Item-Warehouse Supply	External Site Subassembly Item Item-Warehouse Supply
Supply Source	Job Shop	Subcontract	Job Shop
Purchase Order Creation	Generated from Production Order	Order Planning Manual	Generated from Production Order
Complexity to Maintain	Medium	Medium	High

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Common Questions

What are other common alternatives to using Manufacturing Subcontracting?
Can you provide more examples of client uses of Manufacturing Subcontracting?
Differences in LN Manufacturing Subcontracting with and without Sites

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Backup Slides

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Alternatives to Subcontracting

Negotiate with one of the vendors in the supply chain to provide the finished good to the company. In other words, have the vendor manage the subcontracting…

E.g., subcontracting service provider buys materials from the company’s supplier and ships the finished good to the company.

If outside manufacturing services are rarely used…

Issue a Purchase Order for a Cost Item representing the service. Expense to Cost Goods Sold (COGS) or Inventory.

If a Project is linked to the manufactured good and the overall Project COGS is what matters, not the manufactured COGS…

Issue a Purchase Order for a Cost Item representing the service linked to the Project.

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More Example Uses

Operation Subcontracting

Multiple Subcontracted Operations per finished good: internal cutting and bending, followed by external welding (assembly), followed by external painting prep and then, internal finish painting.
Ad Hoc Subcontracting: Subcontract finish painting when no internal resources are available.

Item Subcontracting

Company supplies chemical in bulk to a bottler. Bottler supplies multiple sizes: pint, gallon, five gallon.
Depending on the design, a common fabrication is painted red, black or plated. Each finished version is stocked under a unique Item.

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Thank you.

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Robert Eakins

E: reakins@pcgservices.com

M: +1 630-890-3672

All content is confidential, proprietary and restricted and cannot be shared or reproduced.

All content is confidential, proprietary and restricted and cannot be shared or reproduced without prior written consent from PCG.