Vendors vs Subcontractors in Dynamics 365 Business Central v28

Many manufacturing companies purchase materials from vendors while also outsourcing specific production operations to subcontractors.

In Dynamics 365 Business Central v28, Microsoft is improving subcontract manufacturing capabilities to better support these real-world production scenarios.


Understanding the Difference

Purchase Items from Vendors

A vendor supplies materials or components that are used in the Bill of Materials (BOM).

Example:

  • Rim
  • Tire
  • Inner tube
  • Thread bush

These items are purchased and consumed during the manufacturing process.

In the example below, the Rim item is purchased from a vendor and included in the BOM for the Front Wheel product.

Hire a Subcontractor to Perform a Production Operation

A subcontractor is different from a vendor supplying materials.

Instead of selling inventory items, the subcontractor performs a manufacturing operation as part of the production routing.

Example:

  • Tire mounting
  • Powder coating
  • CNC machining
  • Anodizing
  • Embroidery

In the routing example:

  1. Operation 10 – Mounting edges and front hub on rim
  2. Operation 20 – Mounting tire (performed by subcontractor)
  3. Operation 30 – Mounting inner tube
  4. Operation 40 – Quality control

Operation 20 is outsourced to a subcontractor instead of being completed internally.

How Business Central v28 Handles This Process

Business Central v28 allows manufacturers to integrate subcontract operations directly into the production process.

The system can:

  • Create subcontract purchase orders
  • Track materials sent to subcontractors
  • Monitor inventory at vendor locations
  • Receive subcontracted semi-finished goods back into production
  • Apply subcontracting costs to production orders
  • Continue the routing process after subcontract operations are completed

Real Manufacturing Use Cases

This functionality is especially useful for manufacturers that outsource selected operations while keeping the main production process internal.

Common industries include:

  • Furniture manufacturing
  • Mechanical engineering
  • Electronics assembly
  • Garment manufacturing
  • Food processing

For many SMEs, subcontract manufacturing is part of daily operations. Dynamics 365 Business Central v28 helps companies manage both purchased materials and outsourced production activities in a single ERP platform.

Link: https://usedynamics.com/business-central/manufacturing/subcontractor-handling/