🔄 SAP Subcontracting — Item Category L
You supply raw materials/components to a vendor; the vendor processes them and returns the finished product. Common in textile (dyeing), metal (machining), pharma (formulation), construction (fabrication). Full configuration, process flow, and PSEC example.
1. What is subcontracting?
You buy a finished product from a vendor, but YOU supply the raw materials/components. The vendor's role is processing (cutting, dyeing, assembling, machining, etc.) — they add labor and possibly minor materials.
The key difference from standard PO
| Aspect | Standard PO | Subcontracting PO |
|---|---|---|
| Components ownership | Vendor's | YOURS (you supply) |
| What vendor invoices | Full product price | Only processing/labor charges |
| Stock at vendor | Not tracked | Tracked as "stock at subcontractor" (special stock O) |
| Item category | Standard (blank) | L |
| BOM required | No | Yes — defines what components to send |
| Movement types | 101 GR only | 541 (issue), 543 (auto consume), 101 (receive finished) |
2. When to use subcontracting
| Scenario | Why subcontracting fits |
|---|---|
| Textile dyeing | You own grey fabric; vendor dyes it; you get back dyed fabric. Lower than buying dyed fabric outright. |
| Metal machining | You supply raw bar; vendor machines specific parts. You retain ownership of raw + tooling. |
| Pharma formulation | You supply Active Pharma Ingredient (API); vendor formulates into tablets. API stays your stock. |
| Construction fabrication | You supply steel; vendor fabricates trusses. Tax efficient (you pay processing only). |
| Assembly | You supply components; vendor assembles finished product. |
| Tax/duty optimization | In some jurisdictions, processing-only charges have lower GST/duty than full purchase |
3. Key components
3.1 Material setup
- Header material (FERT or HALB) — what the vendor returns to you
- Component materials (ROH) — what you send to the vendor
- BOM for the header material with components — created via CS01
- Procurement type on header material's MRP 2 view = F (external)
- Special procurement type = 30 (subcontracting) on MRP 2 view
3.2 Vendor setup
- Vendor created as Business Partner
- Vendor's purchasing view (LFM1) extended to your Purch Org
- Info record (ME11) for the header material with item category L
3.3 Document elements
- Subcontracting PO: item category L
- Components automatically picked from BOM
- Special stock indicator: O (vendor) once issued
4. Process flow — step by step
-
Create subcontracting PO — ME21N
Vendor (subcontractor), item category L, header material (FERT), quantity. System auto-explodes BOM to show components.
-
Issue components to vendor — MIGO + movement type 541
Materials move from your unrestricted stock to "stock at subcontractor" — special stock O. Stock STAYS in your books but tagged with vendor.
FI posting? NO — stock just changes status, no value change.
-
Vendor processes (real world)
Vendor uses your components + their labor to produce the finished material.
-
Receive finished product — MIGO + movement type 101 against subcontracting PO
Two things happen simultaneously:
- Mvt 101 — Finished product enters your stock (Dr Inventory FERT)
- Mvt 543 — Components AUTO-consumed from vendor stock (Cr stock at vendor)
FI posting:
Dr Inventory FERT (BSX) ₨X Cr Inventory ROH at vendor (BSX) ₨A (components consumed) Cr Service/Processing cost (GBB-VBO) ₨X-A (subcontracting fee) -
Invoice from vendor — MIRO
Vendor invoices only their PROCESSING charge (not the component value).
- Payment — F110
5. Configuration steps
- BOM creation — CS01 — Create BOM for header material with components
- Material Master MRP 2 view — MM02 on header material:
- Procurement type = F
- Special procurement type = 30 (subcontracting)
- Info Record — ME11 with vendor, header material, item category L, processing price
- Source List (optional) — ME01 with vendor + plant
- OBYC — Verify Transaction Key GBB-VBO mapped (subcontracting consumption G/L)
6. All T-codes for subcontracting
| T-code | What it does |
|---|---|
| CS01 | Create BOM (header → components) |
| CS02 | Change BOM |
| ME21N | Create PO with item cat L |
| ME2O | Subcontracting stock monitor — track components at vendor |
| MIGO 541 | Issue components to subcontractor |
| MIGO 101 | Receive finished product (auto-fires 543 for components) |
| MIGO 542 | Return unused components from vendor |
| MB54 | Stock at subcontractor report |
| MIRO | Invoice for processing charges |
7. Real-world scenarios
🧵 Pakistani Textile — fabric dyeing
Header material: FAB-DYED-RED (FERT - red dyed fabric)
Components:
FAB-GREY (ROH - grey fabric) - 100 m per 100 m output
DYE-RED (ROH - red dye) - 0.5 kg per 100 m
Subcontracting PO: 1000 m of FAB-DYED-RED
Vendor: Sindh Dyers Ltd
Component supply (mvt 541):
1000 m FAB-GREY (your stock → vendor stock special O)
5 kg DYE-RED (your stock → vendor stock O)
Processing charge: ₨50 per meter
Vendor dyes the fabric → 1000 m FAB-DYED-RED ready
MIGO 101 (GR finished):
Dr Inventory FAB-DYED-RED ₨150,000 (value of finished)
Cr Inventory FAB-GREY-O ₨100,000 (component consumed)
Cr Inventory DYE-RED-O ₨5,000
Cr Subcontract cost (GBB-VBO) ₨45,000 (processing fee)🔧 Steel machining (PSEC)
Header: SHAFT-MACHINED (FERT)
Components: SHAFT-RAW (ROH steel bar) — 1 unit each, 5 kg waste allowed
Send 100 units SHAFT-RAW to machining vendor.
Get back 95 SHAFT-MACHINED (5% loss expected).
Processing: ₨200/unit
Total: ₨95 × 200 = ₨19,000 processing💊 Pharma formulation
Header: TABLET-XYZ-500 (FERT)
Components: API-XYZ (ROH active ingredient)
EXCIPIENT-A (ROH bulking agent)
API stays your stock all the way through.
Vendor formulates and packages.
You receive finished tablets.8. When NOT to use subcontracting
| Scenario | Use instead |
|---|---|
| Vendor supplies ALL materials | Standard PO (item category blank) |
| You just buy from a different vendor | Standard PO with different vendor |
| Toll manufacturing (vendor owns process secret, you buy product) | Standard PO (you're just buying finished) |
| One-time / occasional outsourcing | Standard PO works fine; subcontracting is for recurring |
| Within same plant operation | Production order (PP) — not procurement |
9. Try in real SAP
- Open CS01 → create BOM for an IDES material (e.g. SC-100 with components SC-101, SC-102)
- Open MM02 on the header → MRP 2 → set Procurement = F, Special Procurement = 30
- Open ME21N → create PO with item category L → vendor + qty
- System auto-explodes BOM in PO line — view components
- MIGO → 541 movement → issue components to vendor
- ME2O → see stock at vendor in special stock O
- MIGO → 101 against your PO → receive finished; system auto-posts 543 for components
- MB03 on material doc → see all movements
- FB03 on FI doc → see Dr FERT / Cr ROH + Cr Subcontract cost
10. Interview Q&A
What is item category L?
The PO line item category for subcontracting. Triggers BOM explosion to show what components you must provide. Without L, system treats as standard purchase.
What is movement type 541?
Goods Issue to subcontractor — moves components from your unrestricted stock to "stock at vendor" (special stock O). No FI document; stock status changes only.
What is movement type 543?
Auto-fired when GR (101) of subcontracted material is posted. Consumes the components from special stock O. Charges them to the cost of the finished product.
What's the special stock indicator for subcontracting?
O — Vendor stock (stock provided to subcontractor).
Where do you see stock at subcontractor?
ME2O (subcontracting stock monitor) or MB54 or MMBE filtered by special stock O.
Vendor BOM vs subcontracting BOM?
Subcontracting BOM is the standard BOM for the header material — same BOM used by PP for in-house production also drives subcontracting components.