Scenario 9 — Subcontracting (Send Components, Receive Finished Goods)
📊 Business Case — When & Why You Use This
Subcontracting is the procurement flow where you send your own components to an external vendor, the vendor performs a process (machining, galvanizing, assembly), and you receive back a finished product — paying only for the service, not the materials. The components stay your property the whole time (special stock "O", stock provided to vendor). It is driven by a BOM and a special PO item category L.
🕐 When to use it
You lack an in-house capability — e.g. PakSteel has no galvanizing line, so it sends steel billets to Pakistan Cables Ltd to galvanize and return finished galvanized rebars. Outsource a process step while keeping ownership of the raw material.
❓ Why it matters
It lets you outsource production steps without selling the inputs. SAP tracks your material at the vendor's site, knows which components feed the output via the BOM, and charges only the vendor's service fee to the finished-good cost.
👤 Who triggers it
The buyer raises the subcontract PO (item category L); the storekeeper issues components to the vendor (541); on return the goods receipt (101) and component consumption (543) post together; AP pays the service invoice.
🔁 The key distinction
You buy a service, not goods. The vendor's bill is the service fee only (PKR 500/TO), not the billet value. Your components never leave your balance sheet until they're consumed (543) into the finished product you receive.
- ✅ You need: Just CS01 (Create BOM) — covered in this scenario step 9.1. No work centers or routings needed.
- 📖 Reference: Setup Guide Step 17B covers BOM creation in detail if you want to read more
- ⏩ Why subcon doesn't need full PP: The "production" is done by the SUBCONTRACTOR (external vendor), not your plant. So no PP order, no work center, just BOM mapping for components.
💰 Financial Impact — The Easy-Money Example
PakSteel sends 100 TO of steel billets (say ₨2,000,000 of components) to the subcontractor, who galvanizes them and returns 100 TO of galvanized rebars, charging a service fee of PKR 500/TO = ₨50,000. Here is the money story — notice the finished good is worth components plus service:
The big idea: subcontracting splits the finished-good cost into two pieces — the component consumption (your billets, moved via 541 then consumed via 543) plus the service fee you pay the vendor (the PO net price, invoiced via MIRO). The finished-good receipt (101) capitalises both into the new material's inventory value: galvanized rebar inventory = billet value + ₨50,000 service. Sending the components (541) itself has no P&L impact — they remain your asset until the 543 consumption at receipt.
🇵🇰 The Business Story
🎯 What you'll learn — what makes subcontracting unique
- Item Category L (Subcontracting) on PO
- BOM-driven — system knows what components to send based on the BOM (CS01)
- Special Stock O — "stock provided to vendor" (your stock, at vendor's location)
- Three movements: 541 send components, 543 consume at receipt, 101 receive finished product
- Vendor PO line shows BOTH the finished product AND its components
- Subcontractor's bill = service charge only (not material value)
HALB-BILLET-01(HALB, the component you send to the subcontractor) — create stepsFERT-REBAR-GALV-01(FERT — same steps as FERT-REBAR-01, different code) — create steps
🔧 Step-by-Step
📦 Master Data Setup
9.1 — Create BOM · CS01 for the finished product
Create a single-level BOM showing what components produce 1 TO of galvanized rebar.
- CS01 · Material:
FERT-REBAR-GALV-01(galvanized rebar — create as FERT first) · PlantPK01· Usage1(Production) - Components:
- HALB-BILLET-01 (steel billet) — Qty 1 TO per 1 TO output
- Optional: ZN-COATING (zinc coating consumable) — Qty 0.05 TO
- Save BOM
9.2 — Maintain Subcontracting Info Record · ME11
- ME11 · Vendor VEN-PCABLE · Material FERT-REBAR-GALV-01 · Purch Org PKLO · Plant PK01
- Info Category: Subcontracting
- Net Price:
500PKR/TO (the service fee, not the material value) - Save
🔄 Transaction Flow
9.3 — Create Subcontract PO · ME21N with Item Cat L
- ME21N · Doc Type NB · Vendor VEN-PCABLE
- Line: Item Category
L(Subcontracting) · Material FERT-REBAR-GALV-01 · Qty 100 TO · Plant PK01 - Press Enter → SAP auto-expands components from BOM (HALB-BILLET-01 × 100 TO)
- Net Price line: 500 PKR/TO (service fee) · Save
9.4 — Send components to subcontractor · mvt 541 (MB1B or MIGO)
- Run MB1B · Mvt Type 541 (or use ME2O for monitor-based dispatch)
- Vendor VEN-PCABLE · Material HALB-BILLET-01 · Qty 100 TO · Plant PK01 · SLoc WIPS
- Post
FI effect: NONE (same valuation, just transfer to "stock at vendor"). Stock now visible in MMBE under "Special Stock O".
Monitor: ME2O shows stock provided to vendor.
9.5 — Receive finished product · MIGO mvt 101 + auto 543
- MIGO · Goods Receipt · Reference Purchase Order · STO PO #
- Qty 100 TO of FERT-REBAR-GALV-01 · SLoc FNGD · Post
Two movements happen simultaneously:
| Mvt | What | Accounting |
|---|---|---|
| 101 | Receive 100 TO galvanized rebar | Inventory Galv Rebar Dr / GR/IR Cr (service fee value) |
| 543 | Consume components at subcontractor | Component Consumption Dr / Stock Provided to Vendor Cr |
Net FI: Galv rebar inventory increases by component value + service fee. Component value (billets) moves from "stock provided" to consumption.
9.6 — Invoice for service fee · MIRO
Vendor invoices ONLY the service portion (100 TO × 500 = PKR 50,000).
MIRO normally → GR/IR Dr / Vendor Cr 50,000.
✅ Verification — Confirm Scenario 9 Worked
- ME2O → stock at vendor cleared
- MMBE → FERT-REBAR-GALV-01 stock 100 TO at PK01/FNGD
- MMBE → HALB-BILLET-01 → reduced by 100 TO from WIPS
- Vendor cleared after F-53
🎓 Interview-Ready Answers
Q: What is special stock type "O" and why does subcontracting use it?
Special stock O is "stock provided to vendor" — your own material physically sitting at the subcontractor's site but still owned by you and still on your balance sheet. Subcontracting uses it because you send components (mvt 541) for the vendor to process; until they're consumed into the finished product (mvt 543), they remain your inventory, just tracked separately. You can monitor it any time with ME2O.
Q: Walk me through the three movement types in a subcontracting cycle.
541 sends components from your plant to the vendor's special stock (no P&L). 543 consumes those components when the finished product is received — it credits stock-provided-to-vendor and debits component consumption. 101 receives the finished product into your inventory at component value plus the service fee. The 543 and 101 post together at goods receipt.
Q: What does the subcontractor's invoice actually cover?
Only the service fee — the PO net price (e.g. PKR 500/TO), not the value of the components. You never sold the billets to the vendor, so they're not on the bill. At MIRO the service value clears GR/IR (Dr) against the Vendor (Cr). The component cost was already captured in your books via the 543 consumption.
Q: Why does subcontracting need a BOM but not the full PP module?
The BOM (created in CS01) tells SAP which components and quantities feed one unit of the finished product, so the subcontract PO (item category L) can auto-explode the components to send. But the actual production happens at the external vendor, not your plant — so you need no work centers, routings, or production orders. Just the BOM for component determination.