When outsourcing, you send your suppliers the material or components that they need to either manufacture or pack the parts that you then purchase. You can choose to either charge, i.e., sell the material or the components to your supplier, or not charge the supplier for the material and components that you supply to the supplier.
In IFS Applications, there are two different ways of running outsourcing:
In certain industries, such as the automotive industry, component parts are not normally issued and sent to the supplier with each purchase order. It is required that the component material is transported to a special location in advance, and automatically issued to the supplier as and when the purchase parts and top parts are received. In IFS Applications, this direct automatic issue is referred to as Backflush.
When using the Backflush feature, no reservation, picking, or shipment of component parts are needed. The parts are merely issued to the supplier at receipt of the top parts. For a given purchase order, you can opt to backflush certain components and send the other components through the usual supplier material or charge/no charge flow.
This help file focuses on outsourcing with the purchase order-customer order flow, known as the charge/no charge function.
If you charge the supplier, the cost of the supplied components will not be included when calculating the cost for the final product since the supplier will charge a price that includes the cost of the supplied material.
When a product structure is used, you must define (in the product structure) whether you should ship the components to your supplier free of charge. Note that this only is possible for purchased parts, i.e., order code Purchased, not manufactured parts or spare parts. This will indicate to the costing process whether the components will be included in the purchased part's cost roll-up. A purchased part, included in the structure of a manufactured part, can add its component costs to the manufactured part at no charge to the supplier. Otherwise, there is a charge to the supplier.
When receiving the parent part, the WIP at supplier is reduced with the cost of the components. If there are several shipping transactions for one of the components with different costs, we will reduce the WIP with a weighted average of the cost of the shipped component.
For certain inventory valuation methods and cost levels (e.g. weighted average and FIFO/LIFO), the unit cost for the parent part will be based on the price plus the cost of the consumed components. If the parent part is set up with inventory valuation method Standard Cost and part cost level Per Part or Per Configuration, it is still the cost roll-up in costing that decides the unit cost.
Supply Code
The supply code of the component part determines the sourcing of the part. Two
alternatives are available: Inventory Order and Project Inventory.
The Project Inventory supply code is allowed only for purchase order lines that are connected to project activities. In such cases, parts may be reserved and picked only from the project inventory of the connected project.
The Inventory Order supply code can be used irrespective of whether the purchase order line is connected to a project activity. Provided that the inventory parts are available, component parts may be reserved and picked from the full standard inventory.
Before you can use the charge/no charge function, some basic data must be set up:
When entering the purchase order line, any components entered in a product structure are copied to the purchase order line. If a product structure is not used, you can manually specify the components. This is done in the Purchase Order Line Components window, reached by selecting the purchase order line and choosing Component Parts... in the Operations menu. In this window, you also can view the components that are automatically retrieved from the product structure. You can add, remove, and modify components in this window until the purchase order line is released.
If the component parts are retrieved from a product structure, the quantity required is the quantity entered in the product structure, multiplied by the quantity ordered on the purchase order line. The date required is set to the latest order date for this purchase order line.
The connected parts must have been entered as sales parts. This makes it possible to include goods that are not entered as inventory parts, such as packaging material and manuals.
When releasing the purchase order, the customer order is created based on the component lines. The customer order number is displayed on the purchase order line. The customer order information is also displayed in the overview window.
The components that you need to ship to your supplier will be reserved, picked, and handled in the same way as normal customer orders, i.e., depending on the order type indicated on the customer. The difference will be that its origin is in a purchase order, and this will affect the system in delivery and invoice situations. The accountings will be somewhat different depending on whether the item used is Charge or No Charge.
At receipt, the first thing we have to check is whether any components should be backflushed. If so, the backflush transaction is registered at the time of arrival.
When you receive the purchase parts, the system checks to determine whether the supplier should be charged for the component parts, since this will determine what should happen when entering the receipt.
Regardless of whether the component parts are charged, the purchase order will be handled as a regular order in the receipt function. The criterion for making the receipt is that the material has been shipped.
When the arrival is made and the charge/no charge function is used, the accountings are as follows:
When moving the part into a stock location, the accountings are the same as for normal receipts: