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7 common myths about subcontracting process in SAP MM

The process of subcontracting in SAP MM is a process of win-win situation for both the vendors and manufacturers. First, we need to know who is customer, vendor, and manufacturer here, in this process. It is an elementary term, however, some bit difference in its definition when you compare contract and subcontract. Therefore, when you create a purchase order, you ...

The process of subcontracting in SAP MM is a process of win-win situation for both the vendors and manufacturers. First, we need to know who is customer, vendor, and manufacturer here, in this process. It is an elementary term, however, some bit difference in its definition when you compare contract and subcontract. Therefore, when you create a purchase order, you need to put or select item category as  “L” (subcontract) and create Material as finish product, FART and add its components.

Further, with the vendor, you have a subcontract in such a way that you will place the order with additional raw components to get your end product. You are the only responsible for the final product. For an example, if you run a bakery shop, you produce breads, buns, toasts, and the order baked products like cookies etc… but you do not produce cakes. However, you also sell it in your shop. Therefore, to get the cake, what you will do? Obviously, you will outsource the cakes. 

Furthermore, you will find the best vendor to procure cake. However, you will also provide all the required raw material to produce it. This is called as SAP MM subcontracting. Here you simply will place the order as item category “L” and add components to this material.

When you place the order, you must have material as cake and its components. Therefore, along with order to be raised, an item category as L. Now you must be thinking that how these raw materials will get delivered to the vendor to get the cakes in your shop?

you will also provide all the required raw material to produce it. This is called as SAP MM subcontracting. Here you simply will place the order as item category “L” and add components to this material

Follow the below process to order cakes in subcontracting SAP MM.

  • 1. Create material cake with material type as FERT (finish product), valuation class should be related to finished goods, and keep the other details like regular material creation.
  • 2. Create materials as ROH “Raw Materials” for example, things which requires to cook the cakes. e.g., flour, sugar, honey, sweeteners, colour, soda, baking powers, etc.
  • 3. Create PO (purchase order) with material as finish product (FERT) as cake using item category L (for subcontracting)  and add BOM (bill of materials) as components.
  • 4. Go to material tab and right extreme, choose or tick “component” tab, add your raw materials as requested by the vendor to create cakes as per the advised quantity and saved the order.

Now you have created the order, and how will you send raw material to the vendor in subcontracting SAP MM?

There are two ways of doing it. We have to do transfer posting. One in Migo and the order way is subcontracting stock per vendor, using the transaction ME20

Once you have issued the material, after 5 days you will receive the cakes. Thus, here you will goods receipt against the order in Migo along with you will have also option to receipt of raw material. Furthermore, keep all tick and save. Now then, it's time to check your stock level, go to MMBE and check the stock for material Cakes, you will see material inventory should be up with the qty you have ordered in the store.

You may also like to read the best way of Sending RFQ (Request for quote) to Desire Vendors in SAP using ME57

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