SAP MM Subcontracting Process
1. Overview of Subcontracting in SAP MM
Subcontracting in SAP Materials Management (MM) is the process where an
organization sends raw materials or components to a subcontractor to produce a
finished product. The subcontractor performs the manufacturing process and
returns the finished goods to the organization. This process is common in
industries like manufacturing, automotive, and electronics.
The primary steps involved in SAP MM subcontracting include:
Sending components to the subcontractor
Receiving the finished product back
Tracking costs and inventory
2. Key Elements of Subcontracting in SAP MM
Subcontracting Purchase Order (PO): A PO is created specifically for
subcontracting. The PO contains the raw materials that will be provided to
the subcontractor for production.
Components: These are the materials sent to the subcontractor. The
components can be raw materials, semi-finished goods, or other parts
required for the subcontracted process.
Subcontracting Purchase Order Item: This item in the PO specifies the
components and the finished product that will be received from the
subcontractor.
Subcontracting Vendor: This is the external supplier or subcontractor to
whom the materials are sent for processing.
3. Creating a Subcontracting Purchase Order
To create a subcontracting PO, the following steps are typically followed:
1. Transaction Code: ME21N (Create Purchase Order)
o In the "Order Type" field, select "NB" (standard order) or
"Subcontracting."
o Enter the vendor’s details and the items to be subcontracted.
2. Add Components:
o Go to the item details and select the "Subcontracting" tab.
o Add the components that need to be sent to the subcontractor.
3. Finished Goods:
o Specify the finished goods that will be received from the vendor
once the manufacturing process is complete.
4. Quantity:
Classification: Internal
o Enter the quantity of the materials to be sent and the quantity of
finished goods to be received.
5. Delivery and Billing Information:
o Ensure the correct delivery and billing instructions are included in
the PO for the subcontractor.
4. Sending Materials to the Subcontractor
Once the subcontracting PO is created, the organization will send the raw
materials or components to the subcontractor. This is done via the following
process:
Goods Issue (GI) for Subcontracting:
o In SAP, the raw materials/components sent to the subcontractor are
recorded as a goods issue (GI) transaction.
o Transaction Code: MIGO (Goods Movement)
o Select the appropriate goods issue type for subcontracting (usually
"Subcontracting").
o Post the goods issue to send the components to the subcontractor.
5. Receiving the Finished Goods from the Subcontractor
After the subcontractor has completed the manufacturing process, the finished
goods are returned. The following process is used:
Goods Receipt (GR) for Subcontracting:
o Transaction Code: MIGO (Goods Movement)
o In the "Goods Receipt" tab, select the PO number and the
subcontracting item.
o The finished product is received into the organization's inventory.
Inventory Management:
o The finished goods are moved into the appropriate storage location
and become available for sale, further processing, or use in the next
production process.
6. Invoice Verification and Payment
Once the finished goods are received from the subcontractor, the invoice is
processed as follows:
Invoice Verification:
o Transaction Code: MIRO (Enter Incoming Invoice)
o The invoice from the subcontractor is entered in SAP and matched
with the purchase order and goods receipt.
Payment to Subcontractor:
Classification: Internal
o Once the invoice is verified, payment can be processed according to
the agreed terms.
7. Benefits of Subcontracting in SAP MM
Cost Efficiency: Allows companies to outsource manufacturing processes
and reduce costs related to labor, equipment, and facility maintenance.
Focus on Core Competencies: Companies can focus on their core
competencies while leaving specialized manufacturing tasks to
subcontractors.
Flexibility: The process can be adjusted based on changing demand and
business needs, making it a flexible option for manufacturers.
8. Conclusion
Subcontracting is an essential process in SAP MM for managing external
production. By creating subcontracting POs, managing components and finished
goods, and tracking costs, companies can streamline their manufacturing
processes and collaborate efficiently with external vendors.
Classification: Internal
