Before you begin, look at the creation steps for the two methods from a “big picture” point-of-view.
Derive in-place part method:
- In the owning assembly, create a reduced-part level of detail representation.
- In the owning assembly use the New Substitute
Derive Assembly command to create a derived part, without leaving the owning assembly, based on the reduced-part representation.
When the command finishes, the part derived from the assembly is the active representation. The substitute level of detail representation is identified in the browser with the 
icon.
Part-on-disk method:
- Create or open a part to use as a substitute.
- Designate the part as a substitute.
- In the owning assembly, use the New SubstituteSelect Part File command to specify the substitute part for the representation.
From an authoring point of view, the derive in-place part method is quicker most of the time. However, from a memory savings point of view, the simplified part provides more benefit since you have thorough and explicit control of geometric complexity.