SAP S4 HANA Material Management Subcontracting Process

SAP Subcontracting Process and the Role of Inventory Management

The SAP S4 HANA Material Management subcontracting process in any organization has a unique role in purchasing, inventory management and accounting departments. All the three departments in the organization come under the SAP Materials Management module. SAP MM module tries to optimize the subcontracting process either by the standard configuration settings or through customized ABAP coding in order to meet the business expectations. Subcontracting processes is not limited to a special procurement process in materials management but also integrated with SAP PP, SD and PS in order to make the stock available for the operations in those modules.

In order to map the subcontracting process scenario in SAP, maintenance of master data and execution of the transactional data need to be maintained.

Subcontracting Process Flow

Key Benefits of SAP S4 HANA Material Management Subcontracting Process:

  • Enhancing efficiency while minimizing inventory and costs
  • combining with third-party processes with subcontracting capabilities
  • Generate an invoice from the subcontractor for external services provided.

What Are the Prerequisites of Subcontracting?

 To initiate a subcontracting order, certain prerequisites must be met. These prerequisites include:

  • Setting the special procurement type key in the material master of the assembly to 30.
  • Ensuring the existence of a subcontracting bill of materials (BOM) in the system.
  • Confirmation of the presence of the purchasing view.
  • Creating a purchasing info record that establishes the supply source relationship between the material and the vendor, with subcontracting specified on the initial screen.
  • Ensuring the availability of a production version in SAP S/4HANA.”

Different type of Subcontracting process used in Industries.

Master Data required: –

  1. Material Master data: – In order to get the subcontracting service from the vendor, a finished or semifinished material and to build the assembly, raw material data is to be maintained as master data using MM01. In MRP 2 view, the procurement type is either F or X and the special procurement key is maintained as 30. The special procurement key is to be maintained for the material on which we need to perform the value-added processes.

2. Vendor master: – A subcontracting vendor is to be created either with SAP standard account group 001 and KRED or it can be Z customized as per the business need using XK01 at the company code level.

3.Bill of Material (BOM):- A finished material is built up of number of child components along with the services added into it, a BOM needs to be maintained beforehand in SAP system as a master data using CS01. The maximum number of child components SAP allows is 9999. If the finished material is more complex, multilevel subcontracting can be applied as an option in SAP. Alternate BOM can also be maintained for a single material which gets exploded based on the data maintained in its material master MRP views.

  1. Source List:- It needs to be maintained so that the subcontracting vendor does get selected either as a fixed vendor while MRP run as per the data maintained in the source list using ME01.
  2. Info Record: It is maintained as a master data if there are specific conditions while creating the purchase order and the pricing values that needs to be maintained for invoicing. The info record is maintained using ME11 transaction code.
    After the master data maintenance, business carries out the transactions in order to raise the subcontracting purchase order and relevant shipping and inventory management activities to bring the final material in the plant which can subsequently fulfill the production order, sales order or project system WBS requirements.

Transactional Data execution:-

  1. Business user raises a purchase order to subcon vendor for the material. In PO line item, the item category must be maintained as L for subcontracting process so that the BOM of the material get exploded and the component tab become active for the line item. If the info record is maintained, the net price gets picked from it or user can enter it manually in the line item.

2. Since the BOM material consists of number of child components, enough stock should exist in the inventory which is to be transferred to the subcontractor through transfer posting with movement type 541 + O movement type. If the subcontracting purchase order is created to fulfill production order, sales order or WBS requirement, the child components are not transferred (using a transfer posting) to the “stock of material provided to vendor” but are directly withdrawn from the sales order stock or the project stock at the time of the goods receipt. The finished material received from vendor is also posted to the sales order stock or to the project stock. The cost of subcontracting is then debited to the sales order or WBS element.

Provision of components to the vendor from unrestricted use stock takes place either of the following ways:

  1. Transfer posting with reference to subcontracting stock (MvT 541 + O)
  2. Transfer posting without purchase order reference (MvT 541)
  3. Subcontracting stock monitoring for vendor list (ME2O)
  4. Provision of components directly from external vendor to subcontracting vendor (MvT 101 + O).

Subcontracting cockpit ME2ON is used to monitor the stocks in subcontracting process. The transfer of the child components are not updated in the PO history details except the delivery number if the stock is transferred using ME2O.

Goods Receipt of the finished material from subcontracting vendor:

For the subcontracting PO, GR for the finished material happens same as standard purchase order with movement type 101. During GR, SC order item, the goods issue of the components is taken place internally by the system with movement type 543 + O

Suppose the subcontracting vendor consumes more stock than actually supplied or carrying excess stock of child components after the GR of finished material. In that case, subsequent adjustment is used to correct the consumption of child components using movement types 541 or 542.

Frequently Asked Questions

  1. How are components tracked during the subcontracting process in SAP S/4HANA?
    • Components can be tracked using stock transfer orders (STO) or special procurement keys (e.g., Subcontracting Stock type).
  2. What is the role of a Bill of Materials (BOM) in subcontracting?
    • A BOM defines the components required for the assembly of the finished product. It is essential in the subcontracting process to ensure that the right components are provided to the subcontractor.
  3. How are costs managed in subcontracting within SAP S/4HANA?
    • Costs associated with subcontracting can be tracked through cost centers, internal orders, and accounting entries.
  4. What are the key procurement steps in subcontracting in SAP S/4HANA?
    • Procurement steps include creating a purchase order, transferring components to the subcontractor, tracking the progress, and receiving the finished goods.
  5. How are goods received from the subcontractor accounted for in SAP S/4HANA?
    • Goods received from the subcontractor are typically received into stock and accounted for through goods receipt (GR) transactions.
  6. What are the potential challenges in the subcontracting process, and how are they addressed in SAP S/4HANA?
    • Challenges can include ensuring timely delivery of components, tracking work in progress, and managing quality control. SAP S/4HANA provides tools for monitoring and addressing these challenges.
  7. How does SAP S/4HANA support reporting and analytics for subcontracting?
    • SAP S/4HANA offers various reporting and analytics tools to track the subcontracting process, including dashboards, key performance indicators (KPIs), and data analysis.
  8. Can you reverse a subcontracting process in SAP S/4HANA?
    • Yes, it is possible to reverse a subcontracting process if needed, typically through return deliveries and relevant accounting transactions.
  9. What is the integration of subcontracting with other SAP S/4HANA modules like Inventory Management and Accounts Payable?
    • Subcontracting is closely integrated with Inventory Management for stock movements and Accounts Payable for vendor invoicing and payments.

The blog guide provided valuable insights into the SAP S4 HANA Material Management Subcontracting Process. Whether through standard configuration settings or customized ABAP coding, the SAP MM module aims to optimize the subcontracting process and cater to the specific requirements of each organization.

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