What is subcontract manufacturing (fason)?

In subcontract manufacturing, the company ordering the work supplies the materials, and the company doing the work contributes its labor, machinery, and know-how. In Turkish, the firm doing the work is the fasoncu and the work itself is fason iş. Sewing in textiles, coating and heat treatment in metalworking, and painting in woodworking are steps that companies often subcontract.

Subcontracting lets a company get work done that it has no equipment for, or send work out when its own capacity runs short.

The difference between subcontracting and buying finished goods is ownership. When you buy finished goods, the vendor makes them from its own materials and sells them to you. When you subcontract, the materials belong to you from start to finish, and they’re still your stock while they sit in the subcontractor’s warehouse.

The subcontractor invoices for the work it does on the goods, not for the goods themselves.

How subcontracting works

A typical subcontracting cycle runs like this:

1. You agree with the subcontractor on the job, the quantity, and the price. Most companies record this in a subcontracting order.
2. You ship the materials to the subcontractor. The goods move, but you still own them.
3. The subcontractor does the work and ships the processed goods back.
4. You receive the returned goods, put them through a quality check if needed, and send them on to the next production step or into stock.
5. The subcontractor invoices for the work. Any difference between the quantity sent and the quantity returned is reconciled as scrap.

Shipping materials to the subcontractor and bringing them back are both shipments. Article 230(5) of the Tax Procedure Law (VUK) requires a waybill to be issued and kept in the vehicle when goods are transported.

How subcontracting affects cost and planning

Article 262 of the Tax Procedure Law defines cost as the total of the payments made to acquire an economic asset or increase its value, plus all related expenses. Article 275 lists what goes into the cost of manufactured goods: raw materials, labor, and a share of general manufacturing overhead. The same article adds that, as long as these elements are included, taxpayers may determine cost by any method they choose.

The fee paid to the subcontractor is the price of the work done on the goods. How it flows into cost is handled within the costing method the company has chosen.

On the planning side, three things matter:

• Materials at the subcontractor shouldn’t look like available stock. Otherwise the same materials get planned for a second job.
• The subcontractor’s lead time has to be built into the promise date.
• The quantity and quality of returned goods should be checked at receipt, because scrap reconciliation relies on that record.

If no one tracks which subcontractor holds which materials, and for how long, both stock levels and promise dates become unreliable.

Subcontracting in IWB

In IWB, Manufacturing and Purchasing handle subcontracting together. For a subcontracted step, you mark the work center as “Done off-site (subcontracting)” and assign it the subcontractor, the subcontracting service, and the subcontractor’s warehouse.

A draft subcontracting purchase order opens from the work order. The order stays linked to the work order and goes through the Draft, Approved, and Received statuses. Shipping materials to the subcontractor changes only their location; ownership stays with you.

Receiving the returned goods moves the work order forward. The return from the subcontractor is recorded in one step; partial returns can’t be recorded.

Goods at the subcontractor don’t count as available stock, and material requirements planning (MRP) leaves them out of the stock it can use. Next to the on-hand, reserved, and available quantities, the product summary also shows a restricted quantity for goods that don’t count as available. The subcontractor’s fee is added to inventory cost at its net amount after discounts.