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Author's profile photo Kanda Balasubramanian

Project Manufacturing Management and Optimization: Subcontracting

SAP Project Manufacturing Management and Optimization (PMMO) helps achieve greater efficiency with project manufacturing in an Engineer to Order (ETO) environment to deliver complex end products (e.g. military aircrafts, ships and submarines, complex industrial machinery etc.), that often involves complex engineering and production processes. On the other hand, it maintains visibility into detailed actual cost reporting and progress analysis. Feel free to check other blog posts on PMMO.

In this blog post, I would like to explain how subcontracting processes are handled and supported within PMMO starting S/4HANA 2021.

Subcontracting Process

Subcontracting involves sending components to a vendor where the assembly is either manufactured,  reworked, repaired or refurbished. The vendor returns the completed assembly. Subcontracting is a purchasing controlled process.

With S/4HANA 2021 release, non-valuated grouped project stock at vendor is tracked and pegged to the final end requirement providing full transparency in terms of both logistics and project cost. Further, any scrapping or inventory adjustments for project stock at vendor are automatically handled within Project Manufacturing Management and Optimization without the need for any manual adjustments.

Types of Subcontracting Purchase Order

A subcontract purchase order has item category ‘L’. If the assembly is manufactured using Subcontracting, then the procurement type in the Material Master is set to ‘F’ and special procurement set to ’30’ (Subcontracting).

For Project Manufacturing, there are two main types of Subcontracting POs that are relevant in the context of Project Stock.

  • Core or standard Subcontracting
  • A&D Subcontracting

With Core subcontracting, during Goods Receipt of the subcontracting PO, components are directly consumed from project stock (i.e. Q stock). With A&D subcontracting, components are transferred from project stock (i.e. Q stock) to project stock at vendor (i.e. R stock). In this case, during Goods Receipt of the A&D subcontracting PO, components are consumed from project stock at vendor. We will see examples of both in this blog post and how they are handled within PMMO.

For a list of differences between the standard Subcontracting and A&D Subcontracting, please refer to the SAP Note 2590604. Below is an overview of the differences between the two that are relevant in the context of Project Manufacturing:

Standard Subcontracting

A&D Subcontracting

Item Category L

Spec 2000 tab on PO Item: Subcontracting type dropdown set to “Subcontracting”, Special stock “Normal stock”

Item Category L

Spec 2000 tab: Subcontracting type dropdown set to any value except “Subcontracting”, Special stock dropdown set to “Project stock”

Component material cannot be same as PO Item Material if the part is serialized Component material can be same as PO Item Material (and same serial number too) even if the part is serialized
More than 1 schedule line possible Only 1 schedule line possible
Mix of plant and project stock possible Mix of plant and project stock not supported
Movement Type 541/Q not allowed Components are transferred to vendor via Movement Type 541/Q
Movement type 543/Q for consumption of components directly from project stock Movement type 543/R for consumption of components from project stock at vendor

Note: Subcontracting purchase orders can also be created out of an external operation on a production order that is account-assigned to a grouping WBS. However, this subcontracting purchase order is not relevant for this blog post, since the account assignment of such subcontracting purchase order is the production order and not a grouping WBS. Therefore, any goods movement on these subcontracting purchase orders have no impact on PMMO Pegging. The actual costs from this subcontract purchase order is posted to the production order and PMMO Distribution would distribute the cost from the grouping WBS to the operative WBSs based on the pegging assignments.

Standard Subcontracting

Let’s walk through an example of a standard subcontract PO. For this example, we have a simple Bill of Material (BOM) with a finished material (SUBCON2_F1), semi finished material (SUBCON21_S1) and raw material (SUBCON21_R1). The semi finished material has procurement type ‘F’ and Special Procurement ’30’. This means that the raw material will be procured externally and the vendor will manufacture the subassembly semi finished material using the raw material provided from project stock.

Now, let’s create the demand for the finished material in transaction CJ20N with Type ‘1’ automatic requirement grouping. After running MRP, the supply elements are created exploding the BOM.

If we look at transaction MD04 for the raw material, you will see the subcontracting Purchase Requisition (with item category ‘L’ created for the semi finished material SUBCON21_S1 with component SUBCON21_R1.

If we run transaction PMMO_PEGGING, you can see the links between the supply and the demand elements.

After converting the purchase requisition for the raw material to a purchase order, then Goods Receipt, you will have the raw material in grouped project stock segment. The subcontracting purchase requisition is also converted to subcontracting purchase order.

At this time, when you execute Goods Receipt on the subcontracting purchase order, you will notice that line item 543/Q is automatically added in the material document. This indicates the consumption of the components on the subcontracting purchase order. This is identical to issuing components to a production order, if it were manufactured in-house, except in this case, the component is consumed at the vendor as part of the subcontracting purchase order.

For PMMO, this material document posting creates a consumption of raw material to the subcontracting purchase order and a goods receipt of the semi finished material using the subcontracting purchase order as the replenishment element. You can see this in the result of the pegging run.

A&D Subcontracting

Now, let’s take a look at a similar example using A&D Subcontracting, which is primarily intended for MRO (Maintenance, Repair and Overhaul) process.

In this example, we will manufacture the semi finished sub-assembly in-house and then use an A&D Subcontracting PO to transfer the part to the vendor for rework (e.g. paint) and receive it before issuing it to the Next Higher Assembly (NHA). The BOM has a finished material (PMMO_TEST_F2), semi finished material (PMMO_TEST_S2) and raw material (PMMO_TEST_R2).

Let’s create the demand for the finished material in transaction CJ20N with Type ‘1’ automatic requirement grouping. After running MRP, the supply elements are created exploding the BOM.

If we run transaction PMMO_PEGGING, you can see the links between the supply and the demand elements.

After converting the purchase requisition for the raw material to a purchase order, then Goods Receipt, you will have the raw material in grouped project stock segment. The planned order for the semi finished material is converted to a production order and with the confirmation of the production order, the semi finished material is in stock (in grouped project stock segment).

Now, let’s create an A&D Subcontracting Purchase Order using ME22N for the semi finished material and account assigned to the grouping WBS element. The item category has to be set to ‘L’ and in Spec2000 tab of the purchase order item, the Subcontracting type is set to “Refurbishment with unchanged material number” and Special Stock is set to “Project Stock”. Note that the WBS element gets automatically copied from the Account Assignment.

In the components, we enter the semi finished material that we will be transferring to the vendor.

Here is the result of transaction PMMO_PEGGING after the A&D subcontracting was created.

Transaction ADSUBCON is a monitoring transaction where you can monitor and process subcontracting purchase orders. Based on the input selection criteria, we can see the A&D Subcontracting purchase order created in the previous step. Note that the stock overview section shows the current stock situation for the semi finished material.

The next step is the transfer of the component material to the vendor. This can be triggered from the ADSUBCON transaction or via MIGO transaction. The standard movement type 541/Q transfers the project stock to the vendor and the stock segment changes from Q stock to R stock. R stock refers to project stock at vendor.

After the transfer posting, ADSUBCON also now reflects the stock at vendor.

PMMO also follows the stock movement from Q stock to R stock. This is reflected in the PMMO_STOCK table, which now has an additional key field ‘Supplier’ (Field LIFNR) to store the supplier (or vendor) for R stock (see screenshot below). PMMO_STOCK table now reflects both Q stock (equivalent to table MSPR) and R stock (equivalent to table MSRD) Further, there is no consumption record created in PMMO at the time of the transfer posting, as the component has not yet been consumed. The component has only been transferred to the vendor. There is also no change to the pegging assignments.

A key feature that PMMO now supports is the support for R stock movement types like scrap (movement type 551/R) or inventory adjustments (movement type 701/R) for stock at vendor. These movement types trigger adjustments to the PMMO_STOCK table based on the material, grouping WBS and the vendor entered on the material document.

Once the vendor finalizes the subcontracting process, the Goods Receipt is triggered either from ADSUBCON or MIGO. This material document posting has a line item for the goods receipt of the material in the subcontracting purchase order item and the consumption of the component material for the component transferred to the vendor.

Another key feature to note here is that PMMO supports the scenario where the component is transferred to the vendor on let’s say purchase order A, but received and consumed on a different purchase order (e.g. purchase order B).

The material document postings for the A&D subcontracting purchase orders are also visible in the ADSUBCON subcontracting monitor.

The pegging assignments reflect the consumption of the component on the subcontracting purchase order and the goods receipt of the material on the subcontracting purchase order.

Subsequent Adjustment

After the vendor has delivered the ordered material and goods received was posted on the subcontracting purchase order, it is possible that the vendor informs that a greater or smaller quantity of the subcontracting components was actually consumed than planned in the subcontracting purchase order. For e.g. if the subcontracting purchase order had 10 EA of component material A planned to be consumed, however the vendor informs that only 8 EA of component material A was actually consumed, a subsequent adjustment material document posting (movement type 121/Q) is created. This is done via transaction MIGO by selecting the business operation “Subsequent Adjustment” from the list and entering the subcontracting purchase order on which the goods receipt was posted. The difference quantity is entered and the checkbox “Under consumption/Short Receipt” is used to determine whether the consumed quantity is to be reduced to increased. For PMMO, the subsequent adjustment results in adjusting the consumed component quantity accordingly.

Migration from GPD to PMMO

For customers who are using GPD (Grouping, Pegging and Distribution), you might consider migrating your data from GPD to PMMO. GPD is a deprecated component in S/4HANA (See SAP Note 2933435). To help migrate from GPD, PMMO provides a standard migration report (transaction PMMO_MIGRATION). See SAP Note 2928343 for more information regarding migration from GPD to PMMO. The standard migration report also takes into account migrating the A&D subcontracting purchase orders, where the transfer of components to the vendor occurred in GPD prior to migrating to PMMO. During migration, the PMMO tables are adjusted to reflect the stock at vendor for components that are transferred to vendor. The migration report could also validate the migrated data in PMMO by comparing the PMMO stock quantities with the stock in the core (i.e. tables MSRD and MSPR) for subcontracting purchase orders.

Summary

PMMO supports the subcontracting movement types for both standard subcontracting and A&D subcontracting. I hope the examples along with the explanation of their handling within PMMO gives you a good understanding of the subcontracting process. For a complete list of movement types that are supported in PMMO, you can refer to the SAP Note 3082493. Thank you for checking out this blog post.

Please share your questions and comments. Stay tuned for more blog posts on capabilities and new features in PMMO.

 

 

 

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      2 Comments
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      Author's profile photo Arun Jigani Prabhakaramurthy
      Arun Jigani Prabhakaramurthy

      Very informative with good examples.. 🙂 Solves major complex manufacturing process in A&D industry specially. 🙂

      Author's profile photo Kanda Balasubramanian
      Kanda Balasubramanian
      Blog Post Author

      Thank you for the feedback.