When a manufacturer outsources its parts or products to an external subcontractor for some work, a subcontracting process in SAP is required. For instance, a battery manufacturer can send the batteries to an outside subcontractor for printing the branding and other things on the battery. This is a subcontracting process and can be vital for an organization for keeping track of its subcontracting tasks as well as expenses.
Subcontracting is not just limited to simple outsourcing jobs. A company can outsource packaging as well as raw materials to a subcontractor for them to convert the raw material into the final product and pack it as well. The company can now sell those products under their branding and the subcontractor can send a detailed receipt charging the company for giving their services.
This guide will help you work with the subcontracting process in SAP.
Before going through the subcontracting process, you need to make sure that some of the prerequisites needed for the process are complete. Before any subcontracting order can be placed, the company needs to create a BOM or Bill of Materials. This bill of materials is nothing but a list of all the parts, components, and more required to manufacture the product. It also contains the object number of every component along with their unit of measure and the total quantity.
Steps of Subcontracting Process in SAP
Once the prerequisites are taken care of, you can go ahead with the subcontracting process in the SAP ERP system. The steps are summarized below:
- A subcontract offer is needed to order the end product. This is quite necessary as whatever components a vendor needs for manufacturing a product are specified in that order. It contains detailed information about what the subcontractor needs to procure.
- The stock of materials given to the vendor is posted with the components that will be supplied to the vendor to complete the job.
- The vendor then starts working on the product and delivers the end product as ordered by the company. Whatever components they used during the process are posted as well.
- You might have to make adjustments to the components supplied to the vendor if they inform you that a smaller quantity of components was used or if all the components are used but the job is still unfinished. This also gives you an idea of how much the components will be consumed.
- Once the work is done, the vendor then creates an invoice for his services and sends it to you for charging.
After the subcontracting process is complete, you need to procure the final product from the vendor. This is where the subcontracting requisition comes into play. It lists the finished material to be procured. The system analyzes the Bill of Materials (BOM) provided to every vendor and copies the material components that the vendors received against each subcontracted item. The subcontracting requisition keeps track of every item the vendor has used for the subcontracting process.
The BOM also refers to the final product promised by the vendor to deliver. Any changes should be reflected in the requisition. The subcontracting requisition contains the item category ‘L’ which in the SAP system, is used for subcontracting.
Subcontracting Purchase Order
The subcontracting requisition list is turned into a subcontracting purchase order which is sent to the vendor or the subcontractor by the company. Along with purchase orders, vendors also receive the subcontracting materials so that they can work on and process the finished products easily. The system internally generates a number for each purchase order and it is unique for every purchase order.
Apart from the information about the products and subcontracting materials, the purchase order also contains information about the labour charges quoted by the vendor for doing the work. The service charges can default in the order if the purchase info record is maintained properly.
Example of Subcontracting Process in SAP
Creating a Subcontracting Purchase Order
- Navigate to Logistics > Materials Management > Purchasing > Purchase Order > Create (ME21N) to start the transaction ME21N.
- You need to provide a Vendor and select a Document Type in the ME21N transaction.
- You also need to use the item Category ‘L’ in the Item Overview screen for the subcontracting documents.
- Next, you need to provide the components to the subcontractor by clicking on the Explode BOM button.
- You can input any additional changes in the Conditions tab and then save the subcontracting purchase order.
Creating a Transfer Posting
- The transaction MIGO is used to provide components to the vendor. Use document type as Transfer Posting against Other and set the movement speed as 541.
- Provide details about the material, plant, quantity and more in the Iten Overview screen.
- Give the subcontractor detail by clicking on the Detail Data button. Click on Check to see if the document is OK and then click on Post.
- Choose Goods Receipt in MIGO against Purchase Order to enter the materials received back by the subcontractor. Use movement type 101.
- Check the components provided to the subcontractor and the materials returned and then click on Post to save the document.
Post Invoice Receipt
- Choose Invoice transaction on the start screen of MIRO. Enter Purchase Order number, Invoice Date, and then click Enter.
- Enter the Amount for the amount of service provided and then click on Simulate. A green light near the Balance field means that everything is okay and that the system will create an accounting document.
- Click on Post to save the invoice receipt.
This was a comprehensive guide about the Subcontracting process in SAP MM. Managing and tracking the subcontracting process can be very important for a company, especially the ones that work with a lot of outside vendors and subcontractors for different aspects of their work. While there are tutorials and videos like this one available online for the subcontracting process, it might be difficult for companies with little to no technical background to do it on their own. They can take help from several SAP B1 partners like Praxis Info Solutions for handling their subcontracting process, staying on top of outsourcing tasks, and managing payments, invoices, materials and everything else efficiently.