Subcontracting in Manufacturing
4 min read
By
TranZact Solutions Team
· Published
Subcontracting means sending one processing step, such as plating, heat treatment or specialized machining, to an outside vendor. The manufacturer still owns the material. It works fine until nobody can say exactly how much material is sitting at a vendor’s shop floor, or when it’s due back.
Every growing manufacturer subcontracts something eventually: a process step it doesn’t have equipment for, or overflow capacity during a busy month. The real risk isn’t the decision to subcontract. It’s losing track of material the moment it leaves the gate.
What Is Subcontracting in Manufacturing?
Subcontracting is sending raw material or a semi-finished component to an outside vendor for one processing step. Typical steps are plating, heat treatment, powder coating or specialized machining that the factory can’t do in-house or lacks spare capacity for.
It is different from buying a finished part outright. In subcontracting, the manufacturer usually keeps ownership of the material the whole time. The vendor is paid only for processing labor. That is exactly why the material needs to be tracked out and back like any other stock movement.
The most common subcontracted processes in Indian manufacturing are electroplating, powder coating, heat treatment and CNC overflow work. Specialized welding also goes out when it needs equipment a smaller factory doesn’t own.
In-House Processing vs Subcontracting
Capital: in-house processing needs equipment investment; subcontracting shifts that cost to a per-job vendor rate.
Control: in-house processing gives full control over turnaround and quality; subcontracting depends on the vendor’s own schedule and standards.
Flexibility: subcontracting absorbs demand spikes without adding permanent capacity; in-house capacity is fixed regardless of order volume.
Visibility: in-house material never leaves the factory; subcontracted material needs deliberate tracking the moment it exits the gate.
Manufacturer relevance: most Indian SMEs run a mix (core processes in-house, specialized or overflow work subcontracted) rather than choosing one model exclusively.
The Subcontracting Process, Step by Step
A subcontracted job usually runs through four stages, whether or not a factory tracks them formally:
Material issue. Raw material or WIP is issued out against a subcontract PO or challan. The quantity sent needs to match what actually leaves the gate.
Job work at the vendor. The vendor performs the agreed process (plating, machining or heat treatment) on the material, usually against an agreed turnaround time.
Return and inward QC. Processed material comes back and gets checked against what was sent out, both quantity and quality, before it’s accepted back into stock.
Vendor billing. The vendor invoices for the processing labor, not the material, and that invoice gets matched against the subcontract job before payment.
What to check in subcontracting software
Stock out at each vendor, by quantity
Returns checked against what was issued
Vendor bill tied to the job
Sub-contracting linked to BOM and routing
Tally sync without double entry
Where Subcontracting Breaks Down
The same failure patterns show up regardless of company size:
No record of what’s out. Material sent to a vendor isn’t tracked as a distinct stock state. So nobody can say how much inventory is sitting outside the factory at any moment.
Quantity mismatches at return. What comes back doesn’t get checked against what was sent, so process loss or a short return goes unnoticed until it affects a delivery.
No visibility into vendor turnaround. Without a tracked due date, a subcontracted job can sit at a vendor for weeks longer than planned before anyone follows up.
Subcontract billing not tied to the actual job. Vendor invoices get paid against a rough estimate instead of the specific batch and quantity that was actually processed.
Material treated as consumed the moment it’s issued. Some systems record subcontracted material as used up on issue, which overstates consumption and understates what’s actually recoverable if a job gets cancelled.
Do you know exactly how much material is sitting at a subcontractor’s shop floor right now, or does that need a phone call?
It shouldn’t need one. Material at each vendor should sit in the same system as the rest of your stock, not in a separate register.
How TranZact Supports Subcontracting
TranZact’s production management includes sub-contracting alongside multi-level BOM, work orders, process routing and production costing. Sub-contracting is on the Scale and Dominate plans.
On the inventory side, stock in, issue, multi-store, reorder and AI stock alerts run in the same system. Every movement that affects stock, from sales and purchase to production and consumption, is connected on one system.
It does not negotiate turnaround times or pricing with your vendors. What it gives you is a number you can trust for how much stock is out on job-work. Accounting stays in Tally, with a one-way sync and no double entry.
If vendor material still lives in a register or a WhatsApp chat, see how TranZact handles sub-contracting and stock together.
