Procuring Materials via Subcontracting

In a subcontracting process, your company orders finished materials from an external supplier. What is different in a subcontracting process when comparing it to a normal external procurement process, is that your company provides the supplier with the components that are needed to manufacture (or assemble) the finished materials that you ordered.

See the following video to learn more about the steps of subcontracting.

If you always procure a material for a plant via subcontracting, you can specify this in your SAP S/4HANA system by using a special procurement key in the material master record. If a purchase requisition is then created for this material using material requirements planning, it automatically receives the item category for subcontracting (L (Subcontracting)).

You can maintain the materials that are needed to produce or assemble a finished material in subcontracting by created a bill of material for the finished material. Doing this will ensure that the system can automatically determine the components that need to be sent to the subcontractor and copy these into the purchasing document(s) with item category L (Subcontracting).

If you enter a subcontracting item with material components in a purchase requisition, a dependent requirement is automatically created for each component. This requirement is relevant for material requirements planning.

In your SAP S/4HANA system, a special procurement key for subcontracting is available (key 30 (Subcontracting)) which you can assign to a material in the material master record on the MRP 2 tab. If you do this for a material, the MRP run will generate a purchase requisition (or planned order) with item category L (Subcontracting) in it to cover a requirement for this material. If a planned order is first generated, it is later on converted into a purchase requisition with item category L (Subcontracting) in it.

During MRP, the system also explodes the BOM of the finished product. Dependent requirements are created for the components for the release date of the purchase requisition at finished product level.

If you enter the components that the supplier needs to complete the ordered material (finished product) manually, you do not need to enter the requirement date of the components. The system proposes this date. The proposed date is determined by taking the requested delivery date of the item and subtracting the planned delivery time.

If, in one of your purchasing documents, you do not want the quantity of a subcontracting component to change when the quantity of the finished product is changed, you can set a flag called Quantity is fixed for that component in the component overview screen. You can do this for example in a purchase requisition for a subcontracting item:

Check the following demonstration to see an example of a purchase requisition and the usage of a flag called Quantity is fixed, which you can use if you do not want the quantity of a subcontracting component to change when the quantity of the finished product is changed:

If a component that needs to be sent to the supplier is managed in batches, you can specify the desired batch of the component that you would like to send.

In customizing for your purchase order document types, you need to assign all allowed item categories per document type. In the standard SAP S/4HANA system, item category L (Subcontracting) is available as an item category for document type NB (Standard PO).

In the standard SAP S/4HANA system, you can create a subcontract order item based on a purchase requisition item with item category L (Subcontracting) but also based on a purchase requisition item with item category BLANK (Standard). This is (again) configured for you purchase order document type (NB) per item category (L) via the link of this item category (L) to any purchase requisition document type-item category combinations (e.g. NB-L and NB-BLANK) based on which the purchase order item with that item category (L) can be created.

Each subcontracting item in the purchase order has components. These components are transferred from the purchase requisition, entered manually, or entered automatically via BOM explosion (button Explode Bom/New BOM explosion on the Material Data tab of a purchase order item).

The material that the supplier is to produce or assemble can be ordered via of a purchase order or via a scheduling agreement with a subcontracting item in it. Each subcontract order item has one or more components specified that need to be sent to the subcontractor. For a scheduling agreement however, the components needed for a scheduling agreement subcontracting item are only assigned/entered when a schedule line for this item is entered.

You can check the availability of the components on the required date from the component overview in your purchasing document by choosing Component list → Component availability (either when using the SAP Graphical User Interface (SAP GUI) or a tile in the SAP Fiori launchpad for the respective purchasing document).

If the finished material you are ordering via subcontracting has a BOM, the components are added automatically to your document item (or schedule line if a scheduling agreement is involved). If you would like to redetermine the components based on the BOM at a later point in time (for example if the BOM was subsequently changed), you can re-explode the BOM (using the button on the Material Data tab mentioned before). If you do this, the existing components in the document item are deleted and the new set of components is copied from the BOM into the document item.

When a subcontract order is output (for example: printed), the components are listed per order item.

The purchase order price is the price you need to pay for the supplier's subcontracting service for the production or assembly of the ordered material. If necessary, next to an amount for the service provided, it can also represent in part an amount for materials that the supplier has provided. To store the purchase order price and any other related pricing conditions, you can make use of a purchasing info record of a special category called Subcontracting (field Info category).

If you change the purchase order quantity (or the schedule line quantity), the quantities of the components that need to be provided to the supplier are changed proportionally, provided the Quantity is fixed indicator has not been set.

If you change the (requested) delivery date/time for the finished material, only the requirements date for the components is redetermined: the bill of material is NOT re-exploded.

You can also use a scheduling agreement for the procurement of materials via subcontracting. In the scheduling agreement, enter the material to be produced or assembled and use item category L (Subcontracting) for the item in the scheduling agreement.

The components themselves are only specified in the scheduling agreement once a schedule line is entered. This can be done based on a bill of material or the components can be entered manually in the schedule line.

Components that are to be sent to the subcontractor are present in each schedule line. This is valid for scheduling agreement schedule lines but in fact also for schedule lines in purchase requisitions and in purchase orders.

You enter the material to be produced or assembled as a subcontracting item in the scheduling agreement item.

You enter the components that are needed to produce the schedule line quantity in the details of the schedule line. Reservation items are created for these component quantities

Scheduling agreements can be used as a source of supply by the MRP run: this means that the MRP run can generate schedule lines for such a scheduling agreement automatically.

Procedure for using a Scheduling Agreement for Subcontracting:

1. Create a scheduling agreement for a material and specify item category L (Subcontracting).
2. Create a delivery schedule for the subcontracting item in the scheduling agreement.
3. Enter all dates/times on which the material procured via subcontracting is required. Enter the required quantities per date/time. If there is a reference to a purchase requisition, the date/time and the required quantity is copied from the purchase requisition.

4. For each schedule line, enter the components that need to be sent to the subcontractor. A bill of material (BOM) can be used to automate this: if there is a valid bill of material for the material in the scheduling agreement item, the components are determined automatically by the SAP S/4HANA system by exploding the bill of material. If you are creating a schedule line with reference to an existing purchase requisition with a subcontracting item, the components are copied from the purchase requisition item. If you are entering an item without a bill of material and you are not referencing a subcontract purchase requisition item, you will have to enter the components manually.

   To make entry of the components an easier task, you can make settings in the system so that it memorizes the components for further schedule line items. To do this, choose Settings → Repeat Components → Activate. When you now enter the next schedule line for the material, the components are copied from the previous schedule line.

5. Save the delivery schedule and communicate it with your subcontractor.