Subcontractor module

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Subcontractor (OUT) module (Outsourcing / Third Party (TP) / Job work)

• ERP subcontractor module, production module, and ERP  inventory module; all are tightly integrated.  The production can be done in-house (our shop floor) or outsourced (at the Third Party location or TP) the concept of work order and inventory (stock) updating remains similar.

• The name and address of third party is stored in the master data called the address master.  This stores information about the third party (suppliers).  This is special because such suppliers are not only creditors but also inventory locations.  The material is transferred to such TP location using GDN (Goods delivery note) transactions.  The following note explains the business process for this ERP module:

• Bill of Material (BOM Master).  The first step as shown in the diagram is to prepare the BOM master data.  This shows the relation of child item (raw material) to the father item (semi finished goods or finished goods).  The BOM is used further to make the work order.

• Address Master.  This is special master to enter the name and address of the third party.  ERP  will automatically create an inventory location.   This is special because such suppliers are not only creditors but also INVENTORY LOCATIONS.  The material is transferred to such TP location using 57 F4 transactions.  The name will default from this ‘address master’ automatically.

• Job Order (Labor PO).  Purpose:  This transaction is used to raise a Job Order (also called Labor Purchase Order) for an approved subcontractor (for outsourcing).  Information such as subcontractor (Supplier) name, item to be processed, item quantity, processing charges to be paid, etc. is entered.  This is further linked with the Goods received note.  This is a passive document i.e. does not do any posting, neither in accounts ledger nor in stock ledger.

• Labor Purchase Order / Job Order for processing work given to the Third Party. 

• ERP subcontractor module, production module, and ERP  inventory module; all are tightly integrated.  The production can be done in-house (our shop floor) or outsourced (at the Third Partylocation) the concept of work order and inventory (stock) updating remains similar.

• PO to vendor with direct delivery to sub-contractor location

• TP Work Order.  WO is automatically prepared by ERP  while preparing the Job Order.  User will first make the BOM (mostly the password is with design).  This BOM is used to automatically show the material required to be sent to TP for processing (job working).  Job Order cannot be made if BOM is not created for the father item that is going to be received from the Third Party.  This is a passive document i.e. does not do any posting, neither in accounts ledger nor in stock ledger.

• 57 F4 Challan.  Excise document is prepared when material is sent to third party for processing or outsourcing.  For goods under excise.

• Goods Inward Note (GIN).  Purpose:  This transaction is used when material is received in the stores from Third Party.  This will automatically consume material at the TP location.  Labor PO is a parent document required to make a GIN.  User will select TP name (displayed from address master).  All pending Job Order (Labor PO) will default automatically.  User will enter Quantity information and save the GIN.  This document is an active document.  In ERP user do not have to enter documents twice.  Job Order is the parent document and GIN is the child document.  This is an active document i.e. it does posting in accounts ledger as well as the stock ledger.

• Goods Inward Note (Goods Inward) transactions does the following:
  (1) GIN will add material into stock (Hold location or material under inspection location).
  (2) Credit the TP (supplier) as per the Job Order.  (Rate will be defaulted)
  (3) QC inspector / Quality Assurance can reopen GIN and enter accepted quantity – this will automatically add item into main stores (from hold) and if item is rejected, add into Rejection Location.
  (4) Automatically consume the child items from the third party location.

  Production process at the third party location is captured in a very meticulous way in ERP.  To maintain competitive advantage in this changing environment, it is imperative for manufacturing companies to connect the entire enterprise, including third party production units, together.

• 1.      To understand and use the work order, relation with BOM  (father item / child item).

• 2.      To keep track of inventory, our item is going out (Material sent for processing / job work) to Third Partyand is received back as different item (Material may be received back in new shape or size).  For example, material sent for phosphatting process.

• 3.      To enter the Production entry in ERP  (this is also linked with the BOM ).

• Step #          Task

01                                        Prepare Labor PO(Job order for the Third Part).  Here the labor rate is required.

02                                        Prepare Work Orderfor the Item mentioned in the Job Order(or Labor PO).  This    also gives RM (child item) required as per BO .

03                                        Check stock position of the item to be sent for processing to third party.

04                                        Prepare 57 F4 for the RM (child item), which are to be transferred to TP as per the Work Order.

05                                        Enter Production Entryin ERP  for the items produced at the TP location.

06                                        Prepare Goods Inward Note (GIN ) for the item received from TP.

07                                        Check stock position of the item received back from the third party after processing.

08                                        Print OnLine Printout.  (OLP of transactions).

09                                        Print relevant registers.

10                                        Verify above ERP  business processes with legacy business processes.

11                                        Certify and keep hardcopy in a physical file until all the steps are understood by all key users.  Later use the softcopy (view on monitor screen).  Keep printing to minimum.

12                                        User can also prepare .PDF file using Acrobat Distiller.

•  Subcontractor Out Masters

  • ITEM MASTER

  • U.O.M. (Unit of Measurement) MASTER

  • SUB LOCATION MASTER

  •  BOM Master is used in the subcontractor module to prepare the Work Order automatically.

  • ADDRESS (Third Party) MASTER

•  Terminate or cancel process

  • Some time for some reason user would like to cancel Job order or work order, this is process is called ‘termination’ in ERP.

  • It is necessary to standardize on the ‘reasons’ to terminate.  Therefore, prepare reason master. 

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