Hi everyone,

What is the key difference between Operation and Item Subcontracting.

In operation subcontract the item is Manufactured and there is a production order that has one or more operations that will be performed, normally as a purchased service. In its original form, there were no warehousing activities to send the work to the subcontractor and return it. Recent releases also offer subcontracting with material flow, in which subassembly item codes can be set up to allow transfers to and from the subcontractors' warehouses.

In item subcontract, the item is Purchased. It is planned and Purchased from the subcontractor, and an extra concept, Material Supply Lines, are generated on the purchase order for the material to be free-issued to the subcontractor. These are executed as a transfer order to the subcontractor's warehouse, from where they are consumed on receipt of the finished item.

Is there any procedure for scrap handling in operation subcontracting.

Because the operation subcontract is contained within a production order, then if there is scrap of a portion of the order quantity, the subcontract operation can be completed with a reduced quantity. If this is done, any components that are linked in the BOM to operations up to and including that operation are considered to be consumed. By exception, components can be returned to stores and adjusted out from there.