Subcontracting - Delivery

Subcontracting
This section describes how to procure materials using a subcontract order. It describes how subcontract orders are processed in Purchasing, Inventory Management, and Invoice Verification.

Use
In subcontract order processing, the vendor receives materials (components) with which it produces the end product. The following are involved:

1. You order the end product using a subcontract order. The components that the vendor needs to manufacture the end product are specified in the purchase order.
2. In Inventory Management, the components are posted to the stock of material provided to vendor. The components are then supplied to the vendor.
3. The vendor performs its service and delivers the ordered material (the end product). The consumption of the components is posted.
4. If, after the goods receipt has been posted, the vendor informs you that a larger or smaller quantity of the components was actually consumed than planned in the purchase order, you must make an adjustment.
5. The vendor charges for his or her service. The invoice is posted in Invoice Verification.

Stock of Material Provided to Vendor

The quantities of the components to be provided to the vendor are entered into the stock of material to be provided to vendor. This stock has the following features:
• It is managed as part of your total valuated stock, and is available for MRP.
• It is only managed at plant level, since it is not stored at your own company but on the vendor's site.
• Two stock types are possible:
• unrestricted-use stock
• quality inspection stock
Stock can be transferred between the two stock types. Withdrawals can only be posted from unrestricted stock, however.
• You can take a physical inventory of the stock of material to be provided to vendor.

Subcontracting in Purchasing

Use
The material to be produced by the vendor can be ordered as a subcontract item in a purchase requisition, purchase order, or scheduling agreement. Each subcontract item has one or more sub-items that contain the individual components the vendor needs to perform the subcontract work or value-added service.
The individual component items can either be
• Entered or changed manually
• Copied from an existing bill of material (this is known as a BOM explosion)

Features
Purchase Requisition
If you enter a subcontract item with components in a purchase requisition or copy it from a bill of material, the system automatically creates dependent requirements for each component. These are only relevant for MRP.
Purchase Order
Each subcontract item in the purchase order has component items. Either they are copied from the purchase requisition, entered manually, or copied from a bill of material.
The purchase order price is the subcontract price for manufacturing the ordered material (see also Creating a Subcontract Order).

Scheduling Agreements and Schedule Lines
In a scheduling agreement you enter the material that is to be produced in a subcontract item. In each schedule line you enter the components that are to be provided to the vendor or copy them from the bill of material. This means that the components and their reservation items and arranged below the schedule lines. This also applies to scheduling agreement schedule lines and schedule lines in purchase requisitions and purchase orders (see also Entering Delivery Schedules).

Changes to the Purchasing Document
When you process subcontract orders in Purchasing, please note the following:
• If you change the order quantity or scheduled quantity, the quantities of the components to be provided are changed proportionally, providing the indicator Fixed quantity is not set.
• If you change the delivery date, the system only recalculates the date required, the components are not automatically redetermined in the bill of material. In this case, you must request a new BOM explosion.

Purchasing Master Data
The conditions for the material to be produced are stored in a subcontract info record.
You enter the special procurement type L (subcontracting) when making quota arrangements.

Monitoring Materials to be Provided to Vendor
By monitoring the material stocks to be provided to a vendor, you can determine whether the components required for subcontract work at the vendor's site are actually available in the warehouse (see also Monitoring Stocks of Material Provided to Vendor).

Creating a Subcontract Order
To create a subcontract order, proceed as follows:
1. Enter the material you want to order and the item category for subcontracting (L) in the order item.
Press Enter to display the screen for component processing.
2. Enter the components that the vendor requires to manufacture the ordered material (end product). Note the following:
a. You do not need to enter the date required for the components. This date is proposed by the system when you press Enter. It is calculated as follows:
 Delivery date of the item minus planned delivery time
b. If you do not want the quantity of the components to be changed if the order quantity of the end product is altered, set the indicator Fixed quantity.
c. If you want to assign a particular batch of the component to the vendor for the manufacture of the ordered material, enter the desired batch.
d. You can determine whether the components are available on the date required by selecting Component List ® Component Availability.
3. If you entered a bill of material as the material in the subcontract order, the components are created automatically.
If you want to determine the components in the bill of material at a later date (for example, if the bill of material is subsequently changed), choose Item ® Goto ® Components ® New BOM explosion. The existing components are deleted and redetermined in the bill of material.
4. Save the purchase order.
When you print the purchase order, the components are printed per order item.

Subcontract Order with Batch Numbers
Use
When you create a subcontract order in Purchasing, you can determine which batch of the subcontracting component is to be delivered to the subcontractor. This may be useful, for example, if the material for subcontracting requires specific characteristics that you map in your system using batches.
In order to display the batch numbers from the purchase order, during the transfer posting of the material provided from normal storage location stock to stock of material provided to vendor, you must refer to the purchase order. A collective transfer posting is not possible.

Transfer Posting Using the Subcontracting Stock Monitoring List
With the report for the SC Stock Monitoring for Vendor (RM06ELLB; transaction code ME2O), it is possible to display the batches of the material provided by customer and execute a transfer posting directly to the stock of material provided to vendor.
On the initial screen of the report, you can use the Group by batches indicator to determine how the batch information is to be used in the display:
• If the indicator is set, the subcontractor requirement and stock are displayed individually for each batch. Quantity offsetting is only carried out within a batch. Requirement and stock without batch specification are displayed separately.
• If the indicator is not set, the subcontractor requirement and stock are displayed for the entire component. The batch number is displayed as additional information if the detail lines are shown.
There are also detail lines for the stocks. Quantity offsetting is carried out within the component, independently of the batch number.

Goods Receipt Posting in Inventory Management
In goods receipt posting to the subcontract order with transaction MIGO or MB01, the system proposes the batch number from the purchase order for consumption posting of the subcontracting components. You can change this default value if necessary.

Entering Delivery Schedules
To enter several delivery dates for a subcontract order item, proceed as follows:
1. Display the scheduling screen for the item.
2. Enter the quantities and dates.
3. If the ordered material has a bill of material, the components are copied from the bill of material.
4. If you do not use bills of material, you must either enter the components manually or refer to an existing purchase requisition. You have to enter the components for every delivery schedule.
Position the cursor on a schedule line and choose Item ® Component ® Overview to display the screen for processing components. You can enter or change the individual components in the same way as an order item.
To make entering the schedule lines easier, copy the components for other delivery schedule items. To do this, select Edit ® Repeat components ® Activate.
When you enter the next delivery schedule for the material, the components will be copied from the selected delivery schedule. The quantity and the date required are redetermined.
5. Save the delivery schedule.
6. When you print the scheduling agreement, the quantity required per component and date required are reprinted.

Monitoring Stocks of Material Provided to Vendor
Use
To obtain a overview at any time of the current situation for stocks of material provided to vendor, you can use report SC Stock Monitoring for Vendor (RM06ELLB).
The report provides the following information:
• current stock situation
• planned issues
• planned receipts

Activities
You can start the report from the Purchasing menu. Choose Purchase order ® Reporting ® SC stocks per vendor. For more information, refer to the report documentation.
From this list you can provide components for existing purchase orders. Refer to Providing Components for Existing Purchase Orders.

Providing Components for Existing Purchase Orders
Use
You can provide components for existing purchase orders in the following ways:
• from the SC Stock Monitoring for Vendor list as a goods issue via Inventory Management
• from the SC Stock Monitoring for Vendor list as a delivery via Shipping
• from the Inventory Management menu
From SC Stock Monitoring for Vendor as a Goods Issue via Inventory Management
1. From the Purchasing menu, choose Purchase order ® Reporting ® SC stocks per vendor.
2. Enter your selection criteria on the initial screen, for example, the number of the vendor, plant, and the date required.
3. Carry out the evaluation.
The list of components that belong to the selected subcontract orders is displayed.
4. Select the components you wish to provide to the vendor.
5. Choose Edit ® Post goods issue.
A dialog box appears, in which you can enter the data required to post the goods issue.
6. Choose Continue.
The system posts the goods issue in the background and, after posting, it informs you in a dialog box how many items were posted.
You can also display this information by choosing Goto ® Processing log.
The list is automatically updated after the items are posted.
From SC Stock Monitoring for Vendor as a Delivery via Shipping
From the SC Stock Monitoring for Vendor list, you can also create a delivery via Shipping. The advantage of this procedure is that you have shipping documents and delivery notes for the shipment of the materials to be provided to the subcontractor (refer to Goods Movements via Shipping)
To create a delivery, the following data has to be maintained in the system:
• the plant must be assigned a sales organization, a distribution channel, and a division. You can define this in Customizing for Purchasing, in the step Set Up Stock Transport Order.
• A delivery type has to be defined for the plant from which the items are to be delivered. You can define this in Customizing for Purchasing, in the step Set Up Subcontract Order.
• If you want to reference a reservation when you create a delivery, you also have to set the Predecessor necessary indicator to L (Provision to subcontractor necessary) when defining the delivery type. This means that the requirements generated by the reservations can be correctly offset against the deliveries created. You can define this in Customizing for Shipping, in the step Define Delivery Types.
• The vendor for the stock with subcontractor must be entered as the customer in the organizational units in the delivering plant, such as sales organization, distribution channel, and division.
• The material to be provided has to be entered for the organizational units in the delivering plant, such as sales organization, distribution channel, and division.
• The combination of shipping condition (from the subcontractor’s customer master record), loading group (from the material master record for the components to be provided), and the plant have to be assigned to a shipping point. You can define this in Customizing for Shipping, in the step Assign Shipping Points.
To create a delivery, choose Edit ® Create delivery. A dialog box appears, in which you can enter the data required to post the delivery. The system posts the delivery in the background and, after posting, it informs you in a dialog box how many items were posted.
Providing Components from Inventory Management
1. From the Inventory Management menu, choose Goods movement ® Transfer posting.
2. Enter the issuing plant and storage location. Choose Movement type ® Transfer posting ® Stck w. subcontract. ® From unrestricted. Enter the vendor and then choose Transfer posting ® Create with reference ® To purchase order.
A dialog box appears in which you can enter up to 4 purchase orders.
3. Choose Continue.
The collective entry screen appears. The vendor and the components contained in the purchase orders entered are automatically proposed by the system.
4. Edit and adopt (copy) the desired items.
5. Post the document.

Entering the purchase order number is simply a way of saving you time re-entering data. No data in the purchase order is actually updated - i.e. you can make transfer postings for components more than once.
Posting with Reference to a Stock Transfer Reservation
If MRP generates a stock transfer reservation because of shortage of stock, you can convert the stock transfer reservation into a delivery or post the goods issue with reference to the stock transfer reservation in order to complete the reservations. In the case of a delivery, the reservation is not completed from the MRP view until the goods issue has been posted for the delivery in Shipping.
Select the reservations you want to reference and choose Post goods issue or Create delivery. The system suggests the total of the quantities of all the selected reservations. If you select the header line of the material instead of the reservation, the system suggests the total of all the reservations.
If you do not change the suggested quantity, the system creates a document line for each reservation. This completes all the selected reservations. If you change the suggested quantity, the quantity is distributed among the selected reservations. If the quantity is reduced, the earliest reservations are completed, and the latest remain open.
If no stock transfer reservations exist, the system suggests the shortage quantity. If all the requirements are covered by stock or receipts, the system suggests the quantity of zero.
You can manually delete individual reservations. Select the reservations to be deleted and choose Edit ® Delete reservation.
Printing Goods Receipt/Issue Slips
If you post the components in Inventory Management, you can print goods receipt/issue slips. The following output types are provided for this purpose:
• WLB1 : GI slip for subcontracting version 1
• WLB2 : GI slip for subcontracting version 2
• WLB3 : GI slip for subcontracting version 3
However, goods receipt/issue slips are only printed if the following prerequisites are fulfilled:
• The output determination and printer determination facilities have been set in the Customizing system of Inventory Management, that is, condition records and printers have been maintained for the output types.
• A print version for transaction ME2O has been maintained in Customizing for Inventory Management (print control).
• In the user defaults, the value X (capital letter) has been entered for parameter NDR.
See also:
Monitoring Stocks of Material Provided to Vendor

Subcontracting in Inventory Management
Use
The following functions are supported in Inventory Management:
• Provision of components
The components that are provided to the subcontractor are managed as stock provided to vendor. In Inventory Management, the provision represents a transfer posting from unrestricted-use stock to the stock of material provided to vendor. Components in a subcontract order that are consumed can only be debited from the stock of the material provided to the particular vendor.
• Goods receipt of the end product (with consumption of the components)
You post the goods receipt for the end product with reference to the subcontract order item. At goods receipt, a consumption posting for the components is also made from the stock of material provided to vendor. For each goods receipt item, the system copies the components with their quantities as goods issue items. If the vendor (subcontractor) consumed a greater or smaller quantity than was planned in the purchase order, you can adjust the component quantity at goods receipt.
• Subsequent adjustment for over/under consumption
If the vendor only tells you after the goods receipt has been posted that a greater or smaller quantity of the components was consumed than had been planned in the purchase order, the difference must be posted as a subsequent adjustment.
• Transfer postings
You can carry out the following transfer postings for stock of material provided to vendor:
o Plant to plant in one step (301)
o Material to material (309; also refer to Entering Transfer Postings From Material to Material)
o Unrestricted-use stock to quality inspection stock and vice versa (movement types 321/322; also refer to Posting Material Provided to Vendor to Another Stock Type)



Provision of Components

The components that are provided to the subcontractor are managed as stock provided to vendor. Components in a subcontract order that are consumed can only be debited from the stock of the material provided to the particular vendor.
Components can be provided to a vendor as follows:
• They are posted from unrestricted-use stock.
The transfer posting can be made without referencing a purchase order. Alternatively you can provide vendors with the components required for existing purchase orders.
See also:
Providing Components With No Order Reference
Providing Components for Existing Purchase Orders
• They are delivered by another vendor.
This involves you ordering the components from a second vendor which you require for the subcontractor.
See also:
Providing Materials From Another Vendor

Providing Components With No Order Reference

To post components from the unrestricted-use stock to the stock of material provided to vendor, proceed as follows:
1. From the Inventory Management menu, select Goods movement ® Transfer posting.
2. Enter the issuing plant and storage location. Choose Movement type ® Transfer posting ® Stock with subcontractor ® From unrestricted.
3. Press ENTER. The collective entry screen appears.
4. Enter a vendor and the individual items.
5. Post the document.
Stock Update
As a result of the transfer posting
• the unrestricted-use stock in the issuing storage location is reduced
• the stock of material provided to vendor at plant level is increased. The stock of material provided to vendor is not managed at storage location level, since the stock is no longer stored at your company.
Documents
No accounting document is created for this material document, since the components remain in the valuated stock.
Goods Receipt/Issue Slip
This movement type allows you to print GR/GI slips. The standard system provides the following output types for this purpose:
• WLB1 : GI slip for subcontracting version 1
• WLB2 : GI slip for subcontracting version 2
• WLB3 : GI slip for subcontracting version 3

Providing Components for Existing Purchase Orders
Use
You can provide components for existing purchase orders in the following ways:
• from the SC Stock Monitoring for Vendor list as a goods issue via Inventory Management
• from the SC Stock Monitoring for Vendor list as a delivery via Shipping
• from the Inventory Management menu
From SC Stock Monitoring for Vendor as a Goods Issue via Inventory Management
1. From the Purchasing menu, choose Purchase order ® Reporting ® SC stocks per vendor.
2. Enter your selection criteria on the initial screen, for example, the number of the vendor, plant, and the date required.
3. Carry out the evaluation.
The list of components that belong to the selected subcontract orders is displayed.
4. Select the components you wish to provide to the vendor.
5. Choose Edit ® Post goods issue.
A dialog box appears, in which you can enter the data required to post the goods issue.
6. Choose Continue.
The system posts the goods issue in the background and, after posting, it informs you in a dialog box how many items were posted.
You can also display this information by choosing Goto ® Processing log.
The list is automatically updated after the items are posted.
From SC Stock Monitoring for Vendor as a Delivery via Shipping
From the SC Stock Monitoring for Vendor list, you can also create a delivery via Shipping. The advantage of this procedure is that you have shipping documents and delivery notes for the shipment of the materials to be provided to the subcontractor (refer to Goods Movements via Shipping)
To create a delivery, the following data has to be maintained in the system:

• The plant must be assigned a sales organization, a distribution channel, and a division. You can define this in Customizing for Purchasing, in the step Set Up Stock Transport Order.
• A delivery type has to be defined for the plant from which the items are to be delivered. You can define this in Customizing for Purchasing, in the step Set Up Subcontract Order.
• If you want to reference a reservation when you create a delivery, you also have to set the Predecessor necessary indicator to L (Provision to subcontractor necessary) when defining the delivery type. This means that the requirements generated by the reservations can be correctly offset against the deliveries created. You can define this in Customizing for Shipping, in the step Define Delivery Types.
• The vendor for the stock with subcontractor must be entered as the customer in the organizational units in the delivering plant, such as sales organization, distribution channel, and division.
• The material to be provided has to be entered for the organizational units in the delivering plant, such as sales organization, distribution channel, and division.
• The combination of shipping condition (from the subcontractor’s customer master record), loading group (from the material master record for the components to be provided), and the plant have to be assigned to a shipping point. You can define this in Customizing for Shipping, in the step Assign Shipping Points.

To create a delivery, choose Edit ® Create delivery. A dialog box appears, in which you can enter the data required to post the delivery. The system posts the delivery in the background and, after posting, it informs you in a dialog box how many items were posted.

Providing Components from Inventory Management

1. From the Inventory Management menu, choose Goods movement ® Transfer posting.
2. Enter the issuing plant and storage location. Choose Movement type ® Transfer posting ® Stck w. subcontract. ® From unrestricted. Enter the vendor and then choose Transfer posting ® Create with reference ® To purchase order.
A dialog box appears in which you can enter up to 4 purchase orders.
3. Choose Continue.
The collective entry screen appears. The vendor and the components contained in the purchase orders entered are automatically proposed by the system.
4. Edit and adopt (copy) the desired items.
5. Post the document.

Entering the purchase order number is simply a way of saving you time re-entering data. No data in the purchase order is actually updated - i.e. you can make transfer postings for components more than once.

Posting with Reference to a Stock Transfer Reservation

If MRP generates a stock transfer reservation because of shortage of stock, you can convert the stock transfer reservation into a delivery or post the goods issue with reference to the stock transfer reservation in order to complete the reservations. In the case of a delivery, the reservation is not completed from the MRP view until the goods issue has been posted for the delivery in Shipping.
Select the reservations you want to reference and choose Post goods issue or Create delivery. The system suggests the total of the quantities of all the selected reservations. If you select the header line of the material instead of the reservation, the system suggests the total of all the reservations.
If you do not change the suggested quantity, the system creates a document line for each reservation. This completes all the selected reservations. If you change the suggested quantity, the quantity is distributed among the selected reservations. If the quantity is reduced, the earliest reservations are completed, and the latest remain open.
If no stock transfer reservations exist, the system suggests the shortage quantity. If all the requirements are covered by stock or receipts, the system suggests the quantity of zero.
You can manually delete individual reservations. Select the reservations to be deleted and choose Edit ® Delete reservation.

Printing Goods Receipt/Issue Slips

If you post the components in Inventory Management, you can print goods receipt/issue slips. The following output types are provided for this purpose:
• WLB1 : GI slip for subcontracting version 1
• WLB2 : GI slip for subcontracting version 2
• WLB3 : GI slip for subcontracting version 3
However, goods receipt/issue slips are only printed if the following prerequisites are fulfilled:
• The output determination and printer determination facilities have been set in the Customizing system of Inventory Management, that is, condition records and printers have been maintained for the output types.
• A print version for transaction ME2O has been maintained in Customizing for Inventory Management (print control).
• In the user defaults, the value X (capital letter) has been entered for parameter NDR.
See also:
Monitoring Stocks of Material Provided to Vendor

Providing Materials From Another Vendor

If components to be provided to a vendor are supplied not by your company but by a third-party, you can order the components from the third-party and specify the subcontractor in the purchase order as the delivery address. At goods receipt the components are posted directly to the stock of the material provided to vendor.

Entering a Purchase Order for Components
To order components for a subcontract order from a vendor and have them delivered direct to the subcontractor, enter a standard purchase order with a different delivery address:
1. From the Purchasing menu, choose Purchase order ® Create ® Vendor known.
2. Maintain the data on the initial screen. Make sure you enter the vendor of the components and the plant concerned.
3. Enter the items.
4. Then choose Item ® More functions ® Delivery address.
A dialog box appears in which you enter the delivery address.
5. In the field Vendor enter the number of the subcontractor and select the SC vendor box.
Selecting the box causes the components at goods receipt to be posted directly to the stock of the material provided to vendor when the goods receipt is posted.
6. Save the purchase order.

Posting the Goods Receipt of the Components
If the subcontractor lets you know that the components have arrived, you can enter the goods receipt for the purchase order. The components are posted directly to the stock of the material provided to vendor.
Stock Update
A goods receipt posting has the following results in the system:
• the stock of material provided to vendor at plant level is increased. The stock of material provided to vendor is not managed at storage location level, since the stock is no longer stored at your company.
• Valuated stock at plant level increases.
Documents
An accounting document is created for the material document.

Entering Goods Receipt for the Subcontract Order
When the vendor delivers the ordered material (the end product), you post a goods receipt for the subcontract order in the same way as for a standard purchase order. The system determines the components for each order item and creates a goods issue item for each component. As a result, the material document consists of the following items:
• Goods receipt items for the materials supplied by the vendor
• Goods issue items for the components
After you have copied an order item, you can change the quantities in the goods issue items.
Valuation
The goods receipt is valuated at the subcontract price plus the value of the components consumed.

If by-products are planned in the purchase order as components with negative quantities, receipt of the by-products is automatically posted to the stock of material provided to vendor at goods receipt.


Posting a Subsequent Adjustment
Use
Correction of Goods Receipt Posting for a Subcontract Order
After the subcontractor (as vendor) had delivered the ordered material (end product), you posted the goods receipt to the subcontract order. The system determined the necessary components for each purchase order item and created for each component a goods issue item with the quantity that was determined in the purchase order (see Entering Goods Receipt for the Subcontract Order).
If the vendor informs you after these postings that a greater or smaller quantity of the subcontracting components was actually consumed than planned in the purchase order, you must post a subsequent adjustment to correct the component consumption.
If the component is a by-product, you must post the corrected by-product receipt (excess receipt) or by-product issue (short receipt) (see By-Products in Subcontracting).
Features
Return of Subcontracting Components
When returning subcontracting components (underconsumption), the system checks that the quantity returned is not larger than the quantity originally transferred to the subcontractor. This check, however, only takes place on material and plant level.
Return of Subcontracting Components with Batch Management Requirement and Split Valuation
If when creating a subcontracting order you have already specified which batch of the subcontracting components is to be delivered to the subcontractor (see Subcontract Order with Batch Numbers), the specified batch is offered as the default value in both consumption posting as well as in subsequent adjustment.
When the subcontracting components with batch management requirement or split valuation are returned, the system does not check the quantity returned at batch level. This may cause stocks from one batch to be shifted to another or the material prices to shift in split valuation.

The specification of a batch is not checked by the system, there is only a default value. There is no quantity check at batch level.
Activities
In the transaction for goods movements MIGO, select the business operation Subsequent Adjustment from the list box. The system automatically chooses Purchase Order as the reference document. Enter the document number of the purchase order and the item number for which you want to post a subsequent adjustment.
For the selected item, enter the difference quantity specified by the vendor and determine with the Underconsumption/Short Receipt indicator whether a receipt or an issue is concerned. If you set the indicator, it is an underconsumption or short receipt. If you do not set the indicator, it is an excess consumption or excess receipt.
Post the subsequent adjustment.
The specified quantities of the originally posted goods receipt are corrected by the system to the subsequently adjusted quantities.

Posting Mat. Prov. to Vendor to Other Stock Type
Material provided to vendor can either be for unrestricted use or in quality inspection. Withdrawals can, however, only be posted from unrestricted-use stock of material provided to vendor.
1. Select Goods movement ® Transfer posting.
The initial screen appears.
2. Enter the plant and storage location. Choose the movement type as follows:
a. For a transfer posting from stock in quality inspection to unrestricted-use stock:
Movement type ® Transfer posting ® Stck w. subcontract. ® SC qual. to SC unr.
b. For a transfer posting from unrestricted-use stock to stock in quality inspection:
Movement type ® Reverse tfr. posting ® Stck w. subcontract. ® SC qual. to SC unr.
3. Choose Continue.
The collective entry screen appears.
4. Enter the following data:
a. Vendor
b. Material
c. Quantity
5. Post the document.
The material provided to vendor is now managed in the stock type posted to.

By-Products in Subcontracting

You can use subcontract orders to plan the receipt of by-products from subcontracting:
1. Similiar to production order processing, by-products are entered in the subcontract order as components with negative quantity.
2. In the provision of the components (with reference to the purchase order, for example), the system ignores the negative component items.
3. In the goods receipt for the purchase order, the system automatically posts the receipt of the by-products. In the material document, you can identify the by-product items from their movement type 544. Note that the by-products are posted to the "stock of material provided to vendor" (also referred to as "subcontracting stock").
The receipt can still be corrected using the Subsequent Adjustment function.
Due to the receipt of the by-products, the value of the manufactured material is reduced.
4. To transfer the by-products quantities from the "stock of material provided to vendor" (or subcontracting stock) to the unrestricted-use stock, you enter a transfer posting using movement type 542 (reversal of the provision of the components).

Subcontracting for Sales Order Stock and Project Stock
Purpose
Subcontracting is also possible in conjunction with sales order stocks and project stocks. The subcontracting orders are account-assigned to a sales order or a WBS element. Thus, the components are not transferred (using a transfer posting) to the "stock of material provided to vendor" but are directly withdrawn from the sales order stock or the project stock at the time of the goods receipt. The material manufactured is also posted to the sales order stock or to the project stock. The cost of subcontracting is then debited to the sales order or WBS element.

Since the components are not transferred to the "stock of material provided to vendor", we recommend that you use a transfer posting to transfer the provided components to a new storage location (for example, 9999). This enables you to obtain an overview of those stocks that are physically located at the subcontractor. This information is particularly important when you carry out a physical inventory of the sales order stocks and project stocks.
Features
Withdrawal from Stock of Mat. Provided or Sales Order/Project Stock

For components that are managed in sales order stock or project stock, you can define whether the components are to be withdrawn directly from each sales order/project stock or from the stock of material provided to vendor. You manage this via the dependent requirements indicator for individual customer requirements and collective requirements (MARC-SBDKZ).
You can maintain this indicator in the following places:
• in the MRP view of the material master record (MRP 4)
• in the explosion types for the BOM item (in Customizing for Production in the step Basic Data -> Bill of Material -> Item Data -> Define explosion types)
Configuring the explosion types has priority over the configuration in Inventory Management.
If the indicator is set at Collective requirements only (2), the materials are withdrawn from the stock of material provided to vendor. If this indicator is set any other way, the system withdraws materials from sales order stock or project stock.

Subcontracting in Invoice Verification

You check an invoice for a subcontract order in the same way as for a standard purchase order. Additional account postings do, however, occur if a price variance has occurred. These postings are shown in the following example.

Postings for a Subcontract Order
In this example, a subcontract order was created for the end product "ASSEM-1". The components COMP-1 and COMP-2 were provided to the subcontractor.

Purchase order
50 pieces of material ASSEM-1 were ordered. The subcontract price is $10/piece (total value = $500).
The following components were provided to the subcontractor:
• 15 kg of the component COMP-1
• 5 pcs of the component COMP-2
Goods receipt
The subcontractor delivers 50 pieces of material ASSEM-1.
At goods receipt, a consumption posting for the components provided to the subcontractor is automatically made. It is valuated at the price from the material master record, for example:
• 15 kg of the component COMP-1 at $20/kg = $300
• 5 pcs of the component COMP-2 at $30/pc = $150
The goods receipt is valuated with $950. This is calculated as follows:
• The subcontract price (50 pcs * $10/pc = $500) and
• Value of the components ($300 + $150).
Invoice receipt
The vendor (subcontractor) sends you an invoice for the subcontract work. However, the price is $10.50/pc. Therefore the invoice is 50 pieces ASSEM-1 * $10.50/pc = $525.
Posting Schema for Moving Average Price Control
In this example, the following postings are made at goods receipt and invoice receipt, if the material (end product) is valuated at moving average price.

Postings At goods receipt At invoice receipt
Vendor account 525 -
GR/IR clearing account 500 - 500 +
External service account 500 + 25 +
Stock account: end product 950 + 25 +
Change involving stocks 950 - 25 -
Stock account: comp. 450 -
Consumption account 450 +

Posting Schema for Standard Price Control Without Price Differences
For materials (end products) with standard price control also note that
• No price differences are posted if the total of the external service value (for example, $500) plus the "material to be provided" value (for example, $450) varies from the value at standard price (for example, $1000). Posting of a price difference is not required because each posting line has its own offsetting entry.
• No posting lines are created on the stock account or on the stock change account when an invoice is received.
In the above example, the following postings are made for a material with a standard price of $20.
Postings At goods receipt At invoice receipt
Vendor account 525 -
GR/IR clearing account 500 - 500 +
External service account 500 + 25 +
Stock account: end product 1000 +
Change involving stocks 1000 -
Stock account: comp. 450 -
Consumption account 450 +
Posting Schema for Standard Price Control With Price Differences
However, if you wish to generate a price difference posting in those cases where the manufactured material is managed at standard price and the standard price varies from the receipt value (externally performed service + value of components + delivery costs), you can configure this in the Customizing system of Inventory Management.
In the above example, the following postings (including price differences) are made for a material with a standard price of $20.
Postings At goods receipt At invoice receipt
Vendor account 525 -
GR/IR clearing account 500 - 500 +
External service account 500 + 25 +
Stock account: end product 1000 +
Change involving stocks 950 -
Price difference 50 +
Stock account: comp. 450 -
Consumption account 450 +