Exploit SAP Quality Management to Handle External Activities

  • by Gaetano Altavilla, Senior SAP Practice Manager
  • June 29, 2017
Learn about the main Quality Management (QM) functionalities relevant for external activities during the production process in the case of discrete manufacturing, using the Materials Management (MM), Production Planning (PP), Quality Management (QM), and Financial Accounting (FI) modules. Follow details about the main customizing settings to be done in the system from a QM point of view.
Learning Objectives

Reading this article, you’ll learn:

  • Quality Management (QM) functionalities to manage the external activities related to the discrete production to be followed in the Materials Management (MM), QM, Production Planning (PP), and Financial Accounting (FI) modules
  • The most important master data transactional data relevant for the entire process
  • The most important customizing parameters across impacted modules
  • How this process is integrated with PP, QM, MM, and FI
  • How to evaluate the external activities performed for a specific operation using QM functionalities with Inspection Type 0130 (Receiving Insp. from External Processing) before performing a vendor’s payment
  • Quality Notification management for a vendor’s non-conformance
Key Concept

External processing occurs when an organization sends the material in process on the order to an outside vendor to do work it can't do itself or for which it lacks available capacity. When the parts are received back, they return to the same order and are finished on the shop floor. The key here is that the part number doesn't change and the value of the outside work is collected on the shop order.

External processing is tied to production orders or maintenance orders on the shop floor. When external processing is used, the stocks movement is not visible and you do not create a document to issue materials to the vendor and a document to receive the materials. This process is used (mostly) to cost the services provided by the vendors inside the plant. For example, one of your processes requires cutting and painting. This step is done by a different vendor and you need to pay the vendor. The vendor works in your plant and then you can use this external processing scenario. I describe external services management using an example with calibration tasks related to finished goods.

For external processing, a purchasing info record is set up at the material group level with a sort string to differentiate between different info records with the same material group. This info record is referred to in the routing operation purchasing details. When this is done, at order release the system creates a requisition for the order amount in accordance with the info record data. The parts are not issued to the purchase order (PO), but the operations are confirmed as normal on the production order. This is the main difference between the subcontracting processes and external processes. In the case of external services, the company is not issuing any parts to the vendor along with the goods he needs to manipulate or rework. The PO is received in the standard manner. The vendor sends the invoice for the services provided, which is paid during the normal payment cycle.

Business Activities in the SAP System

The business transactional flow for the external activities is managed by the Procurement, Production Planning (PP), Quality Management (QM), and Financial Accounting (FI) modules, as shown in Figure 1.

Figure 1
Main activities related to production’s external services

In this process, the buying department can create a PO in MM with reference to the PR generated automatically from the production order’s releasing stage. Then the vendor performs its work. Upon the GR with reference to a PO, the QM activities are triggered via an appropriate inspection lot. The invoice is paid only if the quality services are accepted by the company.

The business activities that are shown in the system are the following:

  • Maintain a Purchasing Info Record (PIR)
  • Generate a PR upon a production order’s release
  • Create a PO with reference to a PR
  • Post a GR with reference to a PO for services
  • Trigger the creation of the inspection lot
  • Record the defects
  • Post a Quality Notification
  • Post the results recording
  • Post the UD
  • Post the LIV
  • Release the LIV (if needed)
  • Check the result in the PO history (optional step)
  • Pay the Vendor

Let’s delve deeper into these steps in the SAP system now.

Gaetano Altavilla

Dr. Gaetano Altavilla is a senior SAP practice manager. His focus is on pre-sales, delivery of SAP application solutions for large international corporations, and SAP knowledge management in Europe, the Middle East, and Africa (EMEA).

In his 18 years of SAP application experience working for many multinational companies, such as Procter & Gamble and Hewlett-Packard, he has covered a wide range of ERP logistic areas, focusing on the MM, WM, SD, LES, PP, PP-PI, PLM (QM, PM, PS) modules, as welll as CRM (TFM), SRM (EBP), SCM (SAP APO), and MES (ME) components.

Dr. Altavilla holds a degree with first-class honors in mathematics from the University of Naples and is certified in many SAP modules: SAP Logistics Bootcamp, SAP MM, SD, LE (SHP/WM/LE), PP, PLM (PM, QM, PS), SRM, CRM, SCM (APO), SCM (TM), FI, CO, and Solution Manager. He also has experience in ABAP/4 and application link enabling (ALE) and IDocs. He has participated in numerous industry conferences, such as the SAP Skills Conference in Walldorf at SAP SE.

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