Outlining Subcontracting

Objectives

After completing this lesson, you will be able to:

  • Get an overview of subcontracting

Subcontracting (BMY)

Locate Scope Item in LoB

The scope item Subcontracting (BMY‏) belongs to the Operational Procurement and Invoice Management business areas, which are part of Sourcing and Procurement line of business.

Introduction

Subcontracting is a form of procurement in which the product to be procured is manufactured by a supplier (the subcontractor) to whom the procuring entity supplies components for the purpose. The procuring entity may provide these components to the subcontractor either directly (using one of its plants), or indirectly (using another of its suppliers). When the manufacturing process is complete, the subcontractor delivers the ordered product (incorporating the components provided) to the ordering party.

In SAP S/4HANA Cloud a subcontract purchase requisition is either generated via the Material Requirements Planning (MRP) process or manually by a requestor. The purchase requisition is converted into a subcontract purchase order. The purchase order is subject to approval based on predefined parameters before being issued to the subcontractor.

You can order the material through a purchase order or scheduling agreement item using the L (Subcontracting) item category. The L item category enables you to create sub-items covering the components to be provided to the subcontractor. You can either manually enter the individual components or generate them through a Bill of Materials (BOM) explosion, if a BOM exists for the ordered material. The material to be ordered does not require a material master record. On the other hand, components that are provided must have a material master record.

Components provided to the subcontractor are part of your valuated inventory. They are displayed under the special stock category stock of material provided to vendor.

When the subcontractor has performed his work, he delivers the ordered material. You enter the goods receipt with reference to the subcontracting purchase order or scheduling agreement. Not only the receipt of the finished products is being booked, but also the consumption of the components from the special stock material provided to vendor.

Finally, the subcontractor invoices the service rendered.

Note
The subcontracting process should not be confused with external processing: in external processing, an account assigned purchase requisition is generated by a production order. This purchase requisition does not contain any components, only the description of the operation to be performed externally.

Business Benefits

The following are the business benefits of Subcontracting:

  • Streamline subcontracting processes efficiently and cost-effectively.
  • Ensure highly automated processes.
  • Reduce manual effort greatly.
  • Monitor the process progress in real-time.

Key Process Flows

The following are the key process flows of Subcontracting:

  • Manage purchase orders
  • Manage stock
  • Manage outbound deliveries
  • Pick and post goods issues
  • Manage goods receipts
  • Manage invoices
  • Serial number processing

Applicable Process Steps

Process StepDescription
Create subcontracting purchase requisition

In this optional step, you create a subcontracting purchase requisition either manually or automatically via the Material Requirements Planning (MRP). To specify in a purchase requisition that a material is to be ordered in subcontracting, enter the item category Subcontracting (L).

For each subcontracting item, you must enter one or more sub-items for the components to be provided. If a BOM with the components exists for the material to be procured, the components from this BOM are copied to the subcontract item. You can also enter the components manually or add further components to the components from the BOM.

Create subcontracting purchase order

In this step, you create a subcontracting purchase order manually if there is no purchase requisition to refer to.

You create subcontract items in a purchase order by using a special item category. For each subcontract item, you must enter one or more sub-items for the components to be provided. If a BOM with the components exists for the material to be procured, the components from this BOM are copied to the subcontract item. You can also enter the components manually or add further components to the components of the BOM. The purchase order price is the price of the subcontracting service and possibly the materials provided by the subcontractor. Note that you can store conditions for subcontracting in a purchasing information record of the type subcontracting.

Approve subcontracting purchase order (optional)In this step, a purchase order is to be approved by a manager.
Create outbound delivery (for components)

You must provide the subcontractor with the components required to manufacture the ordered material.

In this step, you create an outbound delivery for the components.

Pick and post goods issue (for components)In this step, you post the goods issue for the components. Providing components to a subcontractor corresponds to a transfer posting from storage location unrestricted-use stock to the stock of material provided to vendor.
Monitor stock

In this step you can monitor your stock of material provided to vendor. The components that you provide to a subcontractor are managed in a vendor-related special stock. This stock is managed at plant level and not at storage location level because the material is not in your own company, but at the vendor. Nevertheless, this special stock is part your own stock and available for planning.

For stock provided to vendor, the stock types unrestricted-use stock and quality inspection stock are possible. The quantities consumed by the subcontractor can only be withdrawn from unrestricted-use stock. A physical inventory must be carried out for the stock of material provided to vendor.

Post goods receipt from subcontractor

The procedure for posting a goods receipt with reference to a subcontract order does not differ from the procedure for posting a goods receipt with reference to a normal purchase order.

Only the posting results differ.

Not only the receipt of the finished products, but also the consumption of the components from the stock of material provided to vendor are posted. You can still change the consumption quantities of the components manually. These changes are necessary if the vendor informs you of increased or decreased consumption of components in the delivery.

The goods receipt is valuated with the price of the subcontracting service and the value of the components consumed.

Post supplier invoiceIn this step you post the incoming invoice from subcontractor.
Note
  • If you work with purchase requisitions, you will be able to convert them into purchase orders using the Process Purchase Requisitions app.
  • If subcontract purchase requisitions are to be generated automatically by the MRP run, you need to set the special procurement key for subcontracting in the material master record on plant level. There must also be a BOM containing the components to be provided.
  • You can define each subcontractor as an MRP area. An MRP area is an organizational unit for which separate materials planning can be carried out.
  • If the subcontractor does not inform you of an over- or under-consumption of components until after posting the goods receipt of the finished product, you have to post a subsequent adjustment to correct the component consumption.

During the MRP run, the system checks whether current material demand can be covered by current inventory and expected material receipts. In a regenerative MRP run, the system plans all materials, irrespective of whether they have been changed since the last MRP run. In a net change MRP run, the system only includes materials that have been changed since the last planning run in the new planning run. If current demand is not covered, the system creates purchase requisitions.

You can use this app to create and schedule a job for executing your MRP runs. To automate the planning process, the MRP run has to be carried out on a regular basis so you can use this app to create a job that performs this task for you. This reduces your workload by running the task smoothly in the background.

You can perform the following tasks if the role Production Planning - MRP Runs is assigned to your user:

  • Create and schedule jobs for your MRP runs. You can define:
    • Description, start date, start time, and recurrence of the MRP run
    • Specific control parameters for the MRP run
    • Planning scope of the MRP run
  • Monitor the jobs and display information, such as the status, planned start, end, and duration. In the Job Details screen you can display a log with information on the planning run.
  • Cancel the job.

Maintain Bill of Material

With this app you can find, display, and change Bills Of Material (BOM). The BOM contains the components to be provided and facilitates the entry of a subcontract purchase requisition or a subcontract purchase order.

Manage Purchase Orders

With the Manage Purchase Orders (F0842) app, you can manage purchase orders to ensure that you receive the ordered items on time, at the correct location, and in the required quantity. With this app, you can manually order materials for stock or for direct consumption as well as services. The displayed list of purchase orders on the initial screen is based on the header level of the Purchase Order (PO), so the information shown relates to the entire PO. On the overview, you can immediately see the number of overdue items for each PO. Depending on the PO status, you can still make changes such as adding or deleting items, or changing the purchase order quantity.

You create a subcontracting PO item using the item category L (Subcontracting).

The L (Subcontracting) item category determines that you have to provide components to enable the manufacture of a material that you want to order.

The use of the L item category has the following effects on a purchase order item:

  • You can create the purchase order item with or without a material master record. If you create a purchase order item with a material number, the specification of an account assignment category is optional.
  • You cannot change the goods receipt indicator. This means that you must post a goods receipt against the purchase order. However, you can deselect the invoice receipt indicator.
  • A non-valuated goods receipt is not possible.
    Note
    Item categories cannot be changed or redefined.

You can display and maintain the components of a subcontracting item on the schedule line items level.

If you change the purchase order or schedule line quantity, the quantities of the components to be provided are changed proportionally, provided you have not set the Fixed Quantity indicator.

If you change the delivery date the requirement dates of the components are recalculated.

Monitor Subcontracting Documents

The Monitor Subcontracting Documents app enables you as a Purchaser to monitor subcontracting orders using filter criteria, such as subcontractor, component, material group, assembly, and plant.

With Subcontracting Network View, you can get a better process transparency of MRP-generated items when monitoring your subcontracting documents.

  • Effectively monitor the subcontracting process for purchasing document items generated by MRP.
  • View precisely where selected MRP-generated items are currently in process within the subcontracting network.
  • Display details such as which components were supplied and from which supplier or plant.
  • Quickly identify which organization is handling the next assembly step and what components are involved.

Subcontracting Cockpit

The Subcontracting Cockpit enables you as an Inventory Manager to monitor the stock and requirements of components per subcontractor using certain filter criteria, such as subcontractor, plant, component, assembly, and material group.

At the component level, you can calculate the stock balance and navigate to the Stock/Requirements List.

At the purchasing document item level, you can create a delivery of components or directly post goods issues.

Manage Outbound Deliveries

With the Manage Outbound Deliveries app (F0867A), you can display and manage your outbound deliveries including the deliveries of subcontracting components.

Choose each delivery to see its details, such as its weight and volume.

Depending on the current goods issue status, you can post a goods issue for a delivery. If you need to make corrections to a delivery, you can easily reverse the goods issue posting and edit the respective documents.

You can apply these actions to all selected deliveries at once.

For deliveries that need to be picked, you can perform this step on the outbound delivery level where you can directly access the linked Pick Outbound Delivery app.

Post Goods Movement

You use the Post Goods Movement app (MIGO) to post a goods receipt for an ordered material with reference to a subcontracting item.

The system automatically posts the consumption of the components. If the actual consumed quantity of the components differs from the proposal, you can adjust it. This is also possible subsequently.

Create Supplier Invoice

You use the Create Supplier Invoice app (F0859) to enter and post a supplier invoice related to a subcontracting purchase order or scheduling agreement.

In the item list, the system proposes all items that correspond to the referenced purchasing documents. The system proposes the quantities and amounts of all items for which goods receipts were posted but not fully invoiced.

SAP Fiori Apps

The following table lists the SAP Fiori apps that are used in the Subcontracting without Serial Number Management Process steps:

Process StepBusiness RoleFiori App
Convert Purchase Requisition to Purchase OrderPurchaserProcess Purchase Requisitions
Create Purchase OrderPurchaserManage Purchase Orders
Monitor Subcontracting DocumentPurchaserMonitor Subcontracting Documents
Approve Purchase OrdersPurchasing ManagerMy Inbox - All Items
Option 1 : Outbound Delivery
Create Outbound DeliveryPurchaserDisplay Subcontracting Stocks by Supplier
Pick and Post Goods IssueShipping SpecialistChange Outbound Delivery
Option 2: Transfer Posting
Transfer PostingInventory ManagerSubcontracting Cockpit
Receive Goods from Subcontracting POWarehouse ClerkPost Goods Movement
Review Supplier InvoiceAccounts Payable AccountantSupplier Invoices List

The following table lists the SAP Fiori apps that are used in the Subcontracting with Serial Number Management Process steps:

Process StepBusiness RoleFiori App
Create Purchase OrderPurchaserCreate Purchase Order - Advanced
Approve Purchase OrdersPurchasing ManagerMy Inbox - Approve Purchase Order
Create Outbound DeliveryPurchaserDisplay Subcontracting Stocks by Supplier
Pick and Post Goods IssueShipping SpecialistChange Outbound Delivery
Receive Goods from Subcontracting POWarehouse ClerkPost Goods Movement
Create Supplier InvoiceAccounts Payable AccountantCreate Supplier Invoice - Advanced

Configuration Apps

In Sourcing and Procurement, several Self-Service Configuration UIs (SSCUIs), also referred to as configuration steps, are available in the Manage Your Solution app. The following SSCUIs affect the area of Subcontracting:

Localization
Maintain subcontracting challan validity period
Operational Procurement
Define Attributes of System MessagesSet Tax Indicator for Account Assignment

Subcontracting Tutorials

Learn the process of delivering raw components to a supplier for specific manufacturing processes and receive the finished material back into inventory.

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