Manage Complex External Manufacturing Operations with a Full Contract Manufacturing Solution in SAP

  • by Gaetano Altavilla, Senior SAP Practice Manager
  • November 7, 2012
See how to implement a full contract manufacturing (CM) solution in an SAP system. Gain details about the main master and transactional data needed to implement this solution along with the most important customizing details from a logistics point of view.
Key Concept
An outline agreement (contract or vendor scheduling agreement) is set up once a year to facilitate movements of materials between the vendor and the company. This document contains information such as material, pricing conditions, and delivery lead times. It is used in material requirements planning (MRP) to create an actual purchase (PO) or delivery schedule for the vendor.

Full contract manufacturing (CM) is the solution in an SAP system to fulfill specific CM operational requirements. You can create a separate SAP plant in the system to map the manufacturer and manage stringent business requirements such as capacity planning, production tracking, and detailed inventory visibility. A full CM solution is usually needed to fulfil the following business requirements:

  • There are legal requirements to manage the manufacturing operations using a separate SAP plant.
  • The produced item can only be sourced from a subcontractor. In other words, like materials cannot be purchased from a vendor.
  • Inventory of the produced item located at the subcontractor is required (such as for planning purposes)
  • A safety stock of component materials at the subcontractor is required
  • Capacity planning in the SAP system is required at the manufacturing’s facility
  • Batch tracking is required for manufacturing’s produced goods and the components’ uses
  • There are requirements to track and record production of the produced item
  • There are requirements to track and report total plant costs (TPC) for the produced item

I describe the necessary customization. The process also applies to previous versions.

The full CM solution should be adopted if the following preconditions are fulfilled:

  • Produced material can be sourced from both the subcontractor and the company’s facilities
  • There is a need to track the inventory, capacity planning, production, and total manufacturing costs (TMC) of the produced goods
  • The backflush process doesn’t provide acceptable accuracy for the component’s use.

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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