Explaining Subcontracting

The material to be produced by the vendor is to be ordered as a subcontracting item, i.e. we send the components and the vendor assembles them and sends back the material to us.

The subcontracting process involves the following steps:

• You order the end product using a subcontract order. The components that the vendor needs to manufacture the end product are specified in the purchase order.
• In Inventory Management, the components are posted to the stock of material provided to vendor. The components are then supplied to the vendor.
• The vendor performs its service and delivers the ordered material (the end product). The consumption of the components is posted.
• If, after the goods receipt has been posted, the vendor informs you that a larger or smaller quantity of the components was actually consumed than planned in the purchase order, you must make an adjustment.
• The vendor charges for his or her service. The invoice is posted in Invoice Verification.

The quantities of the components to be provided to the vendor are entered into the stock of material to be provided to vendor.

This stock has the following features:

• It is managed as part of your total valuated stock, and it is available for MRP.

• It is only managed at plant level, since it is not stored at your own company but on the vendor's site.

Two stock types are possible:

• Unrestricted-use stock.
• Quality inspection stock.

Stock can be transferred between the two stock types. Withdrawals can however only be posted from unrestricted stock. You can view the stock that has been supplied to the subcontracting vendors from the Subcontracting Cockpit (transaction code: ME2ON).

Subcontracting purchase orders are created via transaction ME21N, with the Item CategoryL.

Each subcontract item has one or more sub-items that contain the individual components the vendor needs to perform the subcontract work or value-added service.

The individual component items can either be:

• Entered or changed manually.
• Copied from an existing bill of material (this is known as a BOM explosion).

The purchase order price is the subcontract price for manufacturing the ordered material. Hence, as a prerequisite, a subcontracting purchasing info record needs to be created for the material and vendor.

Changes to the Subcontracting Order: subsequent changes to the subcontracting order can be done via transaction code ME22N.

When you process subcontract orders in Purchasing, please note the following:

• If you change the order quantity or scheduled quantity, the quantities of the components to be provided are changed proportionally, providing the indicator Fixed quantity is not set.

• If you change the delivery date, the system only recalculates the date required, the components are not automatically redetermined in the bill of material. In this case, you must request a new BOM explosion.

Goods issue of the components to the vendor referencing the subcontracting purchase order and the subsequent goods receipt of the finished material is done by using transaction MIGO.