Sub-Contracting

SAP has a special way of dealing with the subcontracting in S4/HANA. You provide components of
your manufacturing unit to an outside vendor or subcontractor to add value to the components
through further processing or assembling them into a finished product. Subcontracting in SAP
S/4HANA is done by issuing a subcontracting purchase order (PO), where the procurement type key
is 30 with an item category L. From an inventory view, the subcontracting cockpit, tcode ME2ON,
provides you with a view to look at the inventory from the supplying plant to the subcontracting
vendor

Prerequisites of Subcontracting:

Before you issue a subcontracting order, there are a few prerequisites to complete. Those are:

1. You must assign 30 as the value special procurement type key for the material master of the
assembly.
2. Ensure that there is a subcontracting bill of materials (BOM) in the system.
3. Purchasing view should be present.
4. A purchasing info record will reflect the supply source between the material and the vendor.
When you create the info record, indicate subcontracting on the initial screen.
5. Creating new GL Consumption Subcontract and Services GL
6. A production version should exist in SAP S/4HANA.

Now, before moving on to the step-by-step subcontracting workflow, let’s quickly go through the
classifications of subcontracting on SAP S/4HANA.
There are three primary stages of subcontracting, which are – Purchasing, Inventory Management,
and Invoice Verification. All the individual activities within the subcontracting process belong to one
of those stages.

Purchasing
Once you decide to issue a subcontracting order for an end product, you will issue a purchase order
(PO) by specifying your requirement for the end product. You will then send the raw materials to the
vendor for further processing and value addition. There are three ways to arrange the purchasing for
subcontracting.

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 1. Purchase Requisition: You can allow SAP S/4HANA to copy the material requirement
planning (MRP) specifications through a purchase requisition or bill of material (BOM).
2. Purchase Order: You can specify the component items in a PO that you can replicate from
the requisition, input manually, or copy from BOM.
3. Scheduling Agreement: You can also create a scheduling agreement to set a contract with
the supplier to procure and supply a specific quantity of an item at an agreed time.

You will need to indicate document category L as the purchasing master data.

Inventory Management
When you issue a subcontracting order, your company will discard the inventory of the handed-over
components out of its records. At the same time, the vendor or subcontractor will record the
inventories as its own. The individual functions of inventory management are:

Provision of components

Goods receipt

Adjustment for under or over consumption

Transfer postings.

The transfer movement types are 301, 309, and 321/322.

Once the vendor completes the required or intended task, it sends back the assembled items to your
company under the same PO. Your company then authorizes payment for the procured subcontracting
items and sends it to the vendor.

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You can verify the subcontracting invoice in the same way you validate any typical PO. However, if
there is a price variance from over or under consumption, you must do additional account postings.
Specifically, there are three such situations for you to adjust the account posting –

 Moving average price control

 Standard Price Control With Price Differences
 Standard Price Control Without Price Differences

Now that we are familiar with the subcontracting components, functions, and activities, let’s walk
you through the subcontracting process in SAP S/4HANA.

Configuring a Subcontract
Step 1: You will need to configure the material master view. With transaction MM02 or the
following menu path:

Logistics > Production > Master Data > Material Master > Material > Change > Immediately.
Step 2: You will get the following screen from MRP 2 tab.

After configuring the material master view, you can follow the below steps to create a subcontract.

Step 1: To create a subcontract PO, you can use the transaction code as ME21N. Alternatively, you
can follow this menu path:

Logistics > Materials Management > Purchasing > Purchase Order > Create

Step 2: You can input the material purchasing instruction for the subcontract.

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