Subcontracting Process __ Ambikeya

SUBCONTRACTING
PROCESS
SUBCONTRACTING PROCESS
Subcontracting Process:
Subcontracting Process is a Special Procurement Process where a company outsources
certain Manufacturing Processes to a Subcontracting Vendor.
This is typically sending raw materials or semi-finished components to the Subcontractor
Premises, where they perform processes to create finished Products.
Then the finished products are returned to the Customer.
Overview of Subcontracting Process:
Info@ambikeya.com || www.ambikeya.com || +917746805189

Plant Subcontractor
Purchase Order
Raw Materials
Goods Transfer by Mvt Type 541
Finished Product
GR-101 Consuming the Raw Mat.by 543

Mvt Type
In the above process, we can see the Manufacturing of PCBs by sending Electronic
Components to Subcontractor and then getting back the PCBs as Finished Products from
them.
Steps Involved in Subcontracting Process:

1. Create a Material Master for Raw Materials & Finished Product - MM01
2. Create a BOM for Finishd Product – CS01
3. Create a Purchase Requisition with “Item Category” as “L” – ME51N
4. Create a Sub-Contracting Vendor - XK01
5. Create a Purchase Order w.r.t.PR with “Item category” as “L”- ME21N
6. Transfer the Goods to Subcontractor - ME2O / MB1B
7. Goods Receipt - MIGO 8. Invoice Receipt – MIRO Scenario 1:
A Simple Cycle for the Subcontract Procurement Process without BOM
RAW MATERIALS
VENDOR SUB CONTRACTOR
FINISHED
PRODUCT

Step 1: Create a Material Master for Raw Materials & Finished Product – MM01
Raw Material was Created.

Finished Product was Created.

Step 2: Creating Purchase Requisition with “Item Category”- “L”- ME51N
Add Raw Material in the Components tab under the Material data tab in Item level
1.In Item level, Select Material Data tab, then select Component Tab
2.Add Raw Materials to it
Adding the Raw Materials Component

Then Save it, Purchase requisition number 0010013798 was created.

Step 3: Creating Subcontracting Vendor – XK01
Vendor 0000100396 has been created for company code 1000 purchasing organization
1000

Step 4: Creating Purchase Order – ME21N
Adding the Raw Material Component

Standard PO created under the number 4500017414 Step 5: Transfer Posting the Raw
Materials to Vendor-ME2O Stock Overview of Raw Materials:

Now, Transfer Posting the Raw Material to Subcontractor by using the T-Code
ME2O
By Giving the Essential Inputs and hit Execute button

Now, Select the Check box of the Material and select the post goods issue, then enter the
required value of the Material which is to be send to Vendor
Transfer the Goods by Mvt.Type 541 & Enter the Quantity

The Quantity 100 Mapped from
the Purchase documents by
adding the Components on it
Now check the Stock Overview of Material, it is transfer to the Vendor Stock

Step 6: Goods Receipt-MIGO
Check the Material Document

Here, Mvt.Type 101 is Goods Receipt for Finished Product
Mvt.Type 543 is Consumption of Raw Materials Now, Check the Stock Review of
Finished Product, it returned to own plant

Accounting Entries:
BSX - AB239 - Material Received to Plant’s inventory (Cost of both Raw Mat + Finished
Product)
WRX- AB239 - Account Clearance to Vendor (Paying the Cost of Finished
Product, Here Price of Finished Product is 100 & Qty is 100, So,100*100 = 10000)
BSV - AB239 - (Raw Mat Cost (10,000) + GR/IR Clearing Acc.(10,000))
FRL - AB239 - Service Charges for Subcontractor to make the Finished Product

BSX - AB238- Cost of Raw Material sent to Subcontractor’s inventory GBB - AB238 –
Clearing Account for Client
Scenario 2:
A Simple Cycle for the Subcontract Procurement Process BOM
A bill of Materials (BOM) is a list of Components and their Quantities that are required to
Produce a finished product.
Creating a BOM – CS01
Consider the scenario that we need the Motor Cycle, So the components required to
Manufacture the Motor cycle are Wheels, Engine, Chain, and other components.
For example, we will take Wheels, Chain & Engine to create a BOM to get a Finished Product
Motor Cycle.
So that we can create 3 Raw Materials for Wheels, Chain & Engine, and 1 Finished Product
for 1 Motor Cycle.

The Raw Materials & Finished Products are Created Now, create a BOM for Finished
Product
List the Raw Materials Components with Quantity to Manufacture the Motor Cycle as a
Finished Product
We Require 10 no.s of finished Products, So we require the Raw materials multiple of

Finished Products with the quantities in BOM

Create Purchase Order – ME21N
Adding the Component to the Finished Material to send to subcontractor

This Data Will Automatically Fetch from BOM
The values of Raw Materials increased as per the requirement of Finished Product
Then, Save it
Standard PO created under the number 4500017416

Transfer Posting - ME2O
Select the Materials which are send to Vendor, then Select Post Goods Issue
Transfer the Goods to Vendor by Mvt.Type 541

Check the Material in Subcontractor Stock

Goods Receipt – MIGO

Check the Material Document what are the Mvt. Types are recorded – MB03
Goods Receipt – AB333 – 101

Vendor Consumable Materials – 543

Stock overview for Finished Product – MMBE
The Finished Product Received as per the purchase order Accounting

Entries:

Scenario 3:
In this Scenario,We Requesting to the Supplyin Vendor to send the Materials directly to the
Subcontracting Vendor Address then we will receive the Finished product from
subcontractor

Create Raw Materials & Finished Products – MM01

The Raw Material & Finished Products are Created
Working Process:
Sending PO for Raw Mat
to Supplying Vendor with
PLANT Subcontractor Address SUPPLYING
VENDOR
Supplying Vendor
send Materials to
Subcontractor
FINISHED SUBCONTRACTOR
PRODUCT
Subcontractor sends
finished Product to own
Plant

First, create a Normal PO for Raw Materials through Supplying Vendor that they send a
Materials to Subcontractor
In item Detail, Select the Delivery Tab Address and Enter the Subcontractor Vendor
Address.

Then Save it, Standard PO created under the number 4500017418
Then do the Goods receipt to receive the Materials from the Supplying Vendor.
Create Goods Receipt – MIGO

Create a Goods Receipt with Respect to the Supplying Vendor Purchase Order
Then, Save it

Now check the Material Stock Overview
After GR, the Raw Material is stocked in subcontractor vendor’s premises Create Purchase
Order – ME21N
Now, create a Purchase order for finished product to send to Subcontracting
Vendor with “Item Category” as “L”

Add Raw Material Components
Then Save it, Standard PO created under the number 4500017419

Here No Transfer Posting is Needed because the supplying vendor sent the Raw Material to
the Subcontractor Directly.

Create a GR with Respect to Subcontracting Purchase Order for finished Product
Check the Stock Overview of the finished product

Now the Finished Product received to the plant as per the requirement

For Mvt.Type Recording Check the Material Document – MB03
Accounting Entries:
Scenario 4:
Subcontracting Process run through MRP Steps to be
involved:
1. Create Material Master for Raw Materials – MM01
2. Create Finished Products with MRP Views – MM01
3. Create a BOM for Finished Product – CS01

4. Cretae Purchase infor Record – ME11
5. Create a Source List – ME01
6. Create a MRP Run – MD02
7. Create Purchase Order – ME21N
8. Transfer Posting of Raw Materials – ME2O
9. Goods Receipt - MIGO
10. Invoice Receipt – MIRO

Create Material Master for Raw Materials & Fiished Product – MM01

Material Master for Raw Materials are Created.
Material Master for Finished Product is created with MRP Views.

Create a BOM for Finished Product – CS01
BOM is created for the finished product AB340with required components list and
Quantities.
Create Purchase Info Record – ME11
Create Purchase Info Record for finished product Material & Vendor Combination

Purchasing info record 5300005968 1000 L 1000 created

Create Source List– ME01
Maintain the valid from and to dates, vendor and select the fix box to fix the vendor for the
material and selecct MRP as 1

Check the Material Availability– MD04
There is no availability of the Material, so we need to run the MRP

Run MRP– MD02
Check the parameters

Planned orders created, so that we get a PR from it
Now Check in MD04

The Value is Fetched from Material
Master dta in MRP View
Purchase Requisition is Created 10013799

Then, we can create Purchase order Display Purchase Requisition – ME53N
Create Purchase Order- ME21N

The Raw Materials Quantities are fetched from Material Master and quantities are updated
from the purchase order. 4500017420

Transfer Posting – ME2O

Check the Stock overview of Raw Materials
The stock Moved to the Subcontractor premises

Check the Recorded Movement Types

Check the Stock Overview of Finished Product
The Finished Product Send to Plant as per PO Requirement Accounting Entries:

Scenario 5: Subsequent Adjustment
In Subsequent Adjustment there will be a two Concepts namely called,
1. Over Consumption
2. Under Consumption
Over Consumption
Over consumption is a situation where the subcontractor uses more materials than the
quantity specified in the Purchase Order.
Here, Consider the scenario that the vendor uses 5 Extra quantities of one raw materials.
For that we have to do subsequent adjustment as over consumption.

Material Master data for raw Materials are Maintained.

Material Master for Finished Product is Maintained.

Adding the Raw Material Component to

send to Subcontractor
Standard PO created under the number 4500017421 Transfer Posting – ME2O

Do Transfer Posting by Mvt.Type 541by selecting the raw materials

Check the Subcontractor vendor Stock – MBLB
A Later days , Subcontractor consumes 5 more units of AB341 Raw Maerial without
purchase order
For this , We to do transfer posting – MB1B- 541

Check Vendor Stock
5 units added in AB341

Make Goods Receipt with Respect to Purchase Order

Check the Movement Types Recordings

Subsequent Adjustment - MIGO
Make a Subsequent Adjustment for Extra 5 Units with respect to purchase order
Check the Movement Types Recordings

For Subsequent Adjustment over consumption 121 Credit Mvt. Type recorded Accounting
Entries:
Accounting Entries for Over Consumption Subsequent Adjustment:

Subsequent Adjustment – Under Consumption:
Under Consumption is a situation where the subcontractor uses less materials than the
quantity specified in the Purchase Order I will take the same Material used in the Over
consumption.
Raw Materials – AB341 & AB342
Finished Product – AB343
Create a Purchase Order - ME21N
Adding Raw Material Component to send
Then, Save it. Standard PO created under the number 4500017422

Transfer Posting through Mvt. Type 541

Two items are Posted, now check with the subcontractor stock Stock in Subcontractor –
MBLB
Stock Transferred to the Subcontractor place

Goods Receipt with respect to Purchase Order

Check the Movement Types Recordings – MB03
Accounting Entries:

Subsequent Adjustment – Under Consumption – MIGO
Consider the Vendor has 5 Units Remaining, they Made a finished Product with 95
Units and We need the 5 Units Back. So we doing Under Consumption in Subsequent
Adjustment with respect to Purchase Order

Check the Under
Consumption
Check box

Accounting Entries:

Scenario 6: To Receiving the By-Product / Scrapping from the Subcontractor
By-Product is a secondary product that is produced during the processing of a finished
Product.
Scrap is Waste that is produced during the Processing of Finished Products.
I’m taking the same materials AB341, AB342 & AB343

Raw Materials – AB341 & AB342
Finished Product – AB343
Let’s Consider AB341 as a Raw Material & AB342 as a By-product / Scrapping

Add the Raw Material Component
Here Minus Sign Indicates

that the Material is
By-Product/scrap
Then, Save it, Standard PO created under the number 4500017423

Already in Stock
No Need to Maintain the Stock for By-product/Scrap Material(AB342)

Then, Check the Subcontractor Vendor Stock
Check the Subcontractor Vendor Stock – MBLB


Now, Check the Stock Overview of By-product / Scrap
By-product / Scrap
Accounting Entries:

Scenario 7: To Receive the Raw Materials Component Back once the Subcontractor Purchase
order is raised and components to the Subcontractor vendor
Let’s consider the scenario that the PO is Deleted after issuing the Raw Materials to
Subcontractor Vendor, so we need the Raw Materials back in our warehouse.
For that, we use the T-Code MBST to get back the Material to our Ware House
In this scenario, I’ll take 1 Raw Material & 1 Finished Product

Create Material Master for Raw Material & Finished Product-MM01
Material Master are Maintained for Raw Material & Finished Product

Adding the Raw Material Component

Now, Transfer the Goods to the Subcontractor


1 Item is Posted
Go to ME22N and delete Line item 10

Select the Line item10 & select the Delete Option to delete & Save it.

Now, Go to MB51, To find the Material Document of the transfer Posting Give the Essential
inputs & Execute it
Double click the Material Document Number to Overview the Document

Check the Transfer Posting details
To Cancel the Material Document – MBST

Now, Check the Stock Overview of AB344
No Accounting documents are Generated

So, No Accounting Entries are Recorded Scenario 8: Recursive Case`
A Recursive Case is nothing but, A Material is Subjected to Subcontracted then we get the
same Material to our plant
For example, A Diesel Engine is Sent to a Subcontractor for repair and then we get it back
after repair from the vendor

Let’s Consider the Material AB345 is sent to Vendor for Repair and get it back after repair
For Recursive Process, have to enter the same Material in the add component fields.

Stock Overview

Stock Overview after Goods Receipt

Material Document – MB03
Accounting Entries:


Subcontracting Process __ Ambikeya

Uploaded by

Document Information

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Subcontracting Process __ Ambikeya

Uploaded by

Copyright:

Available Formats

SUBCONTRACTING

Overview of Subcontracting Process:

Info@ambikeya.com || www.ambikeya.com || +917746805189

Goods Transfer by Mvt Type 541

GR-101 Consuming the Raw Mat.by 543

Steps Involved in Subcontracting Process:

Info@ambikeya.com || www.ambikeya.com || +917746805189

Info@ambikeya.com || www.ambikeya.com || +917746805189

Raw Material was Created.

Info@ambikeya.com || www.ambikeya.com || +917746805189

Info@ambikeya.com || www.ambikeya.com || +917746805189

Info@ambikeya.com || www.ambikeya.com || +917746805189

Info@ambikeya.com || www.ambikeya.com || +917746805189

Info@ambikeya.com || www.ambikeya.com || +917746805189

Adding the Raw Material Component

Info@ambikeya.com || www.ambikeya.com || +917746805189

Info@ambikeya.com || www.ambikeya.com || +917746805189

Info@ambikeya.com || www.ambikeya.com || +917746805189

Transfer the Goods by Mvt.Type 541 & Enter the Quantity

Info@ambikeya.com || www.ambikeya.com || +917746805189

Info@ambikeya.com || www.ambikeya.com || +917746805189

Check the Material Document

Info@ambikeya.com || www.ambikeya.com || +917746805189

Info@ambikeya.com || www.ambikeya.com || +917746805189

Info@ambikeya.com || www.ambikeya.com || +917746805189

Info@ambikeya.com || www.ambikeya.com || +917746805189

We Require 10 no.s of finished Products, So we require the Raw materials multiple of

Info@ambikeya.com || www.ambikeya.com || +917746805189

Adding the Component to the Finished Material to send to subcontractor

Info@ambikeya.com || www.ambikeya.com || +917746805189

Info@ambikeya.com || www.ambikeya.com || +917746805189

Transfer the Goods to Vendor by Mvt.Type 541

Info@ambikeya.com || www.ambikeya.com || +917746805189

Info@ambikeya.com || www.ambikeya.com || +917746805189

Info@ambikeya.com || www.ambikeya.com || +917746805189

Goods Receipt – AB333 – 101

Info@ambikeya.com || www.ambikeya.com || +917746805189

The Finished Product Received as per the purchase order Accounting

Info@ambikeya.com || www.ambikeya.com || +917746805189

Info@ambikeya.com || www.ambikeya.com || +917746805189

Info@ambikeya.com || www.ambikeya.com || +917746805189

Create Purchase Order – ME21N

Info@ambikeya.com || www.ambikeya.com || +917746805189

Create Goods Receipt – MIGO

Info@ambikeya.com || www.ambikeya.com || +917746805189

Info@ambikeya.com || www.ambikeya.com || +917746805189

Then Save it, Standard PO created under the number 4500017419

Info@ambikeya.com || www.ambikeya.com || +917746805189

Check the Stock Overview of the finished product

Info@ambikeya.com || www.ambikeya.com || +917746805189

Info@ambikeya.com || www.ambikeya.com || +917746805189

Info@ambikeya.com || www.ambikeya.com || +917746805189

Info@ambikeya.com || www.ambikeya.com || +917746805189

Info@ambikeya.com || www.ambikeya.com || +917746805189

Material Master for Finished Product is created with MRP Views.

Info@ambikeya.com || www.ambikeya.com || +917746805189

Info@ambikeya.com || www.ambikeya.com || +917746805189

Info@ambikeya.com || www.ambikeya.com || +917746805189

Info@ambikeya.com || www.ambikeya.com || +917746805189

There is no availability of the Material, so we need to run the MRP

Info@ambikeya.com || www.ambikeya.com || +917746805189

Check the parameters

Info@ambikeya.com || www.ambikeya.com || +917746805189

Now Check in MD04