Vendor Subcontracting Process

Introduction

• Explanation of the vendor subcontracting process.
• Overview of related financial entries.
• Demonstration of the full process using SAP S4HANA.

Subcontracting Overview

• Example Scenario: Factory manufactures chairs but lacks resources to paint them.
• Subcontracting Definition: Engaging a supplier to complete a service (painting).

Steps in Subcontracting Process

1. Create Purchase Order

   • Purchase order for the subcontracting vendor covers only the painting service.
   • Value reflects the service cost, not the product.

2. Issue Goods

   • Send unpainted chairs to supplier.
   • No financial entry as ownership remains.

3. Receive Finished Goods

   • Receive painted chairs back from the supplier.
   • Three financial transactions occur.

4. Post Invoice

   • Invoice posted for subcontracting service.

Financial Entries Explained

• Goods Issue of Component

  • Debit: Consumption Account.
  • Credit: Component Stock Account.

• Goods Receipt of Finished Product

  • Debit: Stock of Finished Product.
  • Credit: Manufacturing/Subcontracting Stock Change Account.

• Goods Receipt of Subcontracting Service

  • Debit: Expense Account.
  • Credit: GR IR Account.

• Invoice Receipt

  • Normal entry: Debit GR IR Account, Credit Vendor Account.
  • Adjustments for value differences between purchase order and invoice.

SAP S4HANA Process Demonstration

• Creating Purchase Order

  • Transaction ME21N.
  • Input vendor details, material, item category, plant, storage location.
  • Specify components to be sent for subcontracting if no Bill of Material (BOM).

• Allocating Stock

  • Use transaction for vendor subcontracting.
  • Issue components to vendor for painting.
  • Post goods issue, check document in Materials Management.

• Posting Goods Receipt

  • Use transaction MIGO for goods receipt.
  • Verify components and painted chairs.
  • Post goods receipt and financial entry.

• Financial Entry Details

  • Three financial transactions in one document:
    • Goods issue of components.
    • Goods receipt of finished product.
    • Goods receipt of subcontracting service.

• Posting Invoice

  • Use transaction MIRO.
  • Enter invoice details and PO number.
  • Handle discrepancies between invoice and PO amounts.

Conclusion

• Basic process overview for vendor subcontracting.
• Encouragement to explore further functions in SAP.
• Instructions for engaging with further content and inquiries.