What is subcontracting in SAP MM?

Answer 1

Subcontracting in SAP MM is a special procurement process where a company sends its own raw materials or components to an external vendor, and the vendor manufactures or assembles the finished product and returns it to the company.

How Subcontracting Works

The company creates a subcontracting purchase order for the finished material.

The components required for production are maintained in the Bill of Materials (BOM).

The company issues components to the vendor (goods issue).

The vendor processes the components and delivers the finished product.

The company receives the finished material (goods receipt).

The vendor raises an invoice only for the processing/service charge, not for the components.

Key Features

Components remain the property of the company.

Vendor charges only for labor or processing.

Stock of components issued to vendor is tracked as special stock (O).

Finished goods are posted into company stock after receipt.

Example

A company sends fabric to a tailoring vendor.

The vendor stitches shirts and returns them.

The company pays only for stitching, not for the fabric.

Important SAP T-Codes

ME21N – Create subcontracting purchase order

MIGO – Goods issue / goods receipt

MB1B – Transfer posting to subcontractor (older transaction)

Benefits

Reduced in-house production costs

Better utilization of external expertise

Accurate inventory tracking