What is subcontracting process in SAP MM

What is subcontracting process in SAP MM: The subcontracting process in SAP MM involves outsourcing certain parts of the production process to external vendors. Here’s a simplified explanation of the subcontracting process in SAP MM:

What is subcontracting process in SAP MM

1. Creation of Subcontracting Purchase Order (PO)

    • The process begins with creating a subcontracting purchase order in SAP MM. This PO specifies the materials to be sent to the subcontractor, along with the quantity and any other relevant details.

    2. Transfer of Materials to Subcontractor:

    • After the PO is created, the materials to be processed by the subcontractor are transferred from the company’s inventory to a special stock (subcontracting stock) using movement type 541. This indicates that the materials are reserved for subcontracting and not for regular consumption.

    3. Goods Issue to Subcontractor:

    • Once the materials are transferred to subcontracting stock, a goods issue is posted to move the materials out of the company’s inventory and into the subcontractor’s possession. This reduces the company’s inventory levels accordingly.

    4. Processing by Subcontractor:

    • The subcontractor then processes the materials according to the specifications outlined in the PO. This could involve manufacturing, assembly, or any other agreed-upon processes.

    5. Goods Receipt from Subcontractor:

    • Once the subcontractor completes the processing, they return the finished products along with any unused materials (if applicable). The company receives these goods through a goods receipt posting in SAP MM, which increases the company’s inventory levels.

    6. Settlement and Payment:

    • After the goods are received from the subcontractor, any differences in quantity or costs are reconciled, and the subcontracting process is settled. Payment is made to the subcontractor based on the agreed terms and conditions.

    7. Completion of Subcontracting Process:

    • With the settlement and payment completed, the subcontracting process in SAP MM comes to an end. The company now has the finished products in its inventory, ready for further processing or distribution.

    Overall, the subcontracting process in SAP MM helps companies leverage external resources and expertise to efficiently manage certain parts of their production process while maintaining control and visibility over inventory and costs.

    Also Read: Most important and commonly asked interview questions for SAP MM


    Q: What is SAP MM?

    Ans: SAP MM stands for Materials Management. It is a module of SAP ERP (Enterprise Resource Planning) software that helps organizations manage procurement processes, inventory management, and material valuation.

    Q: What are the main components of SAP MM?

    Ans: The main components of SAP MM include Master Data, Purchasing, Inventory Management, Material Requirement Planning (MRP), Invoice Verification, and Vendor Evaluation.

    Q: What is a purchase requisition in SAP MM?

    Ans: A purchase requisition is a formal request to procure materials or services. It is the first step in the procurement process and is typically created by a department or user within the organization.

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