Vendor Subcontracting Process

Vendor Subcontracting

Subcontracting cycle consist of:

Creating Purchase Order > Provision of components > Manufacturing of Goods/Service provision > Delivery of goods > Goods Receipt of subcontracting item and by products > Subsequent adjustment > Invoice Receipt > Invoice settlement > Payment. 

Vendor subcontracting process most of the time it is happening in manufacturing process industry. Customer supplies required components, raw materials, consumables , sub assemblies to the subcontractor.

Materials can be dispatched from own storage location or plant to vendor. Materials can be dispatched directly to vendors location. This can be done by maintaining the vendor code in delivery tab on purchase order.

Lets take following an examples to understand the business scenario in better manner:

1. A mobile company selling their own mobile in global market. They don't have their own manufacturing unit. They are designing the products and getting it manufactured by some one vendor. Such vendors are called subcontractors . This company is buying raw materials, components , sub assemblies from other regular vendors/suppliers and supplying these materials to the subcontractor.
   Subcontractor is manufacturing the whole assembly and converting into finish product which is mobile handset. Final assembly is getting shipped back to either customer's location as per purchaser order given to subcontractor. It may come its own warehouse or directly get shipped to customer.
2. Another example could be car manufacturer is getting in an agreement with vendor to supply the engine assembly, which is getting assembled by the subcontractor. Raw materials required to manufacture engine assembly supplied by business , who issues the purchaser order. Raw materials could be e.g. Engine cylinder,cranks shaft assembly, piston rings, engine head etc.
   Subcontractor assembles it into the finished good- an engine assembly and sends back to customer location.

Details of whole process in SAP

1. Creating Purchase Order
   Purchase Order having item category “ L ”
   Purchase Order mentions subcontracting item and Components to be provided are mentioned in purchase Order by exploding Bill Of Materials or manually.
   Price mentioned in Purchase Order is subcontracting price. You can also maintain Purchase Info Record for Subcontract category for material and subcontractor.
2. Provision of components or raw materials:
   Components can be provided by following ways :
   MB1B : Transfer posting by using Movement type 541+O with reference to subcontract Purchase Order. Or w/o reference to subcontractor order.
   ME2O : Monitoring of SC stock ( Purchasing ). Here also system uses Movement type 541+O  MIGO : You can provide component directly from vendor by using movement 101+O.
3. Goods Receipt of subcontracting purchase order item
   Finished material against subcontracting purchase order can be received in MIGO.Goods Receipt is same as normal Goods Receipt by using Movement 101.System determines consumption of components and creates goods issue by using movement 543+O
   A material document is getting generated with two items.
     => Goods receipt of finished Goods,which was delivered by the vendor.  
     => Goods issue items for the consumed components to convert the finished assembly.
   In this transaction system carries out the posting of material document along with an accounting document if material is valuated.
4. Rejection or scrap handling
   Take an example of nut and bolt which are getting screw threads. While doing this operation on steel rod, shearing action happens and excess materials is getting removed. Such materials can be considered as scrap or rejection.
   Another example consider,while manufacturing mobile assembly ,screen of mobile  2% scrap is getting scrapped.
   Such scrap or rejection can be maintained in bill of materials. System will propose additional quantity in purchase order.
   System carries out posting with movement type 545+O at vendor location. This can be brought to business's own location by movement type  542+O
5. Treatment of By-product
   It is same way like rejection or scrap. This can be done by maintaining negative quantity in Bill Of Materials.
   System carries out posting with movement type 545+O at vendor location. This can be brought to business's own location by movement type  542+O.
   Examples of By-product
   Cereal food fines – from breakfast cereal processing
   Corn steep liquor – from corn wet-milling
   Distillers grains – from ethanol fermentation
   Glycerol – from the production of biodiesel
   Grape seed oil – recovered from leftovers of the wine making process
   Molasses – from sugar refining
6. Invoice receipt
   It is normal as handled in standard procurement process via T code 'MIRO'
7. Vendor Payment
   It is getting handled in the FI module via T code 'FBL1N'

 

Consumable or Text procurement

Consumable or Text procurement

Consumable procurement is common in every industry. It is getting used across of various industry sectors. This is basically meant for expenditure for specific cost element,e.g. cost centers , project ,sales order, internal order etc.

Such type of procurement can happen with or without material master. Material master may be valuated or non valuated. You need to specify an account assignment category in Purchase Requisition , Purchase order or contract.

Following are the types of an account assignment category :

• K -  Cost center : In this you need to specify the cost center code along with G/L account
• F -   Internal Order:In this you need to specify the Internal order along with G/L account
• P -   Project : In this you need to specify the WBS element along with G/L account
• C- Sales Order : In this you need to specify the sales order along with G/L account
• A - Asset : : In this you need to specify the Asset  code along with G/L account
• U - Unknown : This is unknown at the time of request , You can not use account assignment category 'U' in normal purchase order, It can be used only in case of Limit or Blanket order along with document type 'FO' and item category 'B'

 Any consumable procurement most of the time starts with Purchase Requisition which is always getting approved by using release strategy in SAP system. Such expenses are getting approved by respective authorities. E.g If HR departments want to hire services for AMS ( Annual Maintenance Services ) from air conditioner service provider in that case requisition-er from dept creates a Purchase Requisition by using account assignment category 'K-Cost Center ' which is getting approved by dept head --> GM --> VP etc at various level.

Approved Purchase Requisition is getting forwarded to procurement dept for further processing. Buyer from procurement dept converts it either in RFQ, Contract or directly to Purchase Order. While converting into subsequent transaction, buyer adopts or copy purchase requisition into subsequent transactions as mentioned above. Being layout of Purchase requisition and subsequent transaction is same , it can be adopted or copied easily in these transactions.

Vendor Master Record

Vendor Master Record

Vendor master data is the most important data for purchasing as well as for an accounting department. Without vendor master purchase order can not be created.

It contains all important information which is getting shared by an accounting department and purchasing department.    

It consist of following important information such as  Vendor Name ,address, sales person,reconciliation account,vendor schema group-which helps to determine pricing procedure, Inco Terms, Payment Terms etc.

Therefore, the vendor master record is maintained by both Accounting and Purchasing.

How is the Vendor Master Record Structured?
Vendor master records contain important data on your vendors. You can also store data in the vendor master record that applies to certain specific organizational levels (e.g. company code, purchasing organization, plant) within your enterprise.

The vendor master record consists of three areas:

•   General data

Data that applies equally to each company code within your enterprise (address, telephone number, language in which you communicate with your vendor, etc.).

•  Company code data

Data kept at company code level (payment transaction data or number of control account, for example).

•  Purchasing data ( at Purchase Organization )

Data that is of importance with regard to your enterprise’s purchasing activities and which is kept at purchasing organization level (such as contact person or terms of delivery).

The following data retention level
Vendor Sub range level

Plant

Vendor sub-range/plant

What is the Function of the Account Group?

• You must assign each vendor whose data you wish to store in the SAP System to an account group.
• The account group determines, for example, that only those screens and fields of the vendor master record that are needed for the relevant role of your business partner are displayed and ready to accept user input.
•  The account group determines:

§  The type of number assignment and the number range from which the account number used by the system to identify the vendor is assigned

§  Whether or not a one-time vendor is involved

§  Which data retention levels below the purchasing organization are allowed (for example, vendor sub-range)

§  Which partner determination schema are valid

§  You maintain the account groups in Customizing for Logistics General under Business Partners => Vendor => Control => Define Account Groups and Field Selection (Vendor).

Reconciliation Account

Ø  While creating a Vendor Master Record, you need a unique number for the vendor (Creditor). This is assigned automatically or manually.

Ø  When creating a Vendor Master Record, Reconciliation account is required entry. The reconciliation account is a G/L Account in G/L accounting.  It gives details on liabilities towards several vendors in G/L account.

 How are the Vendor Master Records Numbered? 

Ø  Vendors master record can have internal number or external number assignment. This is getting determined via account group.

Ø The number can be assigned internally by the system in a sequential manner . User can also input number externally numeric or Alfa numeric.

Ø  Number is always unique within client for specific account group.

Menu path for Vendor Master Record

Three ways vendor master can be created
XK01 : All Vendor Master Record data .
MK01:  Create only general data and Data specific to purchasing .
FK01 :Company code specific data can be created only with transactions