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SAP MM / EWM Content

Thursday 11 July 2019

Sub-Contracting process with Scrap and Few more Examples- SAP MM

Sub-Contracting process with Scrap and Few more Examples


To work on all these assembly parts/Extra accessories, we need manufacturing unit where we can do all this assembly but its costly and time taking for the preparation and we may have some quality issues, by keeping all this in mind every company would like to go for Sub-contracting process- Which means

Certain companies which will be outsourcing (Giving products to other companies), where they use to work only on this assembly with best quality and take the price for only service.


Few of the scenarios with explanation.
1     We have 3 child materials and we need the Parent Material (final product), but we will not assemble or manufacture any tools but for the production/sales requirements we need the final product to be assembled.

we will take the 3 child materials from 3 different vendors and we will maintain a BOM with parent material, after that creating subcontracting order for parent material (BOM will be taken automatically with child materials in components).

Do the GR for all 3 materials, and do the transfer posting for all child materials to vendor through MB1B or ME2O

Now do GR for subcontracting vendor, where you can see movement types 101 and 543.

Child materials

1.      L-shaped metallic plate
2.      Spring
3.      Bolts for fitting

Parent Materials

1.      Metallic plate with full furnished.


·        First, we need to procure the materials which are required to prepare the parent material, here we need to procure L-shaped metallic plate, Spring, Bolts for fitting from the respective vendor.
·        We can create 1 PR, with 3 lines mentioning 3 materials in each line individually with respective vendors or same vendor (based on your requirements)
·        Create PO for above 3 materials and as per the respective quantity and do the MIGO (Goods receipt), so that stock will be stored in the plant premises.
·        Complete all 3 material MIGO as mentioned above
·        Now create a BOM for the parent material, so here BOM is very important for all Parent materials.
·        CS01-Create BOM
·        Enter parent material following with all child materials inside
We are maintaining BOM for-what are the components that required to create a one complete parent material.
·        Now create New PO with Item category L-mention the parent material number, so that automatically child materials will go to Material Data-Components (BOM -we maintained)
·        Now in components we have 3 materials (Child)
·        Al the 3 child materials will go to sub-contract vendor for assembly, to send those materials to vendor we need to perform the movement type.
·        MB1B-stock transfer- we need to transfer the stock of all 3 materials to vendor stock by using the movement type 541,
·        Once the stock is transferred, we can see those stock in MMBE-stock under vendor.
·        Now vendor will deliver the assembled goods to plant and we need to perform the MIGO
·        Perform the MIGO with 101- now the stock should be available in MMBE for parent material
·        Remaining child materials quantity will be 0

     Vendor to vendor material shifting through Subcontracting process:


We need a parent material which will get from subcontracting vendor and child material from another vendor, the child vendor should send the material directly to subcontracting vendor.
Eg: we would like to order a cell phone battery from child vendor, and he will directly send that battery to subcontracting vendor and subcontracting vendor will deliver the fully furnished phone. We need this to be implement in the SAP.

Step 1: Create a normal PO with cell phone battery and go to the delivery address tab in PO, here you can find SC vendor, check the SC vendor and mention the vendor number in the vendor field.

o   So that SAP will pick the delivery address as vendor address automatically.
o   Now the child vendor will deliver the cell phone battery directly to subcontracting vendor (to view this action in SAP, follow below)
o   Now post the GR for the child material PO, MIGO and mention the PO number and date.
o   Enter the quantity, system will not ask for storage location and tick OK and post the GR.
o   Now check in MMBE (Stock Overview), you can see the material is maintained with vendor.

Step 2:

Now create subcontracting PO for the parent material (Phone) with item category L, as we maintained BOM the components will be taken automatically (Child materials) and delivery address to plant in the PO.

Now process for GR for the parent material and maintain the quantity.

If required explore the parent material with + icon and you can see the child materials maintained with movement type 543.

§  541- Sending the material to the subcontracting vendor stock.
§  543-Consumption of material which is delivered to subcontracting vendor.
§  545-scrap material while consumption or vendor material used for the parent material.

Ordering Material and scrap from the subcontracting vendor:

Subcontracting material with scrap.

As we know when the material is manufactured by the vendor, scrap will generate automatically and few of the scraps will be costly or needs to be moved to plant scrap process, so in this case we need to implement such that vendor should provide the parent material along with the scrap.

E.g.: we are ordering a material of sofa; we procure wood from one vendor to plant and will move that material to subcontracting vendor through 541 and will order a subcontracting order along with scrap.


o   Create a normal PO for procuring the wood from the vendor and once we receive that wood to plant(warehouse), we can follow the remaining process as mentioned below.
o   Maintain BOM for parent material, while maintaining we will update child materials with specific quantities, basically it will multiply with PO quantity. So, maintain accordingly.
o   Here for scrap, we are taking the scrap from vendor which are consumed for the child materials. If we want that material to plant, we need to create a new material with the name “Scrap” and maintain in BOM as 1- and save the BOM.

·        Meanwhile create a subcontracting PO with parent material with item category L, where BOM will be taken automatically with 1- quantity and child materials.

·        Now do the goods transfer in MB1B with movement 541, so that stock in the warehouse move to vendor stock and now the subcontracting vendor will perform the manufacturing process of sofa.

·        He will create the sofas as per the quantity and delivers the goods to plant along with scrap.

·        Now do the MIGO with 101 movement and post the sofas quantity and click on + icon in parent material, you will see the child materials with scrap.

·        Child materials – means consumed and will be used for sofas.

·        Scrap+ means waste generated and needs to bring to plant as per the PO.

Now go to MB1B and mention the movement 542, bring back the scrap to plant (SAP stock overview)

Final: if we are procuring one material with subcontracting vendor, we need to go with 3rd example, where we need to process the BOM with -quantity instead of scrap we need to post procuring extra material number.
No need to do 542 movement, where this will be consumed for the parent material.

   Please like and comment if you like the content.


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    1. Thank you
      Please reach out to - for queries

  3. This is really EXCELLENT . You made the concept of subcontracting clear.
    One doubt I have you created PIR but never used in the process. Is it mandatory to create PIR? if yes you haven't used PIR eith in PR and PO?

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  6. Hello Ram,

    I would like to thank you for the efforts. If you don't mind please share me the accounting entries which is hitting for each movement type.

  7. Thank you because you have been willing to share information with us. we will always appreciate all you have done here because I know you are very concerned with our.

  8. Thank you
    Please reach out to - for queries

  9. Thank you
    Please reach out to - for queries

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  16. Can you explain how can we manage under and over delivery of components & how to take back unused stock from subcontractor.

  17. Nice blog sir.

    I have small doubt, if there is one scenario in sub-contracting where client does not use 541 and 543 then is there any alternative they can use ??

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