How do you handle subcontracting in SAP MM?

Answer 1

Subcontracting in SAP MM is used when a company sends its own materials (components) to a vendor for processing, and the vendor returns a finished or semi-finished product.

Steps to Handle Subcontracting in SAP MM

Create Subcontracting Purchase Order (PO)

Use PO type Subcontracting (Item Category L).

In the PO item, maintain the components to be provided to the vendor in the Bill of Materials (BOM)/Components tab.

The PO value includes only the service/processing charges, not the component value.

Transfer Components to Vendor

Issue components to the vendor using Movement Type 541.

Stock is moved from company inventory to vendor special stock.

Components remain company-owned.

Vendor Processes the Material

Vendor uses the components to manufacture the finished product.

Goods Receipt (GR) from Vendor

Post GR using Movement Type 101 with reference to the subcontracting PO.

Finished material is received into inventory.

Components are automatically consumed (Movement Type 543).

Invoice Verification

Vendor invoice is posted for processing charges only.

Components are not billed, since they belong to the company.

Accounting Integration

Component issue affects inventory accounts.

GR updates stock and posts accounting entries.

Invoice updates vendor and expense accounts (FI integration).

Key Points

Components remain company property.

Vendor stock is tracked as Special Stock O.

Stock at vendor can be monitored using ME2O / MB58.

Automatic component consumption happens at GR.

Example

Company sends raw materials to Vendor A → Vendor converts them into finished goods → Company receives finished goods and pays only processing charges