BDM GLOBAL • DYNAMICS 365 BC ARCHITECTURE

Subcontracting & Custom Tanning Process Flow

Complete operational & cost accounting roadmap: converting Raw Hides to Pickled/Tanned Hides, tracking yield loss, and capitalizing freight and tolling fees into final inventory value.

Core Strategy

Full Cost Roll-Up

Raw + Freight + Tolling ÷ Yield

Business Central Subcontracting Workflow Diagram

Visual Architectural Map: 6-Stage Dynamics 365 Business Central Subcontracting & Landed Cost Capitalization Flow

Strategic Decision Rationale

✕ Simple Location Transfer (Why It Fails)

• No SKU Transformation: Item A leaves as Raw Hides and can only be received back as Item A. Cannot create Item B (Tanned Hides).
• No Scrap/Yield Loss Handling: Sending 1,000 pcs and getting back 998 pcs causes unexplained inventory variances or phantom shortages.
• Uncapitalized Toll Fees: TDR’s service invoice hits P&L expense directly instead of rolling into finished inventory asset value.

✓ BC Subcontracting & Production (The Recommended Solution)

• Full Bill of Materials (BOM): Item A is consumed, Item B is manufactured with exact routing and audit trails.
• Yield Variance Absorption: The 2-piece scrap loss is mathematically absorbed into the unit cost of the 998 saleable pieces.
• 100% Landed Cost Capitalization: Freight + Subcontracting purchase invoice flow directly into finished goods inventory value.

Step-by-Step Execution Workflow

Full audit compliance • GAAP / ASPE 3031

STAGE 01 Setup

Locations & Master Data

Establish separate legal & physical entities in Business Central.

Rename Location: CANLT → BDM-Nicolet

New Subcon Location: TDR-SUBCON

Subcon Work Center: WC-TANNING (TDR)

Key Benefit: Raw hides physically at TDR remain on BDM's balance sheet under TDR-SUBCON.

STAGE 02 Logistics

Material Dispatch & Freight

Move Raw Hides to tannery and attach transportation costs.

BC Document: Transfer Order

Physical Movement: BDM-Nicolet → TDR

Outbound Freight: Item Charge (Assigned)

Cost Rule: Carrier freight bill is assigned via Item Charge directly to Raw Hides in transit.

STAGE 03 Subcontracting

Production Order & PO

Trigger manufacturing order and automate TDR service PO.

Production Order: For Item B (Tanned)

BC Automation: Subcon Worksheet

Vendor PO Created: Custom Tanning Fee to TDR

Automation: BC calculates required tolling units and generates a Purchase Order linked to the job.

STAGE 04 Processing

Consumption & Yield Loss

Record chemical processing and account for process scrap.

Raw Input (Item A): 1,000 pieces consumed

Finished (Item B): 998 pieces output

Yield Loss (Scrap): 2 pieces recorded

Yield Rule: 100% of the cost of the 2 scrapped hides is absorbed by the 998 good pieces.

STAGE 05 Invoicing

Subcontractor PO Receipt

Match TDR tolling invoice to WIP production order.

PO Receipt Posting: Capacity Entry to WIP

Subcon Invoice: Matched to PO Receipt

Third-Party Ready: Works for TDR or any tannery

G/L Synchronization: Processing cost moves from AP subledger directly into Production WIP.

STAGE 06 Completion

Return & Landed Cost Final

Receive finished hides back at Nicolet with 100% capitalized cost.

Final Location: BDM-Nicolet

Inventory Status: 998 pcs of Item B

BC Routine: Adjust Cost - Item Entries

Outcome: Exact valuation per finished piece in Item Ledger & Balance Sheet.

Unit Cost Accounting Formula in Business Central

How Business Central Dynamically Calculates Item B Valuation

Raw Hides (1,000 pcs @ Cost)

Outbound & Inbound Freight

TDR Tanning Service Fee

998 Good Finished Pieces (Yield Loss of 2 pcs absorbed)

= 100% True Landed Unit Cost of Tanned Hides (Item B) recorded in Balance Sheet Account 23625 (Finished Goods).

Next Action Steps for Shobhit & Benjamin

1. Rename Existing Location

Update location code CANLT to BDM-Nicolet in BC Location Card.

2. Create Tannery Location

Create new location TDR-SUBCON with TDR address for subcontractor inventory tracking.

3. Process the 9 Pallets

Create the BOM for Item B, issue Transfer Order to TDR-SUBCON, and launch the Subcontracting Production Order.