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Sub contracting Process

Hi All,

Can any body brief me regarding Sub-Contracting Process.

My process is,

We are sending one material to vendor for processing, we are paying service charge to him. We are receiving back theprocessed material.

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6 Answers

  • Best Answer
    Posted on Aug 11, 2008 at 11:55 AM

    hi,

    In subcontract order processing, the vendor receives materials (components) with which it produces the end product. The following are involved:

    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.

    Stock of Material Provided to Vendor

    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 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 only be posted from unrestricted stock, however.

    You can take a physical inventory of the stock of material to be provided to vendor.

    To create a subcontract order, proceed as follows:

    Enter the material you want to order and the item category for subcontracting (L) in the order item.

    Press Enter to display the screen for component processing.

    Enter the components that the vendor requires to manufacture the ordered material (end product). Note the following:

    You do not need to enter the date required for the components. This date is proposed by the system when you press Enter. It is calculated as follows:

    Delivery date of the item minus planned delivery time

    If you do not want the quantity of the components to be changed if the order quantity of the end product is altered, set the indicator Fixed quantity.

    If you want to assign a particular batch of the component to the vendor for the manufacture of the ordered material, enter the desired batch.

    You can determine whether the components are available on the date required by selecting Component List -> Component Availability.

    If you entered a bill of material as the material in the subcontract order, the components are created automatically.

    If you want to determine the components in the bill of material at a later date (for example, if the bill of material is subsequently changed), choose Item -->Goto -->Components-> New BOM explosion. The existing components are deleted and redetermined in the bill of material.

    Save the purchase order.

    When you print the purchase order, the components are printed per order item.

    Hope it helps..

    Regards

    Priyanka.P

    AWARD IF HELPFULL

    Edited by: Priyanka Paltanwale on Aug 11, 2008 1:57 PM

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  • author's profile photo Former Member
    Former Member
    Posted on Aug 11, 2008 at 11:55 AM

    Hi,

    Check this out please

    subcontracting-process

    The Purchase order for subcontracting is created with item category L ( subcontracting),

    The goods is sent to the subcontractor ( vendor who will give services for the company) by 541 movemet type.

    (No accounting docs generated here)

    When GR is done automatically, 543 movemnt takes place which take care of the consumption of components from stock.

    Cheers,

    Sridhar

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  • author's profile photo Former Member
    Former Member
    Posted on Aug 11, 2008 at 11:55 AM

    - Create Bill of material

    - Create sub contract info record

    - Create PO using L as item cat

    - Material issued to the vendor(ME2O)

    - GR/IR

    - Use subsequent adjuctment in MIGO if necessery

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  • Posted on Aug 11, 2008 at 11:58 AM

    hi

    Subcontracting Processing

    When a main BOM item is a subcontract item (in the item category field of PO/PR line item, the value is "L"), then the system will automatically know that the sub items need to be issued out. Such issue, from the internal system processing view point, is only a transfer from one storage location to the subcontractor vendor storage location rather than a consumption. It will only be deemed a consumption when the parent item is received back from the vendor. The system will automatically track all the items sent to the vendor waiting to be receieved back.

    The following are the pre-requisite procedure for handling subcontract items:

    When setting up the subcontracted parent item (material type HALB), the material master has a procurement type of "F" and special procurement of 30. The effect is that when the purchase requistion was created by MRP or manually, the item category will be "L".

    BOM items for the main part has been setup to contain all the materials which must be supplied FOC to the vendor.

    There is no need to setup the routing for the sub-contracted main item.

    The following are subcontracted related procedures:

    Finding out what sub-items need to be issued to subcontractors and issue them.

    Finding out what sub-items have been issued to subcontractors and waiting to come back.

    Receiving subcontracting item (from the store viewpoint, there is no difference from normal receiving).

    Invoice processing : the invoice is only for the services and is no difference from normal processing.

    Invoke transaction ME2O

    Leave the Date required, Material and Plant blank unless you wish to limit the listing to a specific area. Check the Only Negative available SC stocks if you only want to look at the cases where materials need to be handed to the subcontractor. If you do not check this, then items which have already been issued to the subcontractor and waiting to come back will also be shown.

    To issue the items to the subcontractor, select the item, then click Post goods issue button.

    Enter the storage location from which the sub-items is taken out, and the quantity given.

    If there is not sufficient on hand stock to be given to the subcontractor, then the system will issue a "0 items posted" message. If there is sufficient quantity, the system will transfer the quantity to the vendor storage location. On this screen, you can also check the on hand stock balance by clicking the stock overview and stock/requirement buttons. You may also palce the cursor on a PO number and display the PO details giving rise to this SC issuing requirement.

    Subcontract Posting

    Material Document

    101 + Receive in the new Material after sub-contract

    543 - Clear the quantity in Material Provision for Vendor

    Accounting Document

    Debit Inventory - New Part 150

    Credit Inventory - Purchase Offset 150

    Debit Service cost for sub-contract 50

    Credit GR/IR - Inventory 50

    Debit ROH - Material Consumed 100

    Credit ROH - Material Consumed 100

    regards

    kunal

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  • author's profile photo Former Member
    Former Member
    Posted on Aug 11, 2008 at 11:57 AM

    Dear, Please find below the basic points in SC process :

    1) You have a material that can be procured externally, and you have maintained BOM with components. Any waste generated and received during subcontracting process can be maintained as component with negative quantity.

    (2) You create a subcontracting PO (PO with Item Category L). You can also maintain Purchase Info Record for Subcontract category for material and subcontractor.

    (3) You make a transfer posting to issue components for SC PO. Material is sent to subcontractor. As material remains under your ownership, system does not make any value entry. But quantity is shown as "Material Provided to Vendor"

    (4) You receive finished material against SC-PO. You also specify components consumed in manufacturing of finished goods. Additionally, if you have negative components in BOM, now you'll also receive subcontracting by-products. There are three events, so three accounting entries are generated:

    DR FG Stock/ SC By-Product Stock

    CR Change in Stock (FG/ SC By-Product )

    (for finished goods received)

    DR Subcontracting Charges

    CR GR/IR Clg

    (for moneys payable to Subcontractor)

    DR Consumption (Components)

    CR Change in Stock (FG/ SC By-Product )

    (material provided to Vendor is now charged to expense)

    (5) You do the IV for SC Invoice, and the process is complete.

    Process of Subcontract in MM

    Sub-contract business process:

    You want to buy material from the supplier (processed material/ assembled item) , but for some reason (quality of certain item / price ) you will give some component to vendor .

    Vendor shall process the item / use the item provided & supply the final item.

    SAP process:

    1.Create the finished goods material code.

    2.Maintain the BOM for the material.

    3.Create PO with item category as "L" .

    4.Issue material to vendor with movement type 541

    5.Receive the material against the PO with movement type 101.

    6.MIRO to account for vendor's invoice for the service charge& material used by him.

    Process

    Suppose, I have 3 operations 1)weaving 2)dyeing 3)cutting & packing

    if no 2 process (i.e Dyeing) has to be given to subcontracting, what process should i follow ?

    The following process to be followed for subcontracting.

    1. Item code(material master) to be created at the stage of before dyeing.

    2. Item code(material master) to be created after Dyeing as subcontracted item.(F30)

    3. Bill of material to becreated for the material(2) calling for material(1)

    4. Inforecord and source list to be created for material(2) with the corresponding vendor

    5. PO to be released for material (2)

    6.Along with PO the material(1) to be issued to vendor

    7.On receipt of material when GR is made the stock with vendor will get updated.

    How to Create a Subcontract Order?

    To create a subcontract order, proceed as follows:

    Enter the material you want to order and the item category for subcontracting (L) in the order item.

    Press ENTER to display the screen for component processing.

    Enter the components that the vendor requires to manufacture the product.

    Please note:

    u2013 You do not need to enter the date required for the components. This date is proposed by the system when you press ENTER.

    It is calculated as follows:

    Delivery date of the item - Planned delivery time

    u2013 If you do not want the quantity of the components to be changed if the order quantity of the end product is altered, set the indicator Fixed quantity (column F).

    u2013 You can determine whether the components are available on the date required by selecting Edit -> Availability check.

    If you entered a bill of material as the material in the subcontract order, the components are created automatically.

    If you want to determine the components in the bill of material at a later date (for example, if the bill of material is subsequently changed), choose Item -> Component -> New BOM explosion. The existing components are deleted and redetermined in the bill of material.

    Save the purchase order.

    When you print the purchase order, the components are printed per order item

    Regards,

    Syed Hussain.

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  • author's profile photo Former Member
    Former Member
    Posted on Aug 11, 2008 at 11:58 AM

    Hi,

    As per your scenario you have to use subcontracting process.

    Please follow bellow step.

    1) Create vendor as outsourcing vendor - XK01.

    2) Create material - MM01.

    (Optional)3) Maintain material BOM, Take main material and also put referance material which is you provide to vendor.

    4) ME21N - Create purchase order for subcontracting, Select document type as subcontracting.

    and also take referance material (which is providing by you to vendor) in purchase order item level data - "Components".

    5) MIGO - Create Good receipt against purchase order, At the time of good receipt to activity is perform.

    --> For your purchsing mateiral system take movement type 101, So your stock will be up.

    --> for your issuing material (which is providing by you to vendor) system take movement type 543, So your stock will be reduse.

    6) MIRO - Than create MIRO transaction for you billing.

    Regards,

    Mahesh.

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