Exploit SAP Quality Management to Handle Subcontracting Activities

  • by Gaetano Altavilla, Senior SAP Practice Manager
  • June 23, 2017
Learn about the main functionalities relevant for subcontracting 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 financial point of view.
Learning Objectives

Reading this article, you’ll learn:

  • SAP Quality Management (QM) functionalities to manage subcontracting-related activities
  • 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
Key Concept

In the subcontracting process, a subcontract purchase requisition, which can be generated via the Material Requirements Planning (MRP) process or manually by a requestor, is generated automatically by the release of a production order. A buyer validates the accuracy of the purchase requisition and converts it into a purchase order (PO). The PO can be subject to approval based on predefined parameters prior to being issued to a vendor. The consumption of sent components is recorded upon receipt of the value-added finished material. The vendor sends the invoice for the services provided, which is paid during the normal payment cycle.

The subcontracting process involves sending raw components to a vendor for a specific manufacturing processes and receiving the value-added finished material back into inventory. I focus on the main quality management activities that are involved during the subcontracting processes related to production operations. In particular, I explain how this process is integrated with Production Planning (PP), Quality Management (QM), Materials Management (MM), and Financial Accounting (FI) considering the following two flows:

  • Evaluate the subcontracting processes for a specific operation using QM functionalities with Inspection Type 0130 (Receiving Insp. from External Processing), before performing a subcontractor’s payment
  • Evaluate the overall production processes using QM functionalities with Inspection Type 04 (Goods receipt [GR] inspection from production) to validate overall production activities before shipping the products to the final customers

In the SAP system, you should distinguish external processing from the subcontracting process that is the topic of this article. I have noticed that there is often confusion about how these two processes differ. Following are the most important differences between the two.

External processing is tied to production orders or maintenance orders on the shop floor. This process 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.

Subcontracting is different in that you are not just sending out an operation, but you are purchasing a new part that consists of some of your own materials. In subcontracting the part number can change. The subcontracting costs are charged to the part number. Subcontracting uses a bill of material (BOM) to determine what internal parts are required.

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/maintenance order. The PO is received in the standard manner.

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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