Subcontracting in Business Central production

Manufacturers regularly send work out — heat treatment, plating, anodising, specialty machining, painting, calibration — operations a vendor performs better, cheaper, or because internal capacity is constrained. Business Central's subcontracting mechanism handles the workflow: subcontracted routing operations automatically generate purchase orders to the chosen vendor, with the cost flowing back into the production order's cost stack.

The setup.

• Vendor as work center. Create a work center that represents the subcontractor. The work center carries the vendor's number (linking to the vendor card), shop calendar (vendor's availability), and cost rates.
• Subcontractor field on the work center — links the work center to a vendor.
• Routing operations referencing the vendor work center are automatically subcontracted.

The flow.

1. Production order is released with a routing that includes one or more subcontracted operations.
2. Subcontracting worksheet runs — it scans released production orders for subcontracted operations and proposes purchase orders to the assigned vendors.
3. User reviews proposals and runs Carry Out Action Message, which creates the purchase orders.
4. The POs reference the production order; the vendor's quoted price for the service is the PO amount.
5. The user ships intermediate goods (the work-in-progress at the operation's stage) to the vendor — typically tracked as a transfer or a special-purpose shipment.
6. The vendor performs the operation and ships back.
7. Goods are received as completed work on the production order — typically captured through the production journal as the next operation's input.
8. The vendor invoices for the service.
9. Purchase invoice posts — cost flows into the production order's WIP, becoming part of the finished item's cost.

The cost mechanics.

• The subcontracted operation's cost on the routing is what the system expects the operation to cost (estimated or standard).
• The actual vendor invoice may differ (price change, quantity variance, additional charges). Variances post to variance accounts at production order completion.
• For standard-cost items, the difference between routing standard and actual vendor cost becomes a production variance.

Tracking material across the subcontractor.

The most common pattern: ship raw or in-process material to the vendor; receive completed work. Several options for tracking:

• Treat as transfer — issue a transfer order to the vendor's "location" (modelled as a location card), receive at vendor; post the operation; transfer back to the production line.
• Issue as consumption — consume the material against the production order before sending; the vendor sends back the finished work consumed against the operation.
• Lot / serial tracking — for sensitive items, every unit tracked to the vendor and back with full traceability.

Operations differ by industry; configure to fit how the floor actually works.

Quality and rework.

• Subcontracted work that fails quality can be returned to the vendor for rework.
• The return is tracked as a purchase return; the vendor reships after rework.
• Rework cost may or may not be re-billed depending on contract.

Capacity planning. Subcontracted work centers can have finite or infinite capacity modelling:

• Finite — the vendor has limited capacity per period; load is tracked; over-capacity dates re-schedule.
• Infinite — assume the vendor accepts any load; load reporting is informational only.

Most subcontracted vendors are modelled as infinite-capacity in BC; vendor relationships rarely encode actual capacity availability.

Vendor selection. A routing operation is assigned to a specific vendor at routing-creation time. For operations with multiple potential vendors (lowest-price wins, fastest-turnaround wins, certified-supplier-only), the routing carries one vendor and changes go through routing revision — or partner ISVs offer multi-vendor subcontracting modules.

Reporting.

• Subcontracting worksheet — open subcontracted operations awaiting PO creation.
• Vendor scorecards — performance per subcontractor (on-time, quality, cost).
• Production cost variance — subcontract variance per item per period.

Common pitfalls.

• Subcontract operation not yet released — the worksheet doesn't propose POs for not-yet-released production orders. Release sequencing matters.
• Vendor not linked to work center — the subcontract routing fails silently; check the link.
• Material in transit to vendor unaccounted — physical goods at the vendor but no system record of their location.
• Vendor invoice for different quantity — variance handling needs explicit attention.

Operational reality. Subcontracting in BC works well for standard scenarios. Complex multi-vendor sourcing, dynamic pricing, or sophisticated quality workflows often justify a partner ISV. For mainstream subcontracting in mid-sized manufacturing, BC's built-in is adequate.