How to receive goods from subcontractors through purchase orders in Business Central?
Receiving subcontracting orders in the warehouse
When you work in the warehouse and receive purchase orders or other receiving documents, you handle subcontracting orders differently from standard purchases. A subcontracting purchase order does not result in items being put on stock. It records an external operation performed on one of your own items, such as painting, and the receipt posts capacity instead of inventory. This article explains what happens when you post a subcontracting receipt in Business Central, why no item ledger entry is created, and how to make sure your warehouse staff can tell the difference.
What a subcontracting purchase order actually represents
A subcontracting purchase order is created from a production order through a journal, not as a regular purchase. When you open the order, the line may show a quantity, for example a quantity of 5, but the line does not represent buying item number 1000 to put on stock. It represents an operation on your own item.
In practice, the supplier carries out a step in your production process. For example, the line might cover a painting operation on item number 1000. As a warehouse employee, you therefore receive something that is not a finished bike. You receive an item that has been processed in one specific way, such as being painted, and still needs further work.
How to post the receipt
You post a subcontracting purchase line the same way you post a normal purchase line. Find the Quantity to Receive field on the line, enter the amount you are receiving, and post the receipt as you normally would. If you are receiving all of them, you simply receive the full quantity and post.
Why no item ledger entry is created
This is the part to be aware of. Even though you post a receipt of, for example, five, the item is not something you can put on stock. The posting does not create an item ledger entry for the received quantity.
Instead, the system creates capacity ledger entries that are automatically attached to the production order being processed. The receipt registers the work that was done, not new inventory. There is no inventory and no inventory adjustment made by this posting.
The challenge for warehouse staff who scan items
If your warehouse handles items by scanning them, this creates a problem. The received line is not an item you can scan onto stock. It is a semi-finished product that needs to be carried into the production area. There, you tell the production team that the operation is done so they can continue manufacturing.
Because the receipt behaves differently from a standard goods receipt, warehouse staff need a way to recognise that they are dealing with a subcontracting order before they try to handle it as normal stock.
How to make subcontracting orders visible to your team
Make sure you have an arrangement with your production team so it is clear when an order is a subcontracting order. There are a couple of practical ways to do this.
- Agree on a process so the warehouse can see on the order that it is a subcontracting order.
- Show the relevant fields on the purchase order line, such as the production order number, so you can see that the line is attached to a production order.
With the production order number visible on the line, your staff can immediately tell that the receipt belongs to a production process and that no inventory will be created by posting it.
Q&A
What is a subcontracting purchase order in Business Central?
It is a purchase order created from a production order through a journal. It does not represent buying an item for stock. It represents an external operation, such as painting, performed on one of your own items.
How do you post a subcontracting receipt?
You post it like a normal purchase line. Enter the amount in the Quantity to Receive field on the line and post the receipt the same way you normally would.
Why is there no item ledger entry when you receive a subcontracting order?
Because the received line is not an item you can put on stock. Posting the receipt creates capacity ledger entries attached to the production order instead of an item ledger entry. No inventory or inventory adjustment is made.
What does the warehouse actually receive on a subcontracting order?
A semi-finished product, not a finished item. For example, an item that has been painted but still needs further manufacturing. It must be carried into the production area so production can continue the work.
How can warehouse staff identify a subcontracting order?
Set up an arrangement with production so the order is recognisable, or show fields such as the production order number on the purchase order line. This makes it clear that the line is attached to a production order and will not create inventory.
This is what happens in the video
This order is a Subcontracting Order, which means it is made from a Production Order through a journal, and in this line with the quantity of 5, is actually not a purchase of item number 1000.
It’s a painting operation on the item.
As a warehouse employee, you will receive something, that is not a finished bike item, but a finished painting operation.
You will post this Purchase Line like a normal line.
You find the quantity to receive here, and just post receive, like you normally do.
But be aware, that you cannot put the item on stock, I didn’t do an Item Ledger Entry with the quantity of five, I only made Capacity Ledger Entries that is automatically attached to my production, So, If you want to scan the item, you have a problem, because it’s not an item, it’s a semi-finished product, that you must carry into the production area, to continue the manufacturing process.
To notice that it’s a Subcontracting Order, make arrangements with your production, to see it on the order, or show the fields on the Purchase Order Line, so you can see that it’s actually attached to a Production Order, and there will be no inventory adjustment made by this posting.