Sub-Contarcting External Operation Process

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kk rao Sep 13, 2010 8:46 AM

Dear Experts,

I have created one production order for the maerial FIN where in one of my operations(5th) is
Externally processed at vendor out of 10 Operations.

When I save the production order Sub contracting Purchase requisation has been created with out
any material for the 5th Operation.

I Have the following materials in my BOM

Finised Matearial--FIN

Raw material------RAW

I have done the following business processes

1) I have Released the Production order

2)Goods issue (RAW) to the production order

3)Confirmed all the operations up to 4th operation

The unfinished material which I got upto 4th Operation has to be sent out to external vendor -
How to process ater this ????

Pls. suggest with step by step procedure.

Thanks & regards

KK

Correct Answer by Sundaresan Velayudam on Sep 14, 2010 8:32 AM

Yes best is adding the component in PR.

also

we can do by prodction version , create a two BOm 1) normal and 2) with dummy material

Create two routing

1) for normal operation 2) external subcontracting

create an 2 Production verison a

1 st PV

assign the
BOM 1 and routing 1

2 nd PV

BOM2 and routing 2

In normal system create aproduction order with PV 1

IF you want to select PV2

Read the master data in Production order with pv2.

But every time we need to read the Master data and release it

Regards,

Sundaresan

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 Re: Sub-Contarcting External Operation Process

Rajendra Kulkarni Sep 13, 2010 8:53 AM (in response to kk rao)

There are two different version in doing operation sub contract.

Version 1:-

1) In Control key PP02 enable sub contract.

2) In Order type dependent parameter T code OPL8 enable reservation / PR creation after
release/confirmation - 3

3) Create Info record T code ME 20 only for vendor no material combination. ( You are
not going to issue material for the vendor through SAP) system will not allow through
ME2O since it is operation subcontract.

4) Run MRP it will not create PR directly since the it is enable in OPL8 only after
release.

5) Do the In house operation then confirm the in house operation in CO11. Once the
previous operation is confirmed PR is generated automatically.

6) Then Convert PR to P.O. In purchase order only operation description will appear.
since no component is assigned. And the order type will be F.

7) Then make seperate DC ( Gate pass ) and excise challan 57F4. Consult your MM guy
for this.
8) If any component is assigned to the operation. Do stock transfer to Vendor storage
location till such time it comes to factory again.

9) While return from vendor do MIGO against theP.O and it will come settle in prod
order.

10) Payment to the vendor is through service record entry concept. Consult MM gut for
this.

Version 2:-

1) You have to create seperate material master for that operation. Treating that it will be a
different material

2) Create Vendor master with Material and Vendor combination

2) Create BOM with header material and this material as item for the header.

3) Create Rourting for the header material with only one operation with control key
PP02.

4) Assign the item material to this operation.

5) Run MRP this will create PR automatically. Then convert PR to PO

 6) Send material to the vendor through ME 2O

7) Do GR MIGO the item will come has header material and it will automatically
updated in unrestricted stock.

8) Payment to the vendor will be with different not as service entry concept consult MM
guy for this.

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 Re: Sub-Contarcting External Operation Process

Ganesh M Sep 13, 2010 8:54 AM (in response to kk rao)

Dear

Pls. find the answer from below thread:

Re: operation subcontracting

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 Re: Sub-Contarcting External Operation Process

Jiaul Haque Sep 13, 2010 1:25 PM (in response to kk rao)

Dear

Dear ,
1.Create Routing with 3rd Operation having Control Key -PP02( External Operation ) in
CA01

2.Create Production Order or Generate Production Order -CO01, having external sub
contracting operation ( Sub-contracting shold be marked ,Purchasing Org , Purcahsing
Group , Price etc ) .

3.Assign a non-valuaded material -XXXYYZZ in external operation

4.Release Production Order in CO02 ancd check the PR genreated in External Tab
processing in Operation .

5.You can maintain -ve qty for Scarp material in the same PR or else ytpou can captured
the same in CO11N in different manner for scrap handeling.

6.Now relase the PR and send the PO to vendor against movement type 541

7.Once the job done at vedor location , recieve the PO as another dummy material ( there
will be value addtion due to external operation ) .

REFER : Re: Subcontractin by process order: ME2O

Re: Operational Subcontracting

Sub-contracting operation.

Hope this is clear

Regards

JH
 Edited by: Jiaul Haque on Sep 13, 2010 1:22 PM

Edited by: Jiaul Haque on Sep 13, 2010 1:24 PM

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 Re: Sub-Contarcting External Operation Process

Sundaresan Velayudam Sep 13, 2010 1:51 PM (in response to kk rao)

Hi,

1) Maintain a control key pp02 for operation 50.

2) While releasing the production order, PR will be created.

3) Create a dummy material( non valuated) for material to send too vendor

4) Go to change mode of PR me54n and add the dummy material as component.

5) Convert the PR to PO

6) Material send to vendor MB1B with 541 movement

Please check with MM consultant whether They are processing Sub contracting Challan
or not

7) If yes , Create asubcontracting challan with reference to material documentin J1IF01

8) Goods receipt for the PO, 9 as per the quantity received)

9) Reconcille the challan: J1IFQ

10) Complete Challan: J1IF13 (if all quantity received, i.e. at end)

11) Do the MIRO for service

12) Confirm the operation 20 based on the qty received

Regards,

Sundaresan

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kk rao Sep 14, 2010 6:32 AM (in response to Sundaresan Velayudam)

Dear Sudaresan,

The Dummy non valuated material needs to be assigned to the Ext.Operation in

the change mode production order or directly we can assign in the PR ?

One more dought ,this dummy material is also needs to be assigned in the BOM?

Thanks & regards

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 Re: Sub-Contarcting External Operation Process
Sundaresan Velayudam Sep 14, 2010 6:38 AM (in response to kk rao)

You can assign Manually In PR or also U can assign a material in BOM,

and assign the particular material to the subcontracting operation in
routing

Note Create a dummy material as non valuated material maKe a Intial

entry by 561 during proceesing, or thru 501

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 Re: Sub-Contarcting External Operation Process

kk rao Sep 14, 2010 7:25 AM (in response to Sundaresan

Velayudam)

Dear Sudaresan,

I think assigning the Dummy material as one of the items in the

BOM and assigning the same Dummy material to the 5 th
Operation is TDS job for the user in the real time

As per my understanding

Assingning the Dummy material directly in the PR in the change

mode and do the stock tranfer to Vendor stock with MB1B is the
best option .

with this we can track the inventory also right?

What do think Am I correct?

One more dought what is the materail type for creating the Non
valuated dummy materail?

Thanks & regards

KK

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 Re: Sub-Contarcting External Operation Process

Sundaresan Velayudam Sep 14, 2010 7:43 AM (in

response to kk rao)

>

Krishna Rao wrote:

>

>

> I think assigning the Dummy material as one of

the items in the BOM and assigning the same
Dummy material to the 5 th Operation is TDS job
for the user in the real time
Its one time process u Can assign the dummy
material in BOm and then assign the dummy
material in Routing for operation 50, when ever
you create a production order as per the routing
the data is copied to the production order

>

> As per my understanding

>

> Assingning the Dummy material directly in the

PR in the change mode and do the stock tranfer to
Vendor stock with MB1B is the best option .

>

You can also directly assign a dummy material to

PR itself

> with this we can track the inventory also right?

By Knowing how Much quantity is send to

Vendor, and goods receipt 101 movement, U can
track the Inventory

>

> What do think Am I correct?

>

> One more dought what is the materail type for

creating the Non valuated dummy materail?
 UNBW

>

Regards,

Sundaresan

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 Re: Sub-Contarcting External Operation Process

kk rao Sep 14, 2010 7:58 AM (in response to

Sundaresan Velayudam)

Dear Sundaresan,

My Q was: I think assigning the Dummy material

as one of the items in the BOM and assigning the
same Dummy material to the 5 th Operation is TDS
job for the user in the real time

Your Ans Was: Its one time process u Can assign

the dummy material in BOM and then assign the
dummy material in Routing for operation 50, when
ever you create a production order as per the routing
the data is copied to the production order
Actuallythe 5 th operation is not always the
subcontrating operation.

When ever there is a capacity problem they will

change the operation as Ext. operation.

So I think assigning he Dummy material in the PR

is the best.

am I right?

Thanks & regards

Kk

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 Correct Answer Re: Sub-Contarcting External Operation Process

Sundaresan Velayudam Sep 14, 2010 8:32

AM (in response to kk rao)

Yes best is adding the component in PR.

also

we can do by prodction version , create a

two BOm 1) normal and 2) with dummy
material
Create two routing

1) for normal operation 2) external

subcontracting

create an 2 Production verison a

1 st PV

assign the

BOM 1 and routing 1

2 nd PV

BOM2 and routing 2

In normal system create aproduction order

with PV 1

IF you want to select PV2

Read the master data in Production order

with pv2.
 But every time we need to read the Master
data and release it

Regards,

Sundaresan

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 Re: Sub-Contarcting External Operation Process

Ravi Sonune Sep 14, 2010 8:51 AM (in

response to kk rao)

Hi,

You can go through the Link below:

External Operation

One more thing, When you dont know

which operation will go out SAP has no Std
Solution.

It is a manual Job of Changing Control Key

Or if Not then to create two Material Codes
every time for Operation Suncontracting.
 If you want to have Components get copied
to Sub-PO then Assign the created materials
to that Operation in Production Order.

In EPH4 SAP has tried to provide solution

But again its not flexible for Any Operation
may Go out.

Regards

Raghu

External Processing
Purpose
You can use external processing to have individual process steps, that is operations or phases, carried
out by a different company. This process describes how externally processed steps are treated in order
processing.

Prerequisites
You have installed the application component Purchasing (MM-PUR).

The relevant purchasing master data has been created there (see the R/3 Library MM- Purchasing,
section Master Records from the Purchasing View).

The following data has been maintained for the phase or secondary resource (refer to External
Processing Data Maintenance):

 A control key that allows external processing

 The detail data on external processing

 In subcontracting phases, allocations of the material components to be provided

Process Flow
1. When you create a process order, the external processing data of the phases and secondary
resources is copied to the order. You can still change this data in the process order.
2. When you save the process order, the system creates a purchase requisition for externally
processed phases and secondary resources for the quantity of the phase or secondary resource.

Depending on the data entered in the master recipe, the purchase requisition created is of type
Standard purchase order or Subcontracting and is assigned to the process order account. In
addition to the external processing data, the system also copies the short text for the phase or
secondary resource to the purchase requisition.

The purchase requisition number is copied to the external processing data of the phase or
secondary resource in the process order (see General Data detail screen).

If you later change the dates and quantities in the order, these changes are automatically copied
to the purchase requisition. However, they are not copied to an existing purchase order.

3. Purchasing converts the purchase requisitions into purchase orders.

4. By monitoring the material stocks to be provided to a vendor, inventory management determines
whether all material components in a reservation are available. If required, it makes a transfer
posting to this stock for the material to be provided (movement type 541).

5. The vendor externally processes the phase or secondary resources.

After external processing has been completed, you post a goods receipt for the In subcontracting
phases, the allocated material components are automatically provided in the purchase order.

In subcontracting secondary resources, you must enter the material components to be provided
to the vendor in the purchase order yourself.

In the process order, the system sets the P.O. exists (Purchase order exists) indicator in the
external processing data for the phase or secondary resource.

6. warehouse for the purchase requisition (movement type 101).

The following activities are carried out at the same time:

 In the case of subcontracting purchase orders, the system posts a goods issue for the material to
be provided (movement type 543).
 The quantity from the goods receipt is copied to the external processing data of the phase or
secondary resource in the process order.

 The phase or secondary resources receives status EOPD, External operation partly delivered or
EODL, External operation delivered

 The process order account is charged with the costs for external processing and the material to
be provided
See also:

External Operation Subcontracting. MTO -

material Provision
This question is Assumed Answered.

Maulin Munshi Jul 12, 2012 3:08 PM

Hello,

We are trying to set up a Production Subcontracting process (external operation processing) with MTO scenario.

In the external operation (control key PP02 and subcontracting check box is selected) we have two components
assigned to it. out of which one component has set “1” in individual \ collective requirements field in Material
master’s MRP4 view while the other component has “2 “ as individual \ collective requirements field in Material
master’s MRP4 view. No strategy has been maintained in any of the materials.

Now when we create the production order with reference to sales order, in the component overview it doesn’t show
any value in special stock indicator column for the component which has value 1 in individual \ collective
requirements field in Material master’s MRP4 view.

Both subcomponents are externally procured. The dependent PR for the material which has individual requirement
in material master MRP4 view, has sales order assignment to it. So this particular component is received into sales
order specific stock.

When we convert the subcontracting PR into subcontracting PO both these components are pulled into the PO BOM
in the ‘material data’ tab as required. But when we try to issue these components to the vendor in ME2O transaction
both materials appear and for the one with individual requirement in the material master we cannot issue it, as it
shows a deficit of the required quantity as the material is lying in the sales order stock and not in anonymous stock
where the system is searching for it.
This material with individual requirement should not appear in the ME2O report according to us and should be
consumed from one of the storage locations at the point of goods receipt. The system should be asking for an input
for storage location when posting GR in MIGO transaction, but instead it treats it something to be consumed from
anonymous stock and again shows deficit of special stock ‘O’ (subcontracting stock).

Are we Missing anything? Kindly give your inputs \ comments.

Best regards,

Maulin

Message was edited by: Maulin Munshi

Helpful Answer by Jeevan S.

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o Products: SAP ERP Manufacturing - Production Planning

o Topics: Enterprise Resource Planning

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http://scn.sap.com/message/7160722#7160722

1. Components assigned to sales order / project

You cannot move the components to the subcontractor special stock segment.
When you receive your goods the components will be consumed from the
(sales order or project) special stock by 543E or 543Q.

I replicated your scenario and tried to do the goods receipt (for the operation
subcontracting PO) but... as suggested by SAP help it's just not picking up movement
type 543E it is picking up 543O. The I noticed that the PR generated for external
operation is generated with account assignment category F and not E, which could be the
reason why it's not picking up 543E. One would think that since the planning strategy is
MTO (20 in my test scenario), system will create PR for account assignment category E
(customer).

After some searching OSS I found this note 1054438 which explains the settings for
543E, even after making those customizing settings and when I entered the sales order
number during GR of SC PO, in the line item for 543 in MIGO it didn't change the
account assignment.

I would suggest you to do some more testing so to see if your external operation can
generate a PR with account assignment E. If you do not succeed I suggest you to write to
SAP and see if they come up with any solution. There is an instance where SAP couldn't
solve the problem through customizing(IMG) they released a note 892025 then later they
figured out that it can be done through customizing (IMG) so they created another note
980790 to reverse 892025.

If you find out the solution for this problem and update this thread it will be useful for
others in future.

In the meanwhile look the following options

http://scn.sap.com/thread/3174966

http://scn.sap.com/thread/682136

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o Re: External Operation Subcontracting. MTO - material Provision

Maulin Munshi Aug 3, 2012 5:52 PM (in response to Jeevan S.)

Hello,

This is not solved, but I got the comment that SAP doesn't support the production
subcontracting for the components with special stock indicator i.e. with with
individual requirement indicator.

Thanks you Jeevan for looking in to my question, giving it time and sharing your
valuable comments on this issue.

Best regards,

Maulin

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 Re: External Operation Subcontracting. MTO - material Provision

Jeevan S. Aug 3, 2012 7:07 PM (in response to Maulin Munshi)

Yeah I tested all the possible combinations/configuration scenarios and

figured that it may not be supported by SAP as it would make the ABAP
code behind MRP and other transactions, very complex as it has to do lot
of checks for consistencies for regular process and reversal/cancellation of
documents.

So, I believe the solution would be to make your components as collective

requirements.

Please close this thread so that this is useful for people having same
problem in future as it will remain as knowledge database for future
reference and thanks for updating the thread.

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  Re: External Operation Subcontracting. MTO - material Provision

Rupesh Brahmankar Aug 3, 2012 7:20 PM (in response to Maulin

Munshi)

Dear,

As subcontracting vendor stock is represented with special indicatior O and sales order stock with
E and while posting the good movement we can have only one stock type. I had mapped the same
with some custom logic we have define the special storage location for subcontracting so while
transferring the components to the subcontractor form this storage location system execute the
small BDC program to convert it to normal stock MB1B in background after that subcontractor
(mvt 541) and consume them from the subcontractor's special stock segment (543). Hope it will
help you.

External Processing in QM
Purpose
During production, you may want certain operations in a routing to be processed externally by another
contractor. In such cases, the system can create a purchase requisition for such an operation
automatically on the basis of a production order. Your purchasing department converts these purchase
requisitions into purchase orders. When a goods receipt is received for a purchase order, the system
automatically creates an inspection lot so you can inspect the externally-processed goods.

Prerequisites
To activate the functions for external processing in QM:

 You must make sure that the operation control key in the production order specifies external
processing.

 You must activate a goods receipt inspection for the operations to be processed externally by:

o Specifying an inspection type (inspection lot origin 01) in the routing (external processing
data for the operation)

o Activating this inspection type in the material master of the final product
 If you want to process more than one operation externally, you can specify different
inspection types for each operation.

Process Flow
1. A production order is created in the Production Planning (PP) component. The system copies the
planning data from the routing into the production order.

If necessary, you can still change the inspection type for the goods receipt for external
processing in the production order.

2. When the production order is released, the system creates purchase requisitions in the Materials
Management (MM) component for the operations that will be processed externally.

3. Each purchase requisition is converted to a purchase order.

The MM component initially uses the material key "0" for the operations that will be
processed externally.

4. When a goods receipt is received for a purchase order, the system checks whether:

o An inspection type is specified in the operation contained in the production order

o This inspection type is active in the material master of the final product

5. If both conditions specified in step 4 are met, the system creates an inspection lot for the final
product specified in the production order (that is, the material key "0" is replaced by the material
key specified in the production order).

The inspection lot is not stock relevant.

6. You inspect the externally processed material in a goods receipt inspection.

Other posts in this thread:

Show more post info

Reply 2: Re: Difference between external processing & subcontracting?

Karthi.J replied 1 year, 4 months ago

Hi, In External Processing, the stocks movement will not be visible. You cannot create document to Issue
material to the vendor and document to receive the materials. This process will be used (mostly) to cost
the services provided by the vendors inside the plant. Ex: One of your processes requires cutting and
painting and this will be done by a different vendor and you need to pay them, and the...

Show more post info

Reply 3: Re: Difference between external processing & subcontracting?

Kalyana Chakrav... replied 1 year, 4 months ago

Dear Karthi, As you have mentioned that vendor will do the required activities in our company premises
& we have pay to the vendor, how is the payment done & where will you mention the cost for this
activity. Can you please explain the steps? In Subcontracting, we mention the service charges in the PO.
In external processing, where do you maintaint the cost? Thanks in advance Regards Kalyan

Show more post info

Reply 4: Re: Difference between external processing & subcontracting?

Karthi.J replied 1 year, 4 months ago

Hi Kalyan, For External Processing, in routing operation you need to select the control key with external
processing I think it is PP02, then you need to enter a outline agreement number, while creating the
outline agreement you can specify the cost per item or some UOM. based on that when you create a
Production order system will generate a PR and it can be converted to a PO Cost can be seen ...

Show more post info

SAP SUBCONTRACTING PROCESS

As its name suggests if you want to external services in order to manufacture any component
then subcontracting is used, all required material will be provided by Manufacture while the role
of vendor is limited up to service provider.
There can be 2 ways to use subcontracting.
You have product in processing stage and for further process need to be subcontract, Reason
many be that either manufacturer have limited capacity or no capacity to do further processing of
product.
e.g. I have product to manufacture, operations are preparation, drying, packing,
Drying Operation need to subcontract if I provide finish product to vendor for drying only by
using his own resources then it would be operation subcontracting.
If manufacturer provide resources in terms of material required for drying process it would be
pure subcontracting process, as manu product will be sent to vendor for processing along with
component required, and scrap of it also need to taken back.
MASTER DATA NEEDED
MATERIAL MASTER
Enter procurement type as External procurement (F), special procurement as subcontracting (30)

BILL OF MATERIAL
COMPONENT REQUIRED TO MANUFACTURE PRODUCT ARE ASSIGNED IN BOM.

MASTER RECIPE OR ROUTING

Operation sequences are maintained here, along with control keys which control the business
operations.

Details of control keys

Operation no 40 i.e. drying need to subcontract so control key FG01 assigned to it,
Feature of control key FG01 below, in standard sap PP02 can be assigned to external operation.

Purchase info Record

Create Purchase info Record with Item Category Subcontracting without material
and assign to external processing operation i.e. operation no 40, enter qty and price.

TRANSACTION DATA
Production Order Creation
In background system would create Subcontracting Purchase requisition,
Now Component needs to transfer to vendor.
MB1B mvt. type. 541 against PO No. 4500016956

Material provided to vendor can be seen in stock overview

Then take GRN against PO No – GRN will be taken against Mvt type 101 while component sent
to vendor would be consumed by Mvt type 543.

Check Operation status in Order View

As status of operation 40 now changed after GRN as " EODL " external operation delivered

PROCESS ORDER CONFIRMATION

COST ANALYSIS AND GOODS MOVEMENT

THIS IS COMPLETE PROCESS OF SUBCONTRACTING.