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 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 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 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, which is the stock of the material supplied to the supplier.
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 is the receipt of the finished products booked but the components from the special stock material provided to the supplier are also consumed.
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.The following diagram shows the key process flow of subcontracting.
You can find the complete Solution Process Flow on Process Navigator - SAP for Me:
Subcontracting (BMY) Solution ProcessApplicable Process Steps
| Process Step | Description |
|---|---|
| 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). You must enter one or more sub-items for each subcontracting item 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 a subcontracting purchase order | In this step, you manually create a subcontracting purchase order if there is no purchase requisition. You create subcontract items in a purchase order 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 manager will approve a purchase order. |
| 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 the material supplied to the supplier. |
| Monitor stock | In this step, you can monitor your stock of material provided to the supplier. The components you provide to a subcontractor are managed in a vendor-related special stock. This stock is managed at the plant level and not at the storage location level because the material is not in your own company but at the supplier. Nevertheless, this special stock is part of your ow stock and is available for planning. For stock provided to the supplier, 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 the supplier. |
| 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 standard purchase order. Only the posting results differ. The receipt of the finished products and the consumption of the components from the material stock provided to the supplier are posted. You can still change the consumption quantities of the components manually. These changes are necessary if the supplier 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 invoice | In this step you post the incoming invoice from the subcontractor. |
Note
- If you work with purchase requisitions, you can convert them into purchase orders using the Process Purchase Requisitions (V2) 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 the plant level. A BOM containing the components to be provided must also exist.
- 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.