Subcontracting in ERPNext

Subcontracting in ERPNext

Subcontracting is a sort of employment agreement that aims to contract out specific kinds of labor to other businesses. That makes it possible to work on multiple phases of the project at simultaneously, which frequently results in a quicker turnaround. Several industries all use it.

For instance, producers who assemble a variety of products from intricate parts outsource the assembly of some parts and package the rest at their facility.

Using the subcontracting feature of ERPNext, you can keep track of any processes that your company outsources to a third party Supplier where you provide the raw materials and the third party does the labor or production.

How to manage subcontracting in ERPNext?

We are taking into consideration the following situation to illustrate outsourcing:

Uncolored, unprocessed flowers are produced by a flower producer. These flowers are transported to an outside vendor for dyeing in cartons (1 Carton = 1000 Flowers).

1. Verify that "Supply Raw Materials for Purchasing" is enabled in the subcontracted item's item master. The item in our case is "RM-111-Colored Flower."

2. Create a Bill of Materials (BOM) for the subcontracted item that includes the raw materials you will provide to the subcontractor in order to receive the final or semi-finished product. As the activities are not completed at the manufacturer's end, there will be no operations in this BOM. The BOM for RM-111-Colored-Flower in our sample is as follows:

3. To purchase this item from a third party/vendor, you must now establish a purchase order. Make sure "Yes" is selected in the "Supply Raw Materials" field before choosing the warehouse from where the vendor will receive the raw materials. Keep in mind that this could also be a fictitious warehouse that serves only as a stand-in for creating the Stock Entry when transferring items to the vendor. The purchase order for our example is shown below:

Note: Your service cost rate will be determined by the rate of the item entered here.

4. A further child table displays the condition of the raw materials that must be transferred in accordance with this Purchase Order. You must choose the "Reserve Warehouse" in that table from which the raw materials will be sent to the virtual vendor warehouse that was chosen in the previous phase. This table also indicates the number of goods that have already been supplied; in our situation, this number is 0 because we have not yet submitted the order or provided the raw ingredients.

5. A "Transfer" button will be available after the purchase order has been submitted, allowing you to create a stock entry and send raw materials to an outside vendor:

The child table in the Purchase Order is modified to reflect the transferred quantity under "Supplied Qty" once the Stock Entry is filed.

6. You can establish a purchase receipt against this purchase order after you get the vendor's finished or semi-finished goods:

The subsequent procedures for billing are as per the typical buying cycle.

Order for Purchase, Order for Receipt, Order for Invoice.

7. The purchase invoice issued for this transaction is as follows: (Preview in Print Format)