Subcontracting Tracking with ERP: Outsourced Production Management
Subcontracting refers to production processes that companies outsource to third-party manufacturers, either because they lack in-house capacity or because external production offers cost advantages. This model is prevalent across industries ranging from textiles and footwear to furniture and automotive parts manufacturing. When managed properly, subcontracting reduces costs and keeps production capacity flexible. However, companies that attempt to manage subcontracting processes through spreadsheets or manual records inevitably face raw material losses, cost uncertainties, and delivery delays.
How Does the Subcontracting Process Work?
The standard subcontracting workflow consists of four fundamental stages. In the first stage, raw materials or semi-finished goods are delivered from the principal company to the subcontractor. In the second stage, the subcontractor performs the agreed-upon operation: sewing, dyeing, assembly, polishing, or similar processes. In the third stage, processed products are returned to the principal company, and in the final stage, quality control inspection determines acceptance or rejection.
Traceability at each of these four stages is critically important. How many meters of fabric or kilograms of raw material were sent to the subcontractor? How many finished units did the subcontractor deliver? Is the difference within acceptable waste limits? Real-time answers to these questions are only possible with an ERP infrastructure.
Problems of Subcontracting Without ERP
The most common issues encountered by companies managing subcontracting processes outside of ERP include:
- Inability to track the difference between raw materials sent and finished goods received
- Failure to compare waste rates across different subcontractors
- Inconsistencies in matching subcontracting invoices with work orders
- Not knowing which batch is at which subcontractor when working with multiple vendors
- Inability to accurately reflect subcontracting costs in product costing
- Failure to proactively detect delivery delays
The cumulative impact of these problems is not merely operational inefficiency but direct profit loss. In a textile company, an uncontrolled waste rate of just two percent can translate to dozens of tons of raw material loss by year-end.
Raw Material Dispatch and Consumption Tracking
In an ERP system, the subcontracting process begins with raw material shipment to the subcontractor. When the dispatch note is created, the shipped quantity is deducted from the relevant warehouse stock and tracked separately as "stock at subcontractor." This distinction is critical: the raw material remains the company's property but is physically located at the subcontractor's facility. The ERP clearly separates these two states, maintaining the accuracy of inventory valuation reports.
When finished goods are received from the subcontractor, the raw material consumption is calculated based on the bill of materials and automatically deducted from the stock-at-subcontractor balance. This keeps the subcontractor's raw material balance current at all times and allows comparison with physical counts at period-end.
Waste and Scrap Control
Waste in subcontracted production is inevitable, but uncontrolled waste is unacceptable. The ERP system defines an expected waste rate for each product's bill of materials. Actual waste is automatically calculated based on the quantity of finished goods received. The variance between expected and actual waste is reported on a per-subcontractor basis.
In practice, we observe that companies that begin systematically tracking waste rates achieve an average waste reduction of 15 to 25 percent within the first six months. The reason is straightforward: subcontractors work more carefully when they know they are being measured. Additionally, subcontractors showing increasing waste trends can be identified early and replaced with alternatives.
Subcontracting Cost Calculation
Accurate subcontracting cost calculation is the cornerstone of product profitability analysis. Subcontracting cost consists of three main components: the labor fee paid to the subcontractor, the cost of dispatched raw materials, and the waste cost. The ERP automatically calculates these three components for each work order and reflects them in the product cost card.
The labor fee is calculated based on the unit price agreed with the subcontractor. Raw material cost is determined by multiplying the consumption quantity from the bill of materials by the current stock value. Waste cost represents the cost of losses exceeding acceptable waste levels. Transportation expenses and any supplementary processing fees can also be added to this total.
Subcontractor Performance Evaluation
For companies working with multiple subcontractors, evaluating subcontractor performance using objective criteria is a strategic necessity. The ERP system automatically tracks the following metrics for each subcontractor: on-time delivery rate, waste rate, quality rejection rate, and unit cost. These metrics are regularly reported as a subcontractor scorecard.
Performance evaluation is used not only for monitoring existing subcontractors but also for making new order allocation decisions. Data such as which subcontractor has the lowest waste rate for a particular product group, or which subcontractor has the highest delivery reliability, transforms order planning into a data-driven process.
Nebim V3 Subcontracting Module Features
Nebim V3 ERP's Supply and Manufacturing module manages subcontracting processes end-to-end. Subcontracting work order creation, raw material dispatch, goods receipt, quality control, and invoicing processes all operate in an integrated manner. With barcode-based production tracking, every batch received from the subcontractor is recorded in the system in real time.
One of Nebim V3's strengths in subcontracting management is its ability to integrate sector-specific features such as size-color matrix, variant-based bills of materials, and lot tracking with subcontracting processes for industries like textiles and furniture. When you send 500 meters of fabric to a subcontractor and receive 200 shirts in three different sizes, separate consumption and waste calculations are performed for each size.
Real-Time Monitoring with Barcode-Based Tracking
Real-time monitoring in subcontracting processes is enabled through barcode infrastructure. A unique barcode label is generated for each batch dispatched to the subcontractor. During subcontractor delivery, scanning this barcode completes the goods receipt process within seconds. Manual data entry is eliminated, and error risk is minimized.
Barcode-based goods receipt using mobile devices provides a major advantage, particularly during peak season periods. In companies receiving hundreds of batches daily, maintaining accurate records without a barcode system is virtually impossible. Barcode integration also instantly reveals which work order and which customer order each incoming batch belongs to.
Managing subcontracted production with ERP is not merely an operational improvement but a strategic transformation. Controlling raw material losses, objectively evaluating subcontractor performance, and gaining visibility into true costs directly enhances both competitiveness and profitability.
