Subcontracting Process in SAP MM

Definition – Subcontracting

  • Subcontracting process in SAP MM is a special procurement process where a manufacturer outsources the whole manufacturing process or a part of it by sending the components of a machine or assembly to its supplier
  • The supplier builds/ assemble the machine with components and returns the final product to the manufacturer
  • The supplier charges for the services which it has performed to build or assemble the final product
  • Generally we send the raw material components to the supplier and receive the semi-finished material as the final product
  • Subcontracting process in SAP MM needs not only knowledge about SAP settings and configuration but also business knowledge. This post will help you to gain both.

Business Examples of Subcontracting Process

Here are few real time business examples of Subcontracting in SAP MM. It will definitely help you to make a understanding of business. In the next section we will discuss the mapping of subcontracting process in SAP.

  • Assembling of bicycle: Suppose a bicycle manufacturer has a huge order to manufacturer but they do not have enough facility to build bicycles at such a huge level. So they will take help from a subcontractor to do the assembling job. The bicycle manufacturer can send the components (or parts) of the bicycle to the supplier (or subcontractor). The supplier will do the necessary assembling and return the bicycle (final product). Below is the list of bicycle components which a manufacturer can provide to a subcontractor for assembling.
  • Main frame,
  • Handle,
  • Tyres,
  • Seat,
  • Chain,
  • Pedals,
  • Brake

The supplier will assemble the parts of a bicycle in its premises and return the complete bicycle to original manufacturer. The parts of bicycle will be use by supplier to make the final bicycle. On receiving the bicycle, its components will be consumed from the warehouse and stock of bicycle will increase.

Business knowledge will help you to crack SAP MM interview questions and client facing roles.

Fiori Apps to run Subcontracting Process

  1. Create Subcontracting Purchase Rerquisition manually: We can create a subcontracting PR with item category ‘L‘ using a Fiori App “Process Purchase Requisition“. Please note that this Fiori App was formerly known as “Manage Purchase Requisitions”.
    • Subcontracting Purchase Requisition created by MRP: Purchase requisition can also be created automatically through MRP by using Fiori App “Schedule MRP run“.
  2. Create Puchase Order: Purchase requisition can be converted into a Purchase order by using Fiori App “Process Purchase Requisition“.
    • Purchase order can also be created directly with item category ‘L’ using FIori App “Manage Purchase Orders” or “Create Purchase order”.
  3. Transfer Posting: In this step we can post goods issue to transfer BoM components to subcontractor. We can do it by using FIori App “Subcontracting Cockpit“. Earlier this step was known as Post goods issue step.
  4. Receive Final material from subcontractor: Once the assembling work is completed we can receive the final material in our plant by posting a goods receipt with reference to the Purchase order. We can use Fiori App “Post Goods receipt for Purchasing Document“. Once posting is done the BoM component stock reduces and final product stock increases.
  5. Create Supplier Invoice: We can post invoice receipt using Fiori App “Create Supplier Invoice“. First simulate an then make the actual posting.

SAP T codes to run Subcontracting Process

  1. ME51N for PR creation: User can create the subcontrcting purchase requisition with t code ME51N. Here user can select the item catgory ‘L’.
  2. ME21N for PO creation: A Subcontracting Purchase order is created with reference to a PR usingt code ME21N. Here also make sure that item category is ‘L’.
  3. MIGO for transfer posting: Use t code MIGO for transfer posting to issue the BoM components to the supplier. Transfer posting is executed with reference to subcontracting PO and movement type 541.
  4. ME2O for transfer posting: Use can also use t code ME2O to post goods issue to a supplier with reference to a subcontracting PO. Choose green line item, select it’s check box and click on the Post Goods Issue button on header of the report output and it will post the BoM components to supplier.
  5. MIGO to receive the final product: Once the subcontracting work is finished the supplier will send the final product to the manufacturer. At the manufacturer premises user can receive the final product by posting goods receipt with movement type 101 in t code MIGO with reference to the subcontracting PO.
  6. MIRO for invoice receipt: User will receive the final invoice from subcontractor for the services executed by supplier. The t code MIRO is used to post subcontracting invoices.
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