SUBCONTRACTS MANAGEMENT

Subcontracting is the practice of engaging the services of third parties to make a product in part or in full. It may be for economic or capacity reasons. Certain intermediate processes could be given out as they need capital investments of a high order, that may not be justified for the current volume of business. In some other cases, subcontracting could cost much less than carrying out those processes in-house. Quite often, businesses may use the services of outsiders to deal with seasonal spikes in demand. Subcontracting is not the same as purchasing sub-assemblies or intermediates from outside, as with the latter, the entire process takes place outside and the business has no role in that.

Essentially, subcontracting involves giving out some parts or components to the vendor, who carries out the required processes and returns the processed item back. The vendor will be paid at an agreed rate for the services, which adds to the cost of production of the final product. There is no need to track the activities at the Subcontractor’s premises. However, standard procedure for incoming material, such as inspection and testing, wherever applicable has to be carried out according to the Quality Management System in place. Material issued to subcontractor needs to be monitored and quantities reconciled regularly.

CREST ERP allows you to manage your Subcontracting jobs effortlessly. The process is designed to be simple, at the same time effective, giving you a good deal of control on the activity. You can access the module from the top menus and the sub-menu structure is simple, uncluttered.

Essentially, the following steps are to be taken in CREST ERP for your Subcontracts, explained in detail in later sections.

1. Create Subcontracting Bill of Materials [BOM]
2. Issue Subcontracting Order
3. Withdraw materials against Subcontracting order
4. Receive the processed items in stock against the Order
5. Approve and post the Subcontract invoice

Types of Subcontracting Order

Subcontracting Orders can be of any of the following four types:

1. Normal
2. Re-work
3. Encumbrance
4. Release Slip

Re-work Order type can be used if any finished item is returned to the Subcontractor for rectification of any quality problems. No service charges may be payable, in most cases. This type of orders are similar to Normal Orders in all other respects.

Encumbrance Order is a type of order in which the commitment to Subcontractor is recorded against a tangible item. You cannot issue materials against an Encumbrance Order. Actual issue of materials takes place against a Release-Slip Order, that carries a reference to the Encumbrance Order.

!Encumbrance Order to be fully explored. End-to-end functionality not clear