Subcontractor Manufacturing (basic)

We recommend to use this process in case when Subcontractor works on entire production process for the specific PO: you just send him raw materials and receive back finished products.

In short in Kladana this process can be organised in the following way

1. Raw materials are sent to the Warehouse of Subcontractor via Transfer from your warehouse or direct Purchase Order + Receiving from your Supplier.
2. Production Order is completed by the Subcontractor.
3. Cost of subcontractor jobs is recorded in the 'Operation Costs' field in the Production Order for correct calculation of Unit Cost/Amount cost of finished goods.
4. Service card is created for Subcontractor service. Purchase Order + Receiving + Invoice + Outgoing payments are used to record and track mutual settlements with the Subcontractor.
5. Finished Goods are sent back to your Warehouse via Transfer transaction.
6. Current state of Stock for both your and Subcontractors locations is shown in Stock report (filter by Warehouse to choose locations).
7. Current status of specific Production Order can be tracked via Statuses.
8. Settlements with Subcontractors are tracked in Financials > Statement of accounts report and list of Invoices to pay can be tracked in Supplier Invoices (filter by supplier name or Payment status)

Let’s see in detail how it works in Kladana.

You can find below step by step instruction with screenshots and useful hints.

Let’s imagine that we sell T-shirts. We buy raw materials and then send them to the Subcontractor. He produces and then sends finished T-shirts back to our warehouse along with an invoice for his jobs. 

We want:

• Calculate the necessary quantity of raw materials, analyze how we can supply them, purchase them and track mutual settlements with the Supplier.
• Record transfer of materials to the Subcontractor Warehouse and transfer of finished goods to our warehouse.
• Track what is happening with each Production Order.
• Calculate properly cost of finished goods on the basis of raw material cost + cost of subcontractor services + some potential extra costs. 
• Track Stock level both for our warehouse and Subcontractor warehouse.
• Track mutual settlements with the Subcontractor (record incoming invoices and outgoing payments, see the statement of accounts).

Some general hints

1. Don’t forget to reserve finished goods for Sales Order and raw materials for Production order (tick ‘Allocate order to committed stock’ in transactions). If not reserved - both goods and materials will look like ‘available’ for other orders and can be unintentionally sold or used for other orders.
2. Prohibit ‘negative stock’ for accurate stock counting process. For this in Settings >> Account Settings choose ‘Disallow records that reduce Stock below zero’

What we do to maintain the process and track important moments

1. We prepare our Kladana account to support this process, for that we create:
   • Product cards both for Finished goods and Raw materials
   • Routing and BOM for production process (for the Subcontractor)
   • Warehouse and Counterparty (for the Subcontractor)
   • Service card with the name of job (for the Subcontractor services)
   • Statuses for the Production Order.
     
     NOTE: It is more convenient to create all this in advance, especially if you are starting to maintain the process. However, in the future all this can be created along with the process, not necessarily in advance.
     
     
2. Then we create a Production Order. In our case we produce to stock, so we go to Production >> (+) Production Order.
   
   NOTE: also you can create a Production Order as related to a Sales Order. For more information on how to maintain it read "Make to order" manufacturing process.
3. We choose our Main Warehouse for Materials Warehouse at that step (it is necessary to evaluate if we have enough raw materials in stock or we need to purchase them).
4. We analyze if we have enough materials to produce. If not — we need to purchase them, for that we press the ’Supply’ button and create a Purchase Order. More information on how Supply works.
5. In our case we don’t need to purchase materials, we have enough in stock. So after assuring that we have enough materials we choose Subcontractor Warehouse as Material Warehouse and Product Warehouse in PO.
6. After that we create a Transfer from our Main Warehouse to Subcontractor Warehouse (now it is NOT possible to create a related Transfer, only independent)
   Please pay attention that after the Transfer transaction is created you will see raw materials as ‘On Hand' at Subcontractor Warehouse although they won’t appear there at that moment. To see the real status of the Transfer you can use Statuses for transfer transactions. When a transfer has just been dispatched you can set up ‘dispatched’ status, when the Transfer was received by Subcontractor you can set up ‘received’ status.
   
   NOTE:
   In case when you buy all required raw materials from Supplier and your Subcontractor receives them, you can create Purchase Order and related Receiving directly to Subcontractor Warehouse, Transfer is not required.
   
   In case when you at first receive raw materials at your warehouse and only after this part of them is sent to Subcontractor, you should create a Purchase Order and related Receiving to your Main Warehouse and after that create a Transfer to Subcontractor Warehouse.
7. After the Subcontractor receives raw materials he confirms that everything is in his stock and he starts the production process, we change the status of PO as ‘in production’ and Start it. Here and in the next 2 steps we are recording what happens as if Subcontractor was doing this in the software himself.
8. After the Subcontractor completes the process and notify us about this we complete the production process for the Production Order. For that we mark as ‘completed’ the ‘subcontractor job operation’ in the PO.
   If you need to change the quantity of actually produced goods or used raw materials, you can do it in PO. For more information on How to change actually produced goods and used raw materials in PO
9. Also at that step it is very important to record the cost of Subcontractor services. For now we do the following:
   • In the field ‘Operation Costs' for the ‘subcontractor job operation’ we fill the cost of the subcontractor's services (according to invoice or information from him). It’s necessary to record for accurate calculation of the cost of finished goods. For that open Operation Report for the ‘subcontractor job operation’ or any other operation (it depend on how you configure the Routing) and fill the 'Operation Costs' field.
   • We create a Purchase Order for the services of the Subcontractor. We use the Service card that we prepared at step 1. You can create a Service card also at that moment. You can create a Purchase Order before or after the job is completed.
     After the job is completed we also create a Receiving and Purchase Invoice on the basis of received Subcontractor Invoice or information from him.
     NOTE: now it is not possible to create Purchase Order for Services as related to Production Order, only independent.
10.  After we completed with the previous step the cost of the Subcontractors job is included in the Unit Cost and Cost Amount for the produced finished goods. Besides, we recorded that we “received” services and needed to pay for them. After this we can monitor this invoice in Supplier Invoices list and see if it is paid or not.
    
    When it is time to pay, we create an Outgoing Payment as related to Invoice.
    
    In the Financials >> Statement of Accounts we see our settlements with this particular Subcontractor.
11. After the Production Order is completed we transfer finished goods from the Subcontractor Warehouse to our Main Warehouse (now it is NOT possible to create a related Transfer, only independent).
12. Also you can use some useful features:
    • Attach .pdf copy of Subcontractor Invoice to the Production Order.
    • Fill ‘Scheduled Production Date’ for PO if you receive an estimation from a Subcontractor.
    • Fill ‘Due date’ for Subcontractor Supplier Invoice for not to miss when it is time to pay.
    • Use Workflows to notify you when Receiving against Purchase Order is created or Due Date = ‘today’ for Supplier Invoice (both for Supplier and Subcontractor).
    • Create Custom Fields for Production Order if you need to add some extra information.