Production Subcontracting (External

Processing)
SAP Best Practices
Purpose, Benefits, and Key Process Steps

Purpose
 During the Manufacturing process, when a "Planned Order" for Production is converted to a
"Production Order", the system will check to see if there are any routing/work-center operations
which require external processing. External processing is when you have individual production
steps, that are operations or sub-operations, which are performed outside of your company by a
vendor. This type of processing is particularly important for subcontracting. It can also provide a
company with a feasible alternative to in-house processing, if capacity bottlenecks occur.

Benefits
 An outline agreement can specify that a certain operation of the production order is executed by
an external subcontractor on a regular basis
 In the case of capacity bottlenecks, the assembly procedure of the finished product can be
assigned to a subcontractor

Key Process Steps

 Creating Purchase Order for External Processing
 Goods Receipt for “subcontracting” Purchase Order
 Enter Invoice
 Periodic Payment

© 2011 SAP AG. All rights reserved. 2

Required SAP Applications and Company Roles

Required
 Enhancement package 5 for SAP ERP 6.0

Company Roles
 Production Supervisor
 Warehouse Clerk
 Purchaser
 Accounts Payable Accountant

© 2011 SAP AG. All rights reserved. 3

Detailed Process Description

Production Subcontracting (External Processing)

 When a Production Order is scheduled, external operations need to be taken into account. The duration of an
external operation is calculated either by using the planned delivery time or using the standard values. The
system automatically creates a purchase requisition for the operation or sub-operation that requires external
processing. The Production scheduler should inform the buyer they need to check the workload for requisitions
that require external processing.
 When data is maintained for an external activity, a cost element is specified. The cost element determines how
the external activity is to be valuated. A decision needs to be made as to whether an operation or sub-operation
is processed externally via its control key. In the control key, it is determined whether externally processed
operations are scheduled on the basis of their standard values or the planned delivery time. This information is
needed to settle externally processed operations and sub-operations that have been marked as relevant for
costing in their control keys.
 Purchasing should not convert the purchase requisition until the external processing is required. The reason for
this is that any quantity changes on the production order will automatically update the requisition.
 Once the purchase order is created it is printed and sent to the vendor. The purchase order informs the vendor
which service is required. The buyer/planner/scheduler creates a manual shipping document and provides the
information to the shipping department on what components need to be gathered for the external processing
and ships the components to the vendor.
 When the vendor has completed the external processing, the material is shipped back. The warehouse clerk
receives the externally processed goods back into the warehouse. The vendor service is reflected on the
production order via an operation confirmation. The purchase order and the production order show the quantity
received.
 The goods receipt of an externally processed material causes the status of the operation to be updated: For a
partial delivery of an external process operation, the status is: EOPD (External operation - partial delivery) and
for final delivery of a external process operation the status is: EOFD (External operation - final delivery).

© 2011 SAP AG. All rights reserved. 4

Process Flow Diagram
Production Subcontracting (External Processing)
Vendor

Vendor Receives Ship Incoming

Material and Perform External External Vendor
Performs Services Material Invoice
External Services Back to Plant

Production Order
Generates
Event

Completion
Purchase Confirmation
Requisition for of Production
External Services Order
Production
Supervisor

Check Order
Operations
Purchaser

Create PO from Print Purchase

Purchase Req Order
(Vendor assigned by
Info record)
Warehouse

Subcontract Deliver
Clerk

Ship Goods Receipt Material

Material Services for Back to
to Vendor GR/IR Subcontractin Shop
g PO Floor
Accountant
Accounts
Payable

Periodic GR/IR PPV

Payment: Vendor Invoice
Accounts Receipt
Payable (158)

PP = Production Planning, RFQ = Request for Quotation, PO = Purchase Order, GR/IR = Goods Receipt/Invoice Receipt, PPV = Purchase Price Variance

© 2011 SAP AG. All rights reserved. 5

 Legend

Symbol Description Usage Comments Symbol Description Usage Comments

Band: Identifies a user role, such as Accounts Role band contains To next / From last Diagram: Leads Flow chart continues on the next /
Payable Clerk or Sales Representative. This band tasks common to that to the next / previous page of the previous page
<Function>

can also identify an organization unit or group, role. Diagram

rather than a specific role. Diagram
Connection
The other process flow symbols in this table go
into these rows. You have as many rows as
required to cover all of the roles in the scenario.
Hardcopy / Document: Identifies a Does not correspond to a task
printed document, report, or form step in a document; instead, it is
External Events: Contains events that start or end used to reflect a document
Hardcopy /
External

the scenario, or influence the course of events in Document generated by a task step; this
to SAP

the scenario. shape does not have any outgoing

flow lines

Flow line (solid): Line indicates the normal Connects two tasks in
a scenario process or Financial Actuals: Indicates a Does not correspond to a task
sequence of steps and direction of flow in the a non-step event financial posting document step in a document; instead, it is
scenario. Financial used to reflect a document
Flow line (dashed): Line indicates flow to generated by a task step; this
Actuals shape does not have any outgoing
infrequently-used or conditional tasks in a flow lines
scenario. Line can also lead to documents involved
in the process flow.

Business Activity / Event: Identifies an action that Does not correspond Budget Planning: Indicates a Does not correspond to a task
either leads into or out of the scenario, or an to a task step in the budget planning document step in a document; instead, it is
Business outside Process that happens during the scenario document used to reflect a document
Activity / Event Budget generated by a task step; this
Planning shape does not have any outgoing
flow lines
Unit Process: Identifies a task that is covered in a Corresponds to a task
step-by-step manner in the scenario step in the document
Unit Process Manual Process: Covers a task Does not generally correspond to
that is manually done a task step in a document;
instead, it is used to reflect a task
Manual that is manually performed, such
Process Reference: If the scenario references Corresponds to a task Process as unloading a truck in the
another scenario in total, put the scenario number step in the document warehouse, which affects the
Process and name here. process flow.
Reference

Existing Version / Data: This block Does not generally correspond to

Sub-Process Reference: If the scenario references Corresponds to a task covers data that feeds in from an a task step in a document;
another scenario in part, put the scenario number, step in the document external process instead, this shape reflects data
Sub- name, and the step numbers from that scenario
Existing coming from an external source;
Process here Version / this step does not have any
Reference Data incoming flow lines

Process Decision: Identifies a decision / branching Does not usually

point, signifying a choice to be made by the end correspond to a task System Pass / Fail Decision: This Does not generally correspond to
user. Lines represent different choices emerging step in the document; block covers an automatic a task step in the document;
from different parts of the diamond. Reflects a choice to decision made by the software instead it is used to reflect an
Process System automatic decision by the system
Decision be made after step Pass/Fail
execution Decision that is made after a step has been
executed.

© 2011 SAP AG. All rights reserved. 6

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