Frequently, some manufacturing steps in production cannot be performed in-house because there is insufficient technological expertise, there are capacity bottlenecks, or it is simply more cost-effective to have a production step or the entire manufacturing process performed by an external service provider.
When manufacturing steps are performed in whole or in part by external companies, SAP distinguishes between two processes: subcontracting and external processing. Practice shows that both process types are often confused, which is why we will go into the differences between the two processes at the beginning of this blog post. After that, we will focus on subcontracting in SAP.
Subcontracting
Subcontracting is a process in which the external service provider receives all components from us, which he processes in one or more work steps. Each component and the finished part have their own material master in the SAP system. The process is handled via a purchase order. To illustrate this with an example, let's look at the production of a T-shirt. We have the fabrics and the yarn and provide them to the subcontractor who produces a finished T-shirt for us.
External processing
In the case of external processing, certain production steps are carried out by an external service provider, for which our part to be processed is provided to him. A typical example of this is finishing by varnishing. Only the finished, refined part has a material number. In contrast to subcontracting, the external production step is started directly from an internal production order. In our example, we have the T-shirt, but not the know-how to flock the T-shirt. The external processor performs the flocking on the T-shirt, which then goes back into our internal production. So an external processing is a step in the production.
Subcontracting procedure
The subcontracting process in S/4HANA begins as usual with a subcontracting purchase requisition, which can be generated fully automatically via material requirements planning or manually. The purchase requisition is converted into a purchase order by the purchasing team and transmitted to the supplier after an approval process. Goods issue is posted for the components and transport to the supplier is initiated. The components are kept in a separate special stock at the subcontractor during the finishing process. Once subcontracting has been completed, the finished article is received in the warehouse and the consumption of the components is posted. In S/4HANA, as in an ECC system, subcontracting is completed when the vendor invoice is cleared.
What´s new in S/4HANA
hile the process flow in S/4HANA remains largely unchanged, there were some changes in the master data that can automate the ordering process and simplify master data maintenance:
- Vendor Master: While in an ECC system, vendors were maintained in the vendor master with company code data and purchasing organization data, in S/4HANA the Business Partner akes over this function. The master data record is created with general data and enhanced in the business partner roles "vendor" with company code-specific data and "supplier" with purchasing organization-specific data.
- The source list can still be used, but is no longer mandatory: by setting the "Auto BQF" indicator (automatic source determination) in the purchasing info record, the source list becomes obsolete. This has the advantage that only one master date needs to be maintained, and that is the info record.
- The production version takes on a new significance in S/4HANA: The production version is generated via the bill of material, which is still mandatory, and with which automatic sourcing becomes possible.
- In contrast to ECC, the source determination has changed technically in terms of the flow logic, which is why source list integration is no longer mandatory and the generation of a production version is necessary. Furthermore, in S/4HANA the purchasing info record can easily be integrated into the MRP via the "Auto BQF" indicator.
Subcontracting cockpit
The payroll cockpit in Fiori offers another innovation. With an intuitive user-friendly interface, subcontracting processes can be made even more efficient.
When manufacturing steps are performed by external companies, SAP distinguishes between two processes: subcontracting and external processing. From our experience, the delineation of these processes is not always clear, so we are happy to go into more detail about the differences.
