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Former Member

Sub contracting and outright toll manufacturing

Hi,

I am trying to identify a solution for the requirement wherein a manufacturer receives raw material from the customer and is paid only for the value addition or the manufacturer buys his own raw material and bills the customer for both the value add and the cost of raw materials.

The complication is that the customer begins work on the sub contracting type orders (I.e. Customer supplied RM) with his own stock which is then back- filled or replenished when the customer RM shipment arrives.

Unfortunately there is no way to track the qty issued on an interim basis and to reverse this entry when actual customer RM is received.

This also screws up the order costing because the billing is only for the value add while now the input costs include the RM since we begin manufacturing using our own stock (valuation) with the anticipation of refilling with customer supplied RM stock (non valuated)

Please suggest how this can be handled for:

1) Material Handling and inventory control

2) Valuation

Thank you experts!!

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2 Answers

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    Former Member
    Jan 07 at 05:41 AM

    Correction to the second para

    ***The complication is that the manufacturing begins on the sub contracting type orders (I.e. Customer supplied RM) with our own stock which is then back- filled or replenished when the customer RM shipment arrives.***

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  • Jan 14 at 10:54 PM

    You would probably need separate material masters for own and external material.

    The external material is then used in the order and would need to allow negative stock to post the consumption

    in parallel to the consumption of the external material you would need to do a transfer posting to blocked stock of your own material to get it out of availability.

    When the customer RM shipment arrives you post it against the external material to equalize the negative stock and in parallel you to a transfer posting from blocked stock to unrestricted stock of your own material.

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