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Subcontracting Process in Production Planning – SAP S/4HANA Cloud Public Edition

SAP Subcontracting involves sending components to a vendor to manufacture an assembly.

The vendor returns the completed assembly, and during goods receipt GR, the components
are issued from subcontract inventory. Subcontracting is a purchasing process with the
manufacturing occurring at the vendor location.

There are two types of subcontracting process in production planning.

• Production Subcontracting - External Processing

• Subcontracting

1. Subcontracting (BMY)

1.1 Overview
A subcontract purchase requisition is either generated via the Material Requirements
Planning (MRP) process or manually by a requestor. The purchase requisition is converted
into a subcontract purchase order. The purchase order is subject to approval based on
predefined parameters before being issued to the subcontractor. The outbound delivery is
created, and the goods are picked and shipped to the subcontractor. With the supply of the
finished material, the goods receipt is created. The consumption of the sent components is
recorded upon the receipt of the value-added finished material. Subsequently, the invoicing
process is triggered.

1.2 Key Process Flow

• Manage purchase orders

• Manage stock

• Manage outbound deliveries

• Pick and post goods issues

• Manage goods receipts

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• Manage invoices

• Serial number processing

Due to some capacity problems or operational issues in manufacturing plant entire product
is asked to produce outside (which mean vendor place) and component materials are given
to vendor with a subcontracting purchase order.
Vendor produces a product and supplies the product to Plant.

1.2.1 Process flow – Assembly Subcontracting

Manage Product Master Data

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Subcontracting Process in Production Planning – SAP S4HANA Cloud Public Edition

Components

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Subcontracting Process in Production Planning – SAP S4HANA Cloud Public Edition

Component 2
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Result

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Subcontracting Process in Production Planning – SAP S4HANA Cloud Public Edition

Maintain bill of material

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Manage Production Versions - C223

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Production versions are used both in discrete manufacturing and process manufacturing.

Production versions are used in material requirements planning (MRP), process order
creation, and product costing to select the most suitable task list or recipe and the
corresponding material list.

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Manage Sources of Supply – Subcontracting

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With this app you can view and manage existing sources of supply for a material for a defined
validity period. You can create a source of supply, such as a source list, a contract, or a
purchasing info record.

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Subcontracting Process in Production Planning – SAP S4HANA Cloud Public Edition

• Make configuration settings for special procurement key.

Configuration CBC : Define special procurement type.

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Define Special Procurement Type

Short Text

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Define special procurement types to refine procurement types for specific use cases.

Use

The procurement type of a material is determined from its material type and controls how
the material is procured. For specific use cases that are not covered by the available
procurement types, for example, if materials are not produced in the plants where they are
required, you can define special procurement types. Each special procurement type refers to
an existing procurement type and can be assigned to materials in the material master.

Depending on the special procurement type that you define, you can select additional options
to control how the system treats the demand for materials that are BOM components.

Standard Settings

The following special procurement types are defined in the SAP standard system:

• Procurement Type E (In-House Production)

o Phantom Assembly
A phantom assembly is a logical grouping of materials. You use this special
procurement type if materials are grouped and managed together for a certain
reason (for example, from the engineering point of view).
A phantom assembly is not actually produced. Therefore, phantom assemblies
pass the dependent requirements directly to the lower BOM level.
o Production in Another Plant
You use this type of special procurement if a material is produced in a plant
other than the plant that requires the material.
Based on this special procurement type, you can create special procurement
types for all required combinations of planning plant (the plant that requires a
material) and alternative plant (the plant where the material is produced).
o Withdrawal from Alternative Plant
You use this special procurement type if a material is withdrawn from a plant
other than the plant that requires the material.
Based on this special procurement type, you can create special procurement
types for all required combinations of planning plant and alternative plant (the
plant from which the material is withdrawn).
• Procurement Type F (External Procurement)

o Consignment

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Consignment is a business process in which the supplier provides a material at

the customer site. The costs are incurred by the supplier.
You use this special procurement type if a material is procured externally using
a consignment order.
o Subcontracting
In subcontracting, material components are received externally by a supplier
who produces and provides the required assemblies.
You use this special procurement type if a material is procured using
subcontracting.
o Stock Transfer
Stock transfer is used if a material is procured from a plant other than the plant
that actually requires the material. The alternative plant (the plant from which
the material is procured) transfers the material to the planning plant, which
actually requires them.
For this use case, the material requirement is determined in the planning
plant.
Based on this special procurement type, you can create special procurement
types for all required combinations of planning plant and alternative plant.
o Withdrawal from Alternative Plant
You use this special procurement type if a material is withdrawn from a plant
other than the plant that requires the material. Based on this special
procurement type, you can create special procurement types for all required
combinations of planning plant and alternative plant.
Note:The alternative plants that you specify for stock transfer, production in another plant,
or withdrawal from another plant must be assigned to the same company code as the
planning plant for which the special procurement type is defined.

Activities

Check the available special procurement types and define additional types as required. For
each special procurement type, you must specify the relevant planning plant and alternative
plant, as well as, the procurement type that it refers to.

Depending on the special procurement type that you define, select additional options to
control how the system treats the demand for materials that are BOM components:

• Phantom Item

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If you select Phantom Item, the system uses a phantom assembly during BOM
explosion.
You can use this option for all special procurement types.
• Direct Production
If you select Direct Production , the system uses direct production in the
planning run.
You can use this option for the special procurement type Production in
Another Plant.
• Withdrawal from Alternative Plant
If you select Withdrawal from Alternative Plant, the system procures a
material by withdrawing it from an alternative plant (issuing plant). This only
occurs if dependent requirements exist.
You can use this option for all special procurement types.
• Direct Procurement
If you select Direct Procurement, the material is procured for direct
consumption. It is not placed in storage, but used directly for the respective
order.
You can use this option for the special procurement
types Subcontracting, Consignment, and Stock Transfer.
Example

You want to define a special procurement type for plant 0001, where materials with this
special procurement type are procured from the alternative plant 0002. The materials are
produced in plant 0002 and made available in plant 0001 afterwards.

To set up a corresponding special procurement type, proceed as follows:

1. Create a new entry for plant 0001 (planning plant).
2. Specify a key and description for the special procurement type.
3. In the Procurement Type field, select In-House Production (E).
4. Under Special Procurement, select Prod. Other Plant (P) and specify plant 0002 as
the alternative plant that procures the material.
5. Save your entries.

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Subcontracting Process in Production Planning – SAP S4HANA Cloud Public Edition

• Make settings in header material master of MRP View of subcontracting in MANAGE

PRODUCT.

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Subcontracting Process in Production Planning – SAP S4HANA Cloud Public Edition

• Create the master data which related to production like BOM, Resource, Master
recipe, Prod.version for header material.

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• Give the requirement for planning in Create PIRs

With this app, you can create planned independent requirements that are used as an
estimation of the future demand for a particular product or service in material requirements
planning (MRP).

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• MRP Run for header material in Schedule MRP Runs

During the MRP run, the system checks whether current material demand can be covered by
current inventory and expected material receipts. In a regenerative MRP run, the system
plans all materials irrespective of whether they have been changed since the last MRP run. In
a net change MRP run, the system only includes materials that have been changed since the
last planning run in the new planning run. If current demand is not covered, the system
creates planned orders in the case of in-house production and either purchase requisitions or
schedule lines for external procurement.

You can use this app to create and schedule a job for executing your MRP runs. To automate
the planning process, the MRP run has to be carried out on a regular basis so you can use this
app to create a job that performs this task for you; reducing your workload by running this
task smoothly in the background.

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• For converting PR into PO 1st release the PURCHASE REQUISITION using MYINBOX.

You can use this app to make important decisions via mobile or desktop devices anywhere
and anytime. Using this app, you can process your workflow tasks based on the decision
options defined in the back-end system.

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Subcontracting Process in Production Planning – SAP S4HANA Cloud Public Edition

• Convert generated PR to PO in Monitor Stock / Requirements List

With this app, you can display the most up-to-date stock and requirements situation.

Each time the stock/requirements list is called up, the system selects the various MRP
elements and displays the most up-to-date situation. This way, you always see the current
availability situation of the material in the stock/requirements list. Changes that are made
after the planning date are displayed directly, so the list is therefore dynamic.

Stock/requirements lists are not saved in a fixed state in the system, but are subject to
change.

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Subcontracting Process in Production Planning – SAP S4HANA Cloud Public Edition

• Now convert the process as PR into PO.

• Purchase Order will be created.

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Subcontracting Process in Production Planning – SAP S4HANA Cloud Public Edition

• Converted generated PR to PO in Manage Material Coverage

With this app, you can display and analyze coverage issues that exist for selected materials.
For each material that you select, you can display a stock / requirements list including material
shortage information, which helps you determine shortages that can cause disruptions to
production or to the fulfillment of customer demands. You can also take actions directly from
the app, for example, start an MRP run or edit MRP elements as required. The app considers
net requirements segments, individual customer and project segments, and direct production
segments that exist for each material.

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Subcontracting Process in Production Planning – SAP S4HANA Cloud Public Edition

• Now convert the process as PR into PO.

• Purchase Order will be created.

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Subcontracting Process in Production Planning – SAP S4HANA Cloud Public Edition

Issue the components to PO material in Subcontracting Cockpit

541 Mvt type – Transfer the stock from unrestricted to subcontracting stock.

With this app, you can get an overview of open and completed purchasing documents
(purchase orders and scheduling agreements), using filter criteria such as subcontractor,
plant, component, assembly, and material group. At the purchasing document item level, you
can post goods issues. You can calculate the stock balance and view stock transfer
reservations. You can also create a delivery of components.

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Subcontracting Process in Production Planning – SAP S4HANA Cloud Public Edition

• Check and post the component.

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Subcontracting Process in Production Planning – SAP S4HANA Cloud Public Edition

Subcontracting Process in Production Planning – SAP S4HANA Cloud Public Edition

Now check for the stock of the raw materials in Stock - Single Material they will be shown as
Stock provided to vendor as below.

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Stock - Single Material

With this app, you can get an overview of your material stock. You can review your stock by
the plants and storage locations for which you are responsible. The app can display the stock
information as a table or a diagram. This app supports you, for example, as an inventory
manager in your daily work.

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Subcontracting Process in Production Planning – SAP S4HANA Cloud Public Edition

Goods receipt for header material in Post Goods Receipt for Purchasing Document;
After check and post the document.

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Post Goods Receipt for Purchasing Document

With this app, you can post the receipt of goods with reference to the different types of
purchasing documents, for example:
Standard purchase order
Stock transfer order
Scheduling agreement

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Subcontracting Process in Production Planning – SAP S4HANA Cloud Public Edition

• Now check for the stock of the Header material in SINGLE STOCK.
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Subcontracting Process in Production Planning – SAP S4HANA Cloud Public Edition

Subcontracting Process in Production Planning – SAP S4HANA Cloud Public Edition

2. Production Subcontracting - External Processing (BJK)

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1.3 Overview

This scope item demonstrates the option to execute an operation externally within a
production order. This type of processing is particularly important as it provides a company
with a feasible alternative to in-house processing if capacity bottlenecks occur. During the
manufacturing process, when a planned order for production is converted to a production
order, the system checks if any routing or work center operations require external processing.
When the order is processed and the operation to be handled externally is reached, the
system creates a purchase requisition. After generating a purchase order for the operation,
the production step is processed by the external subcontractor. The external service is
captured with a goods receipt posting. The process is finalized by receiving the
subcontractor’s invoice for the service and posting the payment accordingly.

1.4 Key Process Flow

• Create production order with subcontract operation

• Create purchase order for external processing of services

• Post goods receipt for subcontracted services

• Enter incoming vendor invoice and process payment

• In the case of capacity bottlenecks, the assembly procedure of the finished product
can be assigned to a subcontractor

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1.4.1 Scenario:

In house production material (Header material) is produced with three operations out of
which second operation is performed outside (provided to vendor) due to various reasons
like Machine breakdown, capacity problems.
Example: BOM of the material contains three components. First operation uses first
component, second operation which is performed externally, uses second component and
Third operation uses third component.

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1.4.2 Process flow – Operational Subcontracting

Create BOM for header material as shown below with Maintain Bill of Material with the
components as input materials.

Subcontracting Process in Production Planning – SAP S4HANA Cloud Public Edition

• Create routing for material with three operations and for second operation
assign control key PI02 (external Operation) and no need to maintain the work center
for the second operation.

Manage Routings

With this app, you can search through existing routings and navigate to the apps to create
new routings and to change existing routings. A routing is a representation of the order in
which your process works on your shop floor.

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Subcontracting Process in Production Planning – SAP S4HANA Cloud Public Edition

• Assign the component materials to the respective operations. For the second
operation enable subcontracting box assign external processing parameters…like
details of Purch. Organization, Purchasing group, Material Group and others as per
the requirement.

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C223

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Subcontracting Process in Production Planning – SAP S4HANA Cloud Public Edition

Create the production/ process order for the header material with Create Production Order.
Release and save the order.

Create Production Order

With this app, you can create production orders. Production orders can be created manually
without being previously requested. Alternatively, they can be automatically created by
converting a planned order. A newly created production order has the status CRTD (created)
and cannot be executed until it has been released

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Subcontracting Process in Production Planning – SAP S4HANA Cloud Public Edition

Subcontracting Process in Production Planning – SAP S4HANA Cloud Public Edition

• Move to operation tab.

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Subcontracting Process in Production Planning – SAP S4HANA Cloud Public Edition

• Double tab the external operation.

Subcontracting Process in Production Planning – SAP S4HANA Cloud Public Edition

• Check for the generation of Purchase Requisition in the Ext. Processing Tab.

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• Move to the material list tab choose the material which you have to process as
external processing and select the symbol which called reassign and assign the
external operation item number and save it.

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Subcontracting Process in Production Planning – SAP S4HANA Cloud Public Edition

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Subcontracting Process in Production Planning – SAP S4HANA Cloud Public Edition

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Subcontracting Process in Production Planning – SAP S4HANA Cloud Public Edition

• By using PR which generated in External processing tab convert PR into PO Process

USING Process Purchase Requisitions

With this app, you can display purchase requisitions. In addition, you can use this app to assign
sources of supply to the purchase requisition items and to create follow-on documents. You
can only access purchase requisitions if you have authorizations for the respective purchasing
group, purchasing organization, and plant.

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Subcontracting Process in Production Planning – SAP S4HANA Cloud Public Edition

• Issue the First and Third components to production order using Display
Subcontracting Stocks by Supplier

Subcontracting Process in Production Planning – SAP S4HANA Cloud Public Edition

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Subcontracting Process in Production Planning – SAP S4HANA Cloud Public Edition

• Check and post the document.

Subcontracting Process in Production Planning – SAP S4HANA Cloud Public Edition

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Subcontracting Process in Production Planning – SAP S4HANA Cloud Public Edition

Subcontracting Process in Production Planning – SAP S4HANA Cloud Public Edition

Confirm the first Operation with Confirm Production Operation after completion of the same
as shown below and save.

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Confirm Production Operation

With this app, you can partially or completely confirm production operations and suboperations.
You can enter produced quantities including scrap or rework for operations. You can edit material
movements and specify durations for activities for both the selected production operations or
suboperations.

Subcontracting Process in Production Planning – SAP S4HANA Cloud Public Edition

v

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Subcontracting Process in Production Planning – SAP S4HANA Cloud Public Edition

Subcontracting Process in Production Planning – SAP S4HANA Cloud Public Edition

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Subcontracting Process in Production Planning – SAP S4HANA Cloud Public Edition

Subcontracting Process in Production Planning – SAP S4HANA Cloud Public Edition

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Subcontracting Process in Production Planning – SAP S4HANA Cloud Public Edition

Subcontracting Process in Production Planning – SAP S4HANA Cloud Public Edition

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Subcontracting Process in Production Planning – SAP S4HANA Cloud Public Edition

Now issue this component to the purchase order with movement type 541 through Post
Goods Receipt for Purchasing Document as shown below. Check and post the document.

Post Goods Receipt for Purchasing Document

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Subcontracting Process in Production Planning – SAP S4HANA Cloud Public Edition

Subcontracting Process in Production Planning – SAP S4HANA Cloud Public Edition

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Subcontracting Process in Production Planning – SAP S4HANA Cloud Public Edition

Subcontracting Process in Production Planning – SAP S4HANA Cloud Public Edition

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Subcontracting Process in Production Planning – SAP S4HANA Cloud Public Edition

Subcontracting Process in Production Planning – SAP S4HANA Cloud Public Edition

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Subcontracting Process in Production Planning – SAP S4HANA Cloud Public Edition

Subcontracting Process in Production Planning – SAP S4HANA Cloud Public Edition

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Subcontracting Process in Production Planning – SAP S4HANA Cloud Public Edition

• Now confirm the LAST OperationS in the Production Order.

Subcontracting Process in Production Planning – SAP S4HANA Cloud Public Edition

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Subcontracting Process in Production Planning – SAP S4HANA Cloud Public Edition

Subcontracting Process in Production Planning – SAP S4HANA Cloud Public Edition

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Subcontracting Process in Production Planning – SAP S4HANA Cloud Public Edition

• Now check the stock in stock overview for header material.

Subcontracting Process in Production Planning – SAP S4HANA Cloud Public Edition

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Subcontracting Process in Production Planning – SAP S4HANA Cloud Public Edition

Subcontracting Process in Production Planning – SAP S4HANA Cloud Public Edition

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