Illuminating Discrete Subcontracting for Microsoft Dynamics AX 2012

The discrete subcontracting process for Microsoft Dynamics® AX 2012 uses the standard bill of materials (BOM) approach to create an additional item supplied by the vendor. This item can be a component, a service, a semi-finished good, or a complete sub bill of materials.  This article shines a flashlight into a large dark warehouse. Although, the narrow beam of a flashlight shines light on subcontracted BOM items, there are various goods and manufacturing processes throughout the warehouse. This information illuminates the need for custom configuration, and illustrates that subcontracting is not a difficult process in Microsoft Dynamics AX 2012.

Terminology and Assumptions

Microsoft Dynamics AX uses the following terms in the implementation of discrete subcontracting manufacturing.

Subcontracting: The process of either outsourcing a specific resource or the capability to optionally outsource based on business logic of capacity planning. 

Bill of Materials (BOM): A list of items or sub-assemblies that contains the number of items used per finished assembly. It is also a representative hierarchy of how products are assembled based on level. A BOM needs to be active before it can be used in Production control. Only one BOM can be applied to any assembly, although multiple versions can be kept.

BOM Line Type:

• Item – a raw material or semi-finished good that needs to be picked from inventory.
• Phantom – a product that is a transient (non-stocked) BOM.
• Pegged Supply – used when the production order is estimated based on the default order and parameter settings.
• Vendor – The line type for the Bill of Materials to signal to AX that the item or bill of materials is supplied by a subcontractor 

Resources: A resource can be a machine, tool, vendor, human resource, or a location. 

Routes and Operations: A route determines the sequence of events to build the finished product.

Production Order: An order that initiates and sequentially moves the production process from creation to when the product is ready for shipment.

A standard bill of materials contains the items and sub items (shown as a sub BOM) that make up one finished good or component. This is a standard diagram illustrating the addition of the vendor or subcontractor to the model.

BOM illustration with vendor/subcontractor

This article assumes the configurations used are from the base Contoso data model available from Customer/Partner source. You can refer to TechNet for any specific information regarding the background of the data set used.

Scenario

The classic Contoso database uses Fabrikam as an example of an audio products manufacturing company that uses subcontracting to aid with capacity. In this scenario, we’ll create a new bill of materials (BOM) for a new projector assembly. The assembly contains the projector, the projector bulb, the power cable, and the extension cord. In addition, the unit includes subcontracting services for installation. This walk through reviews the procedure for creating the BOM and setting the BOM lines to BOM items, including the vendor/subcontractor supplied labor hours. In addition, the creation of the production order and order estimating are covered. This process can also be used for components, partially completed sub components, and even sub-assemblies that have their own BOMs.

Creating a BOM

The first step in the process is to create a BOM that has the subcomponents and the finished goods that you will be starting from a production order.

Procedure: Create BOMs in the BOM Form

Perform the following steps to create a BOM from the BOM form:

1. Open Inventory and Warehouse Management Module >
   Common > Bills of materials.
2. Click New to create a new BOM.  The value in the BOM field is determined by the number sequence setup.  If the number sequence exists and is not set to manual allocation, then the number is generated automatically, otherwise, enter a unique identifier for the BOM.
3. In the Name field, type BOM Projector Assembly.
4. Click the Site drop-down and select site 1.
5. Click the Item Group drop-down and select the Projectors item group.  The selection of the Item Group in the upper pane of the form filters the items displayed in the Item Number field on the version lines.
6. Under Versions, Select Item Number 20005.
7. On the Bills of Materials action pane strip, click Lines to add component products to the BOM.
   1. On the BOM line, click the Item Number arrow and Select 1551, Extension cord to be added to the BOM.
   2. Enter size 01. Plus any other optional inventory dimensions.
   3. Select 1 per series, ea (each) is supplied.
   4. Click New and repeat for the following part numbers
      1. 5020, Power Cable, 1 per series.
      2. 1507, Lamp for LCD Video Projector, 1 per series.
      3. 1501, LCD Video Projector Model, 1 per series.
      4. On the BOM line, click the Item number arrow and Select 1903, Subcontracting services, 1 per series. Change the Unit to Hr.
      5. On the General Tab, Select Vendor account 4101 and set the Line type to Vendor.
      6. Close the BOM line form.
      7. On the Versions action pane strip, click Approve.
      8. Check Approve bill of materials? checkbox.
      9. Click OK.
      10. On the Versions action pane strip, click Activation.
      11. Close the bills of materials form.

Modifying an Item Model Group

The part number 1903 belongs to the SUB item model group in the base Contoso data set.  This existing group is used for other types of goods that need registration (for serial numbers) or quarantine management (for incoming goods), which we will not need.

Procedure: Modify an Item Model Group 

Use the following to modify the Item Model Group settings for this service product example.

1. Open Inventory and Warehouse Management > Setup > Inventory > Item Model Groups.
2. Find the Item Model Group SUB.
3. Uncheck the Registration Requirements and the Quarantine Management checkboxes under the Setup FastTab.
4. Close the form.

Creating a Production Order

The next step of the process is to create the production order. This will signal the production system to start the process. Use the following to create a production order.

1. Open Production Control > Common > Production Orders > All Production Orders.
2. On the Action Pane, in the New group, click Production Order to create a new Production Order.
3. Click the drop-down list for Item Number and select 20005.
4. Select Site 1 under Inventory Dimensions group
5. Select Yes to insert the active versions for bill of materials and route.
6. Select Warehouse 11 under Inventory Dimensions group.
7. Select the Quantity 16.
8. Click Create.
9. To estimate the order, on the Action Pane, in the Process group, click Estimate.
10. Click OK when the Estimation form opens. Notice the status changes from Created to Estimated.
11. On the Action Pane, in the Production Details group, click BOM.
12. Select the line for the Subcontracting Services, 1903.
13. Select the Reference tab. Since the Subcontracting services is set up as a vendor item in the first part of this exercise, the purchase order is created automatically.  You can view the Purchase Order reference to the Production Order here.
14. Close BOM form

Reviewing Purchase Order and Receiving

For a vendor/subcontractor supplied item, the system automatically generates a purchase order. Since the establishment of the vendor item in the BOM, the line item 1903 now has a purchase order associated with it. Use the following to verify the purchase order and update the necessary information. In addition, the following covers the processes of confirming the purchase order and receiving the product.

1. Open Accounts payable > Common > Purchase Orders > All purchase Orders.
2. Navigate to the last created purchase order with Vendor account 4101. Click Edit in the Maintain group.
3. Verify that purchase order created with line for Item Number 1903.
4. Set Warehouse to 11.
5. Verify the Quantity is 16.
6. Set the Unit price to $45.00.
7. Click the Purchase tab, click Confirm in the Generate group.
8. Click the Receive tab, click Product Receipt.
9. Enter a number for the receipt, ie. 00456.
10. Click OK
11. Close Purchase Order form.

Entering an Invoice

After creating the purchase order and receiving the subcontracted goods, the accounts payable clerk enters the vendor invoice.

1. Open Accounts Payable > Common > Vendor Invoices > Open Vendor Invoices.
2. Click the Invoice > Vendor Invoice in the New group.
3. Select Invoice Account 4101.
4. Select the purchase order created earlier.
5. Under Invoice Identification, Number enter FAB001.
6. Enter Subcontracting services on 20005 for Invoice Description.
7. Set the Invoice date to today.
8. Click Post in the Actions group
9. Click Post.

Conclusion

This article covers the key aspects of implementing subcontracting for discrete manufacturing. Specifically, it discusses creating the BOM, configuring the item model group for a service, creating a production order, verifying a purchase order, handling a product receipt, and entering an invoice. By shining the flashlight on subcontracting operations, it is much clearer that vendor supplied services and goods can be easily integrated into the manufacturing process using Dynamics AX 2012.

RSM Staff