Subcontracting vs. Consignment in SAP MM

 Both processes involve a supplier, but the key difference is who owns the stock and when the supplier is paid.

	🔵 Subcontracting	🟠 Consignment
What happens?	You provide components; the supplier processes them and returns a finished product.	The supplier keeps stock at your site; you pay only when you use it or transfer it to your own stock.
Who owns the stock?	Your company owns the components sent to the subcontractor.	The supplier owns the consignment stock until it is consumed or transferred.
PO item category	L – Subcontracting	K – Consignment
BOM required?	Usually needed to propose the components in the PO.	No
How is the supplier paid?	Invoice for the processing charge, typically via MIRO.	Settlement for consumed or transferred quantities via MRKO.

🔵 Subcontracting: supplier processes your components

1. Prepare master data
   Create or check the material and supplier (Business Partner) records.

2. Create a BOM
   Use CS01 to define the components needed to make the finished product. A purchasing info record may be used, but is optional in the standard process.

3. Create the subcontracting PO
   Use ME21N and select item category L – Subcontracting. Check the Components tab to review the components proposed from the BOM.

4. Send components to the subcontractor
   Post the transfer using movement type 541. The components remain company-owned, but are shown as stock provided to the subcontractor.

5. Receive the finished product
   Post the goods receipt, typically with movement type 101. Component consumption is generally posted automatically with movement type 543.

6. Pay the subcontractor
   The PO price is for the supplier’s processing service—not the value of the components. Post the supplier invoice in MIRO. Whether invoice verification is goods-receipt-based depends on the PO and business setup.

🟠 Consignment: supplier-owned stock is held at your site

1. Prepare master data
   Create or check the material and supplier (Business Partner) records.

2. Create a consignment purchasing info record
   In the standard process, this holds the price used for settlement.

3. Create the consignment PO
   Use ME21N and select item category K – Consignment. A BOM is not required.

4. Receive the consignment stock
   Post the goods receipt, typically with movement type 101 and special stock indicator K. The stock is recorded as supplier-owned; the receipt itself normally does not create a stock-value accounting posting.

5. Use or take ownership of the stock
   Examples include:

   • 201 K – Issue to a cost center
   • 261 K – Issue to a production order
   • 411 K – Transfer consignment stock to your own stock

6. Settle with the supplier
   Use MRKO to settle the quantities consumed or transferred to company-owned stock. Consignment settlement is not normally processed as a standard invoice through MIRO.

Note:

• Subcontracting: We provide components; the supplier returns a processed product.
  541 → 101 / 543 → MIRO
• Consignment: The supplier owns the stock until we use it or take ownership.
  101 K → consumption or transfer → MRKO