Sub Contracting Cycle

(1) You have a material that can be procured externally, and you have maintained BOM with components. Any waste generated and received during subcontracting process can be maintained as component with negative quantity. 

(2) You create a subcontracting PO (PO with Item Category L). You can also maintain Purchase Info Record for Subcontract category for material and subcontractor. 

(3) You make a transfer posting to issue components for SC PO. Material is sent to subcontractor.  As material remains under your ownership, system does not make any value entry. But quantity is shown as "Material Provided to Vendor" 

(4) You receive finished material against SC-PO. You also specify components consumed in manufacturing of finished goods. Additionally, if you have negative components in BOM, now you'll also receive subcontracting by-products. There are three events, so three accounting entries are generated: 

DR FG Stock/ SC By-Product Stock 
CR Change in Stock (FG/ SC By-Product ) 
(for finished goods received) 

DR Subcontracting Charges 
(for moneys payable to Subcontractor) 

DR Consumption (Components) 
CR Change in Stock (FG/ SC By-Product ) 
(material provided to Vendor is now charged to expense) 

(5) You do the IV for SC Invoice, and the process is complete. 

Process of Subcontract in MM

Sub-contract business process: 
You want to buy material from the supplier (processed material/ assembled item) , but for some reason (quality of certain item / price ) you will give some component to vendor . 
Vendor shall process the item / use the item provided & supply the final item. 

SAP process: 
1.Create the finished goods material code. 
2.Maintain the BOM for the material. 
3.Create PO with item category as "L" . 
4.Issue material to vendor with movement type 541 
5.Receive the material against the PO with movement type 101. 
6.MIRO to account for vendor's invoice for the service charge& material used by him. 

Can anybody tell me how a process has to be given to subcontracting?
Suppose, I have 3 operations  1)weaving 2)dyeing 3)cutting & packing 
if no 2 process (i.e Dyeing) has to be given to subcontracting, what process should i follow ?


The following process to be followed for subcontracting. 
1. Item code(material master) to be created at the stage of before dyeing. 
2. Item code(material master) to be created after Dyeing as subcontracted item.(F30) 
3. Bill of material to becreated for the material(2) calling for material(1) 
4. Inforecord and source list to be created for material(2) with the corresponding vendor 
5. PO to be released for material (2) 
6.Along with PO the material(1) to be issued to vendor 
7.On receipt of material when GR is made the stock with vendor will get updated. 


How to Create a Subcontract Order?

To create a subcontract order, proceed as follows: 
Enter the material you want to order and the item category for subcontracting (L) in the order item. 

Press ENTER to display the screen for component processing. 

Enter the components that the vendor requires to manufacture the product. 

Please note: 
You do not need to enter the date required for the components. This date is proposed by the system when you press ENTER. 

It is calculated as follows:
Delivery date of the item - Planned delivery time

If you do not want the quantity of the components to be changed if the order quantity of the end product is altered, set the indicator Fixed quantity (column F). 

You can determine whether the components are available on the date required by selecting Edit -> Availability check. 

If you entered a bill of material as the material in the subcontract order, the components are created automatically. 

If you want to determine the components in the bill of material at a later date (for example, if the bill of material is subsequently changed), choose Item -> Component -> New BOM explosion. The existing components are deleted and redetermined in the bill of material. 

Save the purchase order. 

When you print the purchase order, the components are printed per order item.

See also
Service Contracts In Material Management

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