Subcontracting Process in SAP MM

Ø  Purchaser order the end product from a vendor, and specify in the purchase order which components Purchaser will send the vendor to manufacture the end product.

Ø  Purchaser issue the components to the vendor, and create a goods receipt for the product manufactured by the vendor. At the same time, the consumption of the components is posted.

Ø  The vendor's invoice is entered with reference to the purchase order. A subsequent adjustment for excess consumption or under-consumption of the components can also be made at the same time.

Subcontracting: The finished product is ordered from a vendor. The components that the vendor

needs to manufacture the finished product are entered as “material to be provided” items.

Sub-Contract PO: The service provider provides the part to be maintained to the subcontractor along with other components that may have to be exchanged during the subcontract rework. After maintaining the part, the subcontractor returns it to the service provider.

BOM: A complete, formally structured list of the components that make up a product or assembly. The list contains the object number of each component, together with the quantity and unit of measure. The components are known as BOM items.

You can create the following BOM categories in the R/3 System:

 - Material BOM - Functional location BOM

 - Document structure - Sales order BOM

 - Equipment BOM

              When a main BOM item is a subcontract item (in the item category field of PO/PR line item, the value is "L"), then the system will automatically know that the sub items need to be issued out. Such issue, from the internal system processing view point, is only a transfer from one storage location to the subcontract vendor storage location rather as consumption.

             It will only be considered as consumption when the parent item is received back from the vendor. The system will automatically track all the items sent to the vendor waiting to be received back.

The following are the pre-requisite procedures for handling subcontract items:

  Ø   When setting up the subcontracted parent item (material type HALB), the material master has a procurement type of "F" and special procurement of 30. The effect is that when the purchase requisition was created by MRP or manually, the item category will be "L".

  Ø   BOM items for the main part have been setup to contain all the materials which must be supplied FOC to the vendor.

  Ø   There is no need to setup the routing for the sub-contracted main item.

The following are subcontract related procedures:

  Ø    Finding out what sub-items need to be issued to subcontractors and issue them.

  Ø    Finding out what sub-items have been issued to subcontractors and waiting to come back.

  Ø    Receiving subcontracting item (from the store viewpoint, there is no difference from normal receiving).

  Ø    Invoice processing: the invoice is only for the services and is no difference from normal processing.

Invoke transaction ME2O:

  Ø   Leave the Date required, Material and Plant blank unless you wish to limit the listing to a specific area. Check the Only Negative available SC stocks if you only want to look at the cases where materials need to be handed to the subcontractor. If you do not check this, then items which have already been issued to the subcontractor and waiting to come back will also be shown.

  Ø   To issue the items to the subcontractor, select the item, then click Post goods issue button.

  Ø   Enter the storage location from which the sub-items is taken out, and the quantity given.

  Ø   If there is not sufficient on hand stock to be given to the subcontractor, then the system will issue a "0 items posted" message. If there is sufficient quantity, the system will transfer the quantity to the vendor storage location. On this screen, you can also check the on hand stock balance by clicking the stock overview and stock/requirement buttons. You may also place the cursor on a PO number and display the PO details giving rise to this SC issuing requirement.

Subcontract Posting Material Document

101 + Receive in the new Material after sub-contract

 543 - Clear the quantity in Material Provision for Vendor

Accounting Document

Debit Inventory - New Part 150

Credit Inventory - Purchase Offset 150

Debit Service cost for sub-contract 50

Credit GR/IR - Inventory 50

Debit ROH - Material Consumed 100

Credit ROH - Material Consumed 100