Subcontracting Process - Procurement Processes - SAP Implementation

Subcontracting Process - Procurement Processes - SAP Implementation

Subcontracting Process The subcontracting arrangement, outlines the process via which, MyCompany will arrange material to manufactu... 1:32 AM

Subcontracting Process

The subcontracting arrangement, outlines the process via which, MyCompany will arrange material to manufacture the end product, which can be a semi-finished or a finished material.

The steps involved in subcontracting are summarized below:

·    You order the end product using a subcontract order. The components that the vendor needs to manufacture the end product are specified in the subcontract order. 

·       The components are posted to the stock of material provided to vendor. The components are then supplied to the vendor.

·      The vendor performs its service and delivers the ordered material (the end product). The consumption of the components is posted. 

·         If, after the goods receipt has been posted, the vendor informs you that a larger or smaller quantity of the components was actually consumed than planned in the purchase order, you must make an adjustment. 

·         The vendor charges for his or her service. The invoice is posted.

SAP Recommended Process: Subcontracting

Subcontracting Prerequisites

BOM Creation:

A material BOM needs to be created before any subcontracting order can be placed. The BOM is a formally structured list of the components that make up a product. The list contains the object number of each component, together with the quantity and unit of measure.

Purchase Info Record:

The purchase info record will contain the material-vendor details for the subcontracted product. It maintains the delivery times, payment terms and prices and conditions negotiated with the vendor. The material-vendor specifics will be copied from here onto the procurement documents.

Subcontracting Requisition

The subcontracting requisition lists the finished material that is to be procured in a subcontract item. Against each subcontracted item the system copies the material components that are to be provided to the vendor from the bill of material (BOM). The bill of material refers to the end product that the vendor will deliver.

The requisition for subcontracting must contain item category ‘L’ which is used for subcontracting in the SAP system.

Subcontracting Purchase Order

Subcontracting materials are sent to local vendors for processing finished products. A subcontracting purchase order is placed (document type LPO), by converting the PR into a purchase order. The system will generate a purchase order number internally.

The rates quoted by the vendor for labour charges are mentioned in the purchase order line item. If a purchase info record has been maintained the service charges are defaulted into the purchase order.

Provision of Components to Vendor for Processing

To receive material against the purchase order, raw materials need to be issued to the subcontractor. The materials that are provided to the subcontractor are managed as stock provided to vendor. The provision is a transfer posting from unrestricted-use stock to the stock of material provided to vendor.

The raw material supplier will be instructed to deliver the raw material at the subcontractor’s premises. When the subcontractor will receive the raw material at his premises, he will inform MyCompany and a goods receipt will be posted with reference to the purchase order, increasing the subcontractor stock in the system. If the material is already available in My-company own stock, it will be issued from the unrestricted use stock to the vendor. The raw materials will be issued with reference to the subcontract purchase order.

When the vendor delivers the ordered material (the end product), the goods received will be received against the finished product with reference to the purchase order.

At the time of receipt, the raw materials for each order item will be determined and the system will create a goods issue accounting entry item for each raw material. As a result, the material document will consists of the following items:

·         Goods receipt items for the finished product supplied by the vendor

·         Goods issue items for the raw materials

The goods receipt will be valuated at the subcontract price plus the value of the raw materials consumed.

Subcontracting Invoice

Invoices will be entered in the system against the purchase order. The vendor will be billed only for items delivered. At the time of invoice receipt a liability is created against the vendor. The liability created will only be of the amount charged by the vendor for processing and not include the material component value.