Production Order Subcontracting - In the age of production outsourcing and the organizational focus on their core competency, subcontracting of production orders is assuming greater importance. In addition to the business functionality necessary for producing goods in house, sub contraction operations necessitates some additional business process such as generation of sub contracting purchase order.

Sub contracting is normally planned, but sometime may be unplanned to meet exigency of a situation, such as breakdown of a plant. Normally, an ERP system treats subcontracting similar to procurement of a service.

A typical flow chart of subcontracting production order is as follows:

Procedure for subcontracting production orders: A few details of the process (in addition to normal procedure of production order control), as shown in the flow chart, is given below:

1. Define Subcontracting Data - This is a set up data for subcontracting operation and may consist of following components:
   1. Subcontracting item - which is the outsourced part of the item.
   2. Subcontractor.
   3. Subcontracting workcenter.
   4. Subcontract task.
   5. Workcenter - task relationship.
   6. Subcontracting rate factor in tasks.
   7. Subcontracting rates

2. Subcontract Operations - This procedure is used for unplanned subcontracting where operation is shifted to a subcontractor’s workstation due to emergency. This step is not needed for planned subcontracting, as the operation is already planned in a subcontractor’s work center in the routing of the item to be manufactured.

3. Generation of Subcontracting Order - Production module treats subcontracting as buying an operation. Therefore, a purchase order must be created when subcontracting is carried out. For generating a subcontracting order, the order status of the operations must be Released or Active. After generation, subcontracting orders are processed in the Purchase module and a purchase-order line is created for each subcontracted operation.

Materials Issue - When a production order is carried out, required materials from warehouses is needed to be issued. There are various ways of releasing materials for a production order, as detailed below.

1. Backflushing of Materials: Backflushing is automatic issue of materials from inventory, based on BOM measure and quantity of item manufactured.

2. Pull Note: Authorizes movement of goods to the shop floor from warehouse and movement of work in progress inventory between work centers. For pull notes to be operational, quantity of item to be moved by each pull note and number of pull note per item, should be specified.

3. Manual Issue: Normally used for non repetitive production environment such as job shops. This functionality deals with calculating estimated materials, additional materials and return of materials, whereas actual issue of materials is dealt by inventory module