Not every value-adding step needs a production order. Sometimes you send Item A to a subcontractor, it comes back as Item B, and that’s it. No route, no capacity planning, no scrap reporting. Just a service.

Standard D365 points you to production, with a BOM, a service item and a vendor operation. That works, but it is a lot of machinery for a simple flow. Here is an idea: let a purchase order and a charge do the job.

The idea

1. Item A is bought and received as normal, at a cost of 1,000.
2. Item A is sent to the subcontractor with an inventory journal. The offset is an interim ledger account, “Material at subcontractor”.
3. A purchase order for Item B goes to the subcontractor, priced at the service only: 200.
4. A charge on the purchase order line carries the material value of 1,000. It debits the item and credits the interim account.
5. When Item B is received, its cost is 1,200 and the interim account is back to zero. The subcontractor invoices 200.

Material value travels as a charge. The subcontractor invoices only the service.

Why I like it

Item B gets a real cost at receipt, so the margin on the sales order line is close to right from day one, not after month-end. The open purchase order also tells sales what is coming. And the interim account becomes a control: if it is not zero, material is sitting at a subcontractor without a receipt, and someone should ask why.

What you give up

There is no production order tying Item A to Item B, so traceability depends on batch numbers and documents. Yield is your problem: if 100 units of A become 95 of B, the charge must still carry the full material value, and someone has to decide where the difference goes. If Item A’s cost changes later, charges on posted invoices can be adjusted, but that is nothing you want to do every day. And charges at product receipt depend on the right parameters, so test it before you trust it.

If you need routes, capacity, scrap or full genealogy, stay with production orders.

Over to you

This is an idea, not a best practice. Yet. Have you used charges like this? Where did it break? I would love to hear about it in the comments.

PS: No production orders were created while writing this post. AI helped with parts of it, but I’m the author.