SUB CONTRACTING

In this process material is procured from Sub Contractor by providing required in put materials or
components from our company to Sub Contractor. We can go with Sub Contracting process due to lack
of facilities or lack of skilled technicians or lack of time.

Mat-Y Semi Finished Mat-x (Finished Material Mat-z Semi Finished

MAT-B
Raw Mat

Mat-C Mat-D
Mat- ( Provide Input material Raw Mat Sub Contractor
Raw Mat
A Raw i.e., Mat-c 10 Pc,Mat-d 10 Pc
to Sub contractor.)
 RFQ w.r.t PR

PR Mat-Z ,10 Pc
Create BOM for Item Cate-L Maintain
End Produc i.e.,
Mat-Z Quotation Comparison
( By providing input materials to sub Cont.
i.e., Mat-c 10 Pcs, Mat-d 10 Pcs )

PO w.r.t. Quotation/PR
Mat-z, Vend-z, Qty- 10 Pcs, Rs. 100/Pc Item Category 'L'

( By providing input materials to sub Cont.

i.e., Mat-c 10 Pcs, Mat-d 10 Pcs )

(Provide Component or input materials to Sub contractor)

IR 10 Pcs GR for end a) Via Transfer Posting (IM) MIGO, '541' M Type
product (Mat- b) Via SD Shipping process i.e., out bound delivery & PGI (T
Rs. z) 10 Pcs Code ME20)
100/Pc+Tax

Step 1: Create Material master for end product with material type Finished or Semi Finished.

Step 2: Create material master for input materials or components with material type Raw or
semifinished.

Step 3: Create BOM for finished products/End Products (Mat-z) (PP)

 Go to CS01 - T code
 Enter material No (Main End Product)
 Enter Plant
 BOM Usage ('1'- Production)
 Click Enter
 Enter input materials and quantity
 Click Save

Step 4: Create PR for End Product

 Go to ME51N
 Set Item Category as 'L'
  Enter Material No. (End Product)
 Enter Quantity, Plant
 Click enter
 In material data tab click Components button and observe copied component details from
'BOM'.
 If already 'BOM' is not there then enter component details manually in PR or PO it self
 Back and Save

Step 5: Create RFQ

 Go to ME41
 Enter Purchase Organization, Purchase group
 click reference to PR Reference button
 Enter PR Number
 Enter Collective Number
 Click enter
 Select Item Row Click adopt+details button
 Click vendor address button
 Enter vendor and save

Step 6: Enter Quotation

 Go to ME47
 Enter prices with relevant to vendor quotation prices
 Select item row and click Item details button
 Enter Tax code and check as 'A' in Info update
 Save

Step 7 : Compare Quotations

 Go to ME49
 Compare all the quotations for best vendor

Step 8: Create PO

 Go to ME21 N
 In Item row enter RFQ No.
 Click Enter
 Here Item category is 'L'
 In material data tab click component button and observe the details, here components details
are copied from 'PR', If PO creates directly then components copied from 'BOM' and still
editable here
  Back and Save.

Step 9:
 If Raw material stock not there for input materials, then maintain stock in 'MIGO' with 561
Movement Type.
 Observe SC Stock Overview
Logistics MM Purchasing Purchase Order
Reporting SC stocks for Vendor (ME2O - T Code)
 Enter Vendor No,
 Enter Input materials/components provided
 Enter Plant
 Execute (F8)
 Observe already available stock at Sub contractor and yet to provide components stock to Sub
Contractor.

Step 10 : Transfer Posting (T Code MIGO)

(Provide Components/input materials to Sub contractor)

 Go to MIGOS
 Enter Movement type '541'
 Enter Plant
 Click 'To Purchase Order'
 Enter PO Number
 Click Enter
 Here Components/Input Materials are copied from PO which are going to provide to Sub
Contractor.
 Click Save
 In MMBE our components stock is decreased and Sub contractor stock is increased. But still in
Sub Contractor stock is showing Plant level, but not at updated as consumed in Finish product.
That's why no accounting document is created in '541' Movement type.

Note: Still Sub Contractor stock is avaialable for /MRP.

Step 11:GR For End Product (Finished/Semi Finished)

 Go to MIGO
 Goods Receipt; Purchase Order; PO Number; 101 M type
 Click Enter
 Enter received quantity and storage location for finished products
 In Line Item row click "Tree Display" button
 Click any raw material line Item. It is updating raw material is consumed in the received end
product with 543 'O' Movement Type.
  Select Item OK for all line items Check and Post.
 In MMBE Components/Raw material Sub Contractor Stock is decreased at Sub Contractor
Premises and finished product is increased.
 Observe accounting documents

G/L Accounts Amount Tran Key Acct Mod.

Finished Goods Invent +10000 BSX
GR/IR Clearing Acct GR Qty(Finished x PO Price) -1000 WRX
Cost of Goods Sold (Off setting of finished Inv G/L Acct) -10000 BSV
Puchased Services G/L (Off setting entry of GR/IR) +1000 FRL
account
Raw1 Inv G/L account (Quantity X Material Price) -2000 BSX
Raw1 Consumption +2000 GBB VBO
G/L account
Raw2 Inv G/L account (Quantity X Material Price) -6000 BSX
Raw2 consumption +6000 GBB VBO
Account

Question: Material x, Material y and Material z are provided to Sub contractor and finished product
Mat-A is received from Sub Contractor then at GR accounting document total how many G/L accounts
will triggered?
Ans: For each material '2' G/L accounts and additionally 2 more G/L Accounts i.e., Cost of goods sold,
Purchased Services G/L accounts and total 10 G/L accounts will triggered.

Step 12: Enter Invoice

 Go to MIRO
 Transation type : Invoice
 In PO reference tab enter PO Number
 Click Enter
 In basic data tab enter tax code and select calculate Tax and enter total amount and save
Step 13: Sub sequent Adjustment (Optional)
If Vendor informs any under consumption of components in finished product then adjust the actual
consumption of components in the received finished product as follows..

 Go to MIGO
 A11Sub Sequent Adjustments; Purchase Order
 Enter same PO Number
 Click Enter
 In where tab Sub sequent adjustment movement type '121' is showing for finished product and
in Standard SAP only for 121 Movement type there is no reversal movement type.
 Open Tree Display button in line item row
 Select any raw material line item say 'RAW1'
  In where tab initially same '543 'O' movement type is showing
 In Quantity tab enter 2 Pcs
 Select Under consumption/Short Receipt
 But in Where tab automatically 544 'O' movement type is picked for under consumption/Sub
sequent adjustment of component.
 Select Item Ok for all line items check and Post.
 In MMBE the under consumption component stock (Raw1) is showing at Sub Contractor
premises
 And observe accounting document also
 If required receive under consumption component stock from Sub contractor premises to our
plant with 542 Movement type in MB1B or MIGO without PO reference only.
 Then in MMBE Sub contractor stock is decreases and our Ware house stock is increases for
components.

Sub contracting with Co Product and Scrap:

Note: While producing main finished product with input materials, normally another product also
produces along with the main product and that product is called as Co- Product.

Step 1: Create Material Master For Co Product.

 Go to MM01
 Select Material type finished or Semi Finished
 Select MRP 1 MRP 2 Views
 Enter PD01 in MRP Profile
 Select Co. Product Check box in MRP 2 View
 Enter other details and save

Step 2: Create BOM for Main End Product

 Go to CS01
 Enter Plant
 Enter '1' in BOM Usage
 Click Enter
 Enter components/input materials and Co products and quantity.
 Select Co Product line item Click Item Button (F7)
 In basic data tab Select Co Product in General data
 Back
 If Scrap is generating for raw material then select raw material line say 'Raw 1' and click
Item detail button
 In basic data tab enter operation scrap in % Net ID
 Click Save
Step 3 Create PO for Main End Product

 Go to ME21N
 Item Category 'L'
 Enter Material No, Quantity, Price , Plant and Vendor(Manufacturer of Main End Product)
 In material Data tab Click 'Component' button and observe copied components and Co Product
details from 'BOM'.
 Back and Save
 Observe in 'ME2O'.

Step 4: Provide Components to Sub Contractor:

Assume stock is not there and procure this raw material from another vendor and deliver directly from
vendor to Sub contractor (Manufacturer of Main End Product) as follows..

A) Create PO for components/raw materials to different Vendor.

 Go to ME21N
 Enter Different Vendor No
 Item Category 'Standard'
 Enter Material, Quantity, Plant
 Click Enter
 In Item delivery address tab enter Sub contactor (Vendor NO) (Manufacturer of main end
Product)
 Select SC No.
 Click Yes
 Click Save
 Observe ME2O

Step 5: Enter Logical GR for Components/raw materials with respect to PO

 Go to MIGO
 Goods Receipt; Purchase Order; PO Number, Movement type 101
 Click enter
 In Partner tab it is showing goods delivery from vendor to Sub contractor and in Where tab
Movement type 101 'O' is picked automatically
 Select Item OK for all line items Check and Post.
 Observe MMBE and ME2O for components and here components are showing in Sub Contractor
premises which is called as sub Contractor Stock.
Step 6: Enter another GR for finished Products.

 Go to MIGO
 Goods Receipt; Purchase Order; PO Number; Movement Type 101
 In line item open tree button and select Co-product line item
 In Where Tab 545 'O' movement type is selected for co product and no storage location is
showing for Co product and this co product is still there in with Sub Contractor premises only.
 Select Item OK for all line items, Check and Post.
 In MMBE Co Product stock is showing at Sub Contractor premises. If requires transfer Co
Product from Sub Contract premises to our Plant in MIGO or MB1B with 542 Movement type
with PO reference. Then Co Product stock decreases at Sub contractor premises and Increases
in our Co Product own stock.

Step 6: Enter Seperate Invoices for Each PO in MIRO

A) IR for externally procured input materials

 Go to MIRO
 Enter Invoice Date
 Enter PO Number (PO for externally procured raw materials)
 Click Enter
 Check Calculate tax
 Enter amount and save.

B) IR for main end product

 Go to MIRO
 Enter Invoice Date
 Enter PO Number (PO for main end product)
 Click Enter
 Check Calculate tax
 Enter amount and save.

PROVIDE COMPONENTS TO SUB CONTRACTOR WITH SD SHIPPING PROCESS:

PRE REQUISITES:
Create Same Sub contracting Vendor as a customer in 'XD01'- T Code and assign that customer No. in
Vendor master control screen.
  Go to XD01
 Account Group - 0001
 Enter Company code
 Sales Organization- 1000
 Division - 00
 Enter
 Enter Vendor/Customer Address details
 Click Sales area Data in Shipping tab and Enter Shipping Conditions say '01'.
 Click Save
 Go to MK02
 In Control Data tab enter Customer No
 And Save

Extend Sales view also for Components/raw materials in MMO2:

 Go to MM02
 Select all sales views
 Enter Plant, Sales Org., Distibution Channel
 Enter required details for all the sales views
 In Sales Org. 2 Enter Item category group as 'NORM'
 In Sales/Gen Plant View enter Transport group as '0001' and Loading Group '0001'.
 Availability Check '01'
 Click Save
 Same way extend same views for other raw materials also

Step 7: Create PO for Finished Product with Item Category 'L'

 Go to ME21N
 Enter Purchase Organisation,Pur Group, Co. code and Vendor No
 Enter Material no, Quantity etc.
 Save PO

Note: Ensure stock is there for components, Other wise maintain stock for components with 561 or 501
movement type in MIGO or MB1C.
Step 8: Provide Components to Sub contractor via SD Shippng process (Via Out Bound delivery & PGI)

 Go to ME2O
 Enter Vendor No. (Sub contractor No..)
 Enter Components
 Execute
 Select Check boxes and Click 'Create Delivery' buton
 Enter Storage Location, Quantity etc.,
  Click Enter
 Observe created delivery Nos.
 Again select same check boxes and Click 'Post Goods Issue' button
 Enter Movement type 541, Storage Location, Quantity.

Step 9 Enter GR for finished Products

Step 10 Enter IR with respect to PO for Finished Products.