Subcontracting Process

SAP S4 Hana Finance
SUBCONTRACTING PROCESS
SUBCONTRACTING PROCESS V.HARI
SAP MM CONSULTANT
Subcontracting Process:
Subcontracting Process is a Special Procurement Process where a company
outsources certain Manufacturing Processes to a Subcontracting Vendor.
This is typically sending raw materials or semi-finished components to the
Subcontractor Premises, where they perform processes to create finished Products.
Then the finished products are returned to the Customer.
Overview of Subcontracting Process:
Plant Subcontractor
Purchase Order
Raw Materials
Goods Transfer by Mvt Type 541
Finished Product
GR-101 Consuming the Raw Mat.by 543

Mvt Type
In the above process, we can see the Manufacturing of PCBs by sending Electronic
Components to Subcontractor and then getting back the PCBs as Finished Products
from them.
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SAP MM CONSULTANT
Steps Involved in Subcontracting Process:

1. Create a Material Master for Raw Materials & Finished Product - MM01
2. Create a BOM for Finishd Product – CS01
3. Create a Purchase Requisition with “Item Category” as “L” – ME51N
4. Create a Sub-Contracting Vendor - XK01
5. Create a Purchase Order w.r.t.PR with “Item category” as “L”- ME21N
6. Transfer the Goods to Subcontractor - ME2O / MB1B
7. Goods Receipt - MIGO
8. Invoice Receipt – MIRO
Scenario 1:
A Simple Cycle for the Subcontract Procurement Process without BOM
RAW MATERIALS
VENDOR SUB CONTRACTOR
FINISHED
PRODUCT
Step 1: Create a Material Master for Raw Materials & Finished Product –
MM01
Raw Material was Created.
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Finished Product was Created.

Step 2: Creating Purchase Requisition with “Item Category”- “L”- ME51N
Add Raw Material in the Components tab under the Material data tab in Item level
1.In Item level, Select Material Data tab, then select Component Tab
2.Add Raw Materials to it
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Adding the Raw Materials Component
Then Save it, Purchase requisition number 0010013798 was created.

Step 3: Creating Subcontracting Vendor – XK01
Vendor 0000100396 has been created for company code 1000 purchasing
organization 1000
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Step 4: Creating Purchase Order – ME21N
Adding the Raw Material Component
Standard PO created under the number 4500017414
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Step 5: Transfer Posting the Raw Materials to Vendor-ME2O

Stock Overview of Raw Materials:
Now, Transfer Posting the Raw Material to Subcontractor by using the T-Code
ME2O
By Giving the Essential Inputs and hit Execute button
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Now, Select the Check box of the Material and select the post goods issue, then
enter the required value of the Material which is to be send to Vendor
Transfer the Goods by Mvt.Type 541 & Enter the Quantity
The Quantity 100 Mapped from

the Purchase documents by
adding the Components on it
Now check the Stock Overview of Material, it is transfer to the Vendor Stock
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Step 6: Goods Receipt-MIGO
Check the Material Document
Here, Mvt.Type 101 is Goods Receipt for Finished Product

Mvt.Type 543 is Consumption of Raw Materials
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Now, Check the Stock Review of Finished Product, it returned to own plant
Accounting Entries:
BSX - AB239 - Material Received to Plant’s inventory (Cost of both Raw Mat +
Finished Product)
WRX- AB239 - Account Clearance to Vendor (Paying the Cost of Finished
Product, Here Price of Finished Product is 100 & Qty is 100, So,100*100 = 10000)
BSV - AB239 - (Raw Mat Cost (10,000) + GR/IR Clearing Acc.(10,000))
FRL - AB239 - Service Charges for Subcontractor to make the Finished Product
BSX - AB238- Cost of Raw Material sent to Subcontractor’s inventory
GBB - AB238 – Clearing Account for Client
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Scenario 2:
A Simple Cycle for the Subcontract Procurement Process BOM
A bill of Materials (BOM) is a list of Components and their Quantities that are
required to Produce a finished product.
Creating a BOM – CS01
Consider the scenario that we need the Motor Cycle, So the components required
to Manufacture the Motor cycle are Wheels, Engine, Chain, and other components.
For example, we will take Wheels, Chain & Engine to create a BOM to get a
Finished Product Motor Cycle.
So that we can create 3 Raw Materials for Wheels, Chain & Engine, and 1 Finished
Product for 1 Motor Cycle.
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The Raw Materials & Finished Products are Created
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Now, create a BOM for Finished Product
List the Raw Materials Components with Quantity to Manufacture the Motor Cycle
as a Finished Product
We Require 10 no.s of finished Products, So we require the Raw materials multiple

of Finished Products with the quantities in BOM
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Create Purchase Order – ME21N
Adding the Component to the Finished Material to send to subcontractor
This Data Will Automatically Fetch from BOM
The values of Raw Materials increased as per the requirement of Finished Product
Then, Save it
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Transfer Posting - ME2O
Select the Materials which are send to Vendor, then Select Post Goods Issue
Transfer the Goods to Vendor by Mvt.Type 541
Check the Material in Subcontractor Stock
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Goods Receipt – MIGO
Check the Material Document what are the Mvt. Types are recorded – MB03
Goods Receipt – AB333 – 101

Vendor Consumable Materials – 543
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Stock overview for Finished Product – MMBE
The Finished Product Received as per the purchase order

Accounting Entries:
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Scenario 3:
In this Scenario,We Requesting to the Supplyin Vendor to send the Materials
directly to the Subcontracting Vendor Address then we will receive the
Finished product from subcontractor
Create Raw Materials & Finished Products – MM01
The Raw Material & Finished Products are Created
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Working Process:
Sending PO for Raw Mat
to Supplying Vendor with
Subcontractor Address SUPPLYING
PLANT
VENDOR
Supplying Vendor
send Materials to
Subcontractor
FINISHED SUBCONTRACTOR
PRODUCT
Subcontractor sends
finished Product to own
Plant

First, create a Normal PO for Raw Materials through Supplying Vendor that they
send a Materials to Subcontractor
In item Detail, Select the Delivery Tab Address and Enter the Subcontractor
Vendor Address.
Then Save it, Standard PO created under the number 4500017418
Then do the Goods receipt to receive the Materials from the Supplying Vendor.
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Create Goods Receipt – MIGO

Create a Goods Receipt with Respect to the Supplying Vendor Purchase Order
Then, Save it
Now check the Material Stock Overview
After GR, the Raw Material is stocked in subcontractor vendor’s premises
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Now, create a Purchase order for finished product to send to Subcontracting
Vendor with “Item Category” as “L”
Add Raw Material Components
Then Save it, Standard PO created under the number 4500017419

Here No Transfer Posting is Needed because the supplying vendor sent the
Raw Material to the Subcontractor Directly.
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Create a GR with Respect to Subcontracting Purchase Order for finished Product
Check the Stock Overview of the finished product
Now the Finished Product received to the plant as per the requirement
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For Mvt.Type Recording Check the Material Document – MB03
Accounting Entries:
Scenario 4:
Subcontracting Process run through MRP
Steps to be involved:
1. Create Material Master for Raw Materials – MM01
2. Create Finished Products with MRP Views – MM01
3. Create a BOM for Finished Product – CS01
4. Cretae Purchase infor Record – ME11
5. Create a Source List – ME01
6. Create a MRP Run – MD02
7. Create Purchase Order – ME21N
8. Transfer Posting of Raw Materials – ME2O
9. Goods Receipt - MIGO
10. Invoice Receipt – MIRO
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Create Material Master for Raw Materials & Fiished Product – MM01
Material Master for Raw Materials are Created.
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Material Master for Finished Product is created with MRP Views.

Create a BOM for Finished Product – CS01
BOM is created for the finished product AB340with required components list and
Quantities.
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Create Purchase Info Record – ME11

Create Purchase Info Record for finished product Material & Vendor Combination
Purchasing info record 5300005968 1000 L 1000 created

Create Source List– ME01
Maintain the valid from and to dates, vendor and select the fix box to fix the
vendor for the material and selecct MRP as 1
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Check the Material Availability– MD04
There is no availability of the Material, so we need to run the MRP

Run MRP– MD02
Check the parameters
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Planned orders created, so that we get a PR from it
Now Check in MD04
The Value is Fetched from Material

Master dta in MRP View
Purchase Requisition is Created 10013799

Then, we can create Purchase order
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Display Purchase Requisition – ME53N
Create Purchase Order- ME21N
The Raw Materials Quantities are fetched from Material Master and quantities are
updated from the purchase order. 4500017420
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Transfer Posting – ME2O
The Raw Materials are transfer to vendor
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Check the Stock overview of Raw Materials
The stock Moved to the Subcontractor premises

Check the Recorded Movement Types
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Check the Stock Overview of Finished Product
The Finished Product Send to Plant as per PO Requirement

Accounting Entries:
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Scenario 5: Subsequent Adjustment

In Subsequent Adjustment there will be a two Concepts namely called,
1. Over Consumption
2. Under Consumption
Over Consumption
Over consumption is a situation where the subcontractor uses more materials than
the quantity specified in the Purchase Order.
Here, Consider the scenario that the vendor uses 5 Extra quantities of one raw
materials. For that we have to do subsequent adjustment as over consumption.
Material Master data for raw Materials are Maintained.
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Material Master for Finished Product is Maintained.

Adding the Raw Material Component to

send to Subcontractor
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Do Transfer Posting by Mvt.Type 541by selecting the raw materials
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Check the Subcontractor vendor Stock – MBLB
A Later days , Subcontractor consumes 5 more units of AB341 Raw Maerial

without purchase order
For this , We to do transfer posting – MB1B- 541
Check Vendor Stock
5 units added in AB341
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Make Goods Receipt with Respect to Purchase Order
Check the Movement Types Recordings
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Subsequent Adjustment - MIGO

Make a Subsequent Adjustment for Extra 5 Units with respect to purchase order
Check the Movement Types Recordings
For Subsequent Adjustment over consumption 121 Credit Mvt. Type recorded
Accounting Entries:
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Accounting Entries for Over Consumption Subsequent Adjustment:
Subsequent Adjustment – Under Consumption:

Under Consumption is a situation where the subcontractor uses less materials
than the quantity specified in the Purchase Order
I will take the same Material used in the Over consumption.
Raw Materials – AB341 & AB342
Finished Product – AB343
Create a Purchase Order - ME21N
Adding Raw Material Component to send
Then, Save it. Standard PO created under the number 4500017422
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Transfer Posting through Mvt. Type 541
Two items are Posted, now check with the subcontractor stock
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Stock in Subcontractor – MBLB

Stock Transferred to the Subcontractor place

Goods Receipt with respect to Purchase Order
Check the Movement Types Recordings – MB03
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Accounting Entries:
Subsequent Adjustment – Under Consumption – MIGO

Consider the Vendor has 5 Units Remaining, they Made a finished Product with 95
Units and We need the 5 Units Back. So we doing Under Consumption in
Subsequent Adjustment with respect to Purchase Order
Check the Under

Consumption
Check box
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Accounting Entries:
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Scenario 6: To Receiving the By-Product / Scrapping from the Subcontractor

By-Product is a secondary product that is produced during the processing of a
finished Product.
Scrap is Waste that is produced during the Processing of Finished Products.
I’m taking the same materials AB341, AB342 & AB343
Raw Materials – AB341 & AB342
Finished Product – AB343
Let’s Consider AB341 as a Raw Material & AB342 as a By-product / Scrapping
Add the Raw Material Component
Here Minus Sign Indicates

that the Material is
By-Product/scrap
Then, Save it, Standard PO created under the number 4500017423
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Already in Stock
No Need to Maintain the Stock for By-product/Scrap Material(AB342)
Then, Check the Subcontractor Vendor Stock
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Check the Subcontractor Vendor Stock – MBLB
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Now, Check the Stock Overview of By-product / Scrap
By-product / Scrap
Accounting Entries:
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Scenario 7: To Receive the Raw Materials Component Back once the

Subcontractor Purchase order is raised and components to the Subcontractor
vendor
Let’s consider the scenario that the PO is Deleted after issuing the Raw
Materials to Subcontractor Vendor, so we need the Raw Materials back in our
warehouse.
For that, we use the T-Code MBST to get back the Material to our
Ware House
In this scenario, I’ll take 1 Raw Material & 1 Finished Product
Create Material Master for Raw Material & Finished Product-MM01
Material Master are Maintained for Raw Material & Finished Product
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Adding the Raw Material Component

Now, Transfer the Goods to the Subcontractor
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1 Item is Posted
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Go to ME22N and delete Line item 10

Select the Line item10 & select the Delete Option to delete & Save it.
Now, Go to MB51, To find the Material Document of the transfer Posting

Give the Essential inputs & Execute it
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Double click the Material Document Number to Overview the Document
Check the Transfer Posting details

To Cancel the Material Document – MBST
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Now, Check the Stock Overview of AB344
No Accounting documents are Generated

So, No Accounting Entries are Recorded
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SAP MM CONSULTANT
Scenario 8: Recursive Case`

A Recursive Case is nothing but, A Material is Subjected to Subcontracted
then we get the same Material to our plant
For example, A Diesel Engine is Sent to a Subcontractor for repair and then
we get it back after repair from the vendor
Let’s Consider the Material AB345 is sent to Vendor for Repair and get it back
after repair
For Recursive Process, have to enter the same Material in the add component
fields.
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Stock Overview
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Stock Overview after Goods Receipt
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Material Document – MB03
Accounting Entries:

Subcontracting Process

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Subcontracting Process

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SAP S4 Hana Finance

Overview of Subcontracting Process:

Goods Transfer by Mvt Type 541

GR-101 Consuming the Raw Mat.by 543

Steps Involved in Subcontracting Process:

Raw Material was Created.

Finished Product was Created.

Adding the Raw Materials Component

Then Save it, Purchase requisition number 0010013798 was created.

Step 4: Creating Purchase Order – ME21N

Adding the Raw Material Component

Standard PO created under the number 4500017414

Step 5: Transfer Posting the Raw Materials to Vendor-ME2O

Transfer the Goods by Mvt.Type 541 & Enter the Quantity

The Quantity 100 Mapped from

Step 6: Goods Receipt-MIGO

Check the Material Document

Here, Mvt.Type 101 is Goods Receipt for Finished Product

The Raw Materials & Finished Products are Created

Now, create a BOM for Finished Product

We Require 10 no.s of finished Products, So we require the Raw materials multiple

Create Purchase Order – ME21N

Adding the Component to the Finished Material to send to subcontractor

This Data Will Automatically Fetch from BOM

Transfer Posting - ME2O

Transfer the Goods to Vendor by Mvt.Type 541

Check the Material in Subcontractor Stock

Goods Receipt – MIGO

Goods Receipt – AB333 – 101

Stock overview for Finished Product – MMBE

The Finished Product Received as per the purchase order

The Raw Material & Finished Products are Created

Create Purchase Order – ME21N

Create Goods Receipt – MIGO

After GR, the Raw Material is stocked in subcontractor vendor’s premises

Create Purchase Order – ME21N

Add Raw Material Components

Then Save it, Standard PO created under the number 4500017419

Create Goods Receipt – MIGO

Check the Stock Overview of the finished product

For Mvt.Type Recording Check the Material Document – MB03

Material Master for Raw Materials are Created.

Material Master for Finished Product is created with MRP Views.

Create Purchase Info Record – ME11

Purchasing info record 5300005968 1000 L 1000 created

Check the Material Availability– MD04

There is no availability of the Material, so we need to run the MRP

Check the parameters

Planned orders created, so that we get a PR from it

Now Check in MD04

The Value is Fetched from Material

Purchase Requisition is Created 10013799

Display Purchase Requisition – ME53N

Create Purchase Order- ME21N

Transfer Posting – ME2O

The Raw Materials are transfer to vendor

Check the Stock overview of Raw Materials

The stock Moved to the Subcontractor premises

Check the Recorded Movement Types

Check the Stock Overview of Finished Product

The Finished Product Send to Plant as per PO Requirement

Scenario 5: Subsequent Adjustment

Material Master data for raw Materials are Maintained.