Subcontracting Process

USER MANUAL FOR SAP MM Subcontracting Process.

This is a specific procurement process where a company provides raw materials (components) to a vendor (subcontractor),

who processes them into a finished or semi-finished product and returns it to the company. You pay the vendor only for

their service charges.

Here is a detailed breakdown of the workflow, technical details, and the financial impact of the steps you listed.

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1. Process Walkthrough & Technical Details

Step 1: Create Finished Goods (FG) & Raw Materials (RM)

• T-Code: MM01

• Logic: You need the component (RM) codes that you will send to the vendor, and the Finished Good (FG) code that you will receive back.

• Configuration Note: In the MRP 2 view of the FG material, the "Special Procurement" type should be set to 30 (Subcontracting).

Step 2: Maintain Bill of Materials (BOM)

• Tile Name : multilevel bill of material

• Logic: You must define which components (and how many) are required to make one unit of the Finished Good. This allows SAP to automatically calculate consumption later.

Step 3: Create Purchase Order (PO)

• T-Code: ME21N

• Key Action: Enter Item Category L (Subcontracting).

• Impact: When you enter 'L', the "Material Data" tab in the Item Details will show a "Components" or "Explode BOM" button. This pulls the data from Step 2.

Step 4: Issue Material to Vendor

• TILE Name :  Transfer Posting (Subcontracting Cockpit) or MIGO (Transfer Posting).

• Movement Type: 541.

• Material Document Number will get generated …

• Logic: This transfers stock from your "Unrestricted Use" storage location to "Stock Provided to Vendor."

• Important: The stock is physically at the vendor's location, but financially, it still belongs to your company. No accounting document is generated here.

Step 5: Goods Receipt (GR)

• T-Code: MIGO or Tile Name Post goods receipt 

• Movement Type: 101 TO (Receive FG) & 543 (Consume RAW MATERIAL).

• Logic: You receive the finished good. Automatically, in the background, SAP reduces the stock of the components you gave the vendor.

• The User Note: You correctly noted that Movement 543 is updated for Raw Material. This indicates the consumption of the components provided to the vendor.

Step 6: Invoice Verification (MIRO)

• T-Code: MIRO 

• Logic: You verify the invoice sent by the vendor.

• Important: You are paying only for the service charge (labor/processing cost), not for the full value of the finished material, because you provided the components.

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Accounting Entries (The Financial View)

Understanding the finance side is crucial for this process. Here is what happens in the background during the critical steps:

A. At Step 4 (Transfer Posting - 541)

• No Financial Entry.

• Reason: The material has moved location but ownership has not changed.

B. At Step 5 (Goods Receipt - 101 & 543)

The system values the Finished Good as: (Cost of Components + Service Charge).

Account Key	Account Name	Debit/Credit	Logic
BSX	FG Stock Account	Debit (+)	Value of the incoming Finished Good.
BSX	Component (RM) Stock	Credit (-)	Value of components consumed (Mvt 543).
WRX	GR/IR Clearing Account	Credit (-)	The Service Charge amount (payable to vendor).
FRL	Subcontracting Service	Debit (+)	The cost of the external service (offsetting the GR/IR).

C. At Step 6 (Invoice Verification - MIRO)

Account Name	Debit/Credit	Logic
Vendor Account	Credit (-)	Amount you owe the vendor.
GR/IR Clearing	Debit (+)	Clears the amount from the GR step.
Input Tax	Debit (+)	If applicable on the service charge.

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## Common Scenarios to Watch For 

1. Subcontracting Info Record: While you listed the steps without it, it is best practice to maintain a Subcontracting Info Record (ME11) to store the standard service price.

2. Scrap: Sometimes the process generates scrap. This can be handled in the BOM definition so that scrap is received back via Movement Type 545 during the GR.

3. Under/Over Consumption: During GR (Step 5), if the vendor used more or less material than the BOM stated, you can manually adjust the quantity of the components under the "+" sign in MIGO to reflect actual consumption.