Difference between external processing & subcontracting?

[kalyana_chakravarthy2]

Dear Guru's,

Can anyone explain me the difference between external processing & subcontracting with example?

Thanks in advance

Regards

Kalyan

[Former Member · Accepted solution]

Hi Kalyan,

I don't think so there is any difference between External Processing and Subcontracting. What I understand is External Processing is a kind of Subcontracting wherein the in-process component sent out of the Manufacturing facility for certain operations or some time External vendor comes and performs certain operation inside Manufacturing facility in certain specified area. This is operation subcontracting in my view. In this case the control key of the operation should have indicator External Processing as '+'. In std. SAP PP02 control key is available for such situation.

There is one more kind of subcontracting through MM module. In this case Subcontracting Bill of Material is maintained and exploded at the time of Purchase order create. These components is supplied to Vendor and then Assembly is received from PO GR.

Regards,

Shoyeb

[Former Member]

Hi Kalyan,

For External Processing, in routing operation you need to select the control key with external processing I think it is PP02, then you need to enter a outline agreement number, while creating the outline agreement you can specify the cost per item or some UOM. based on that when you create a Production order system will generate a PR and it can be converted to a PO Cost can be seen there and you can pay the vendor by normal Invoice receipt (MIRO).

thanks,

JK

[kalyana_chakravarthy2]

Dear Guru's

Thanks a lot for your inputs. Closing the thread

Regards

Kalyan

[Former Member]

Hi,

In External Processing, the stocks movement will not be visible. You cannot create document to Issue material to the vendor and document to receive the materials. This process will be used (mostly) to cost the services provided by the vendors inside the plant. Ex: One of your processes requires cutting and painting and this will be done by a different vendor and you need to pay them, and the vendor will work in your plant itself, then you can use this external processing scenario.

But in Subcontracting, you can have a BOM and in the PO the BOM will be exploded and material will be sent out for processing, you can keep track of stocks. You can also print GI document to move the materials out of your plant.

Thanks,

JK

[kalyana_chakravarthy2]

Dear Karthi,

As you have mentioned that vendor will do the required activities in our company premises & we have pay to the vendor, how is the payment done & where will you mention the cost for this activity. Can you please explain the steps?

In Subcontracting, we mention the service charges in the PO. In external processing, where do you maintaint the cost?

Thanks in advance

Regards

Kalyan