Subcontracting Process in SAP MM after GST

Subcontracting is one of the manufacturing strategy by which a company decides to outsource some or
all of its production operations to a vendor. In SAP, Subcontracting is one of the special procurement
type in the SAP MM.

Subcontracting can be defined as the processing of the material by the external supplier to get the final
products.

In this process, a manufacturing company provides raw materials/ components to a subcontracting

vendor. The vendor in turn process these components to turn them into end products. This final product
is then used by the manufacturing company to carry out the rest of the operations.

After GST Implementation, there is a change in the Subcontracting Configuration and Process.

As per GST law, we can run Subcontracting process in one of the following ways:

 With Challan

 Without Challan (with Invoice)

Subcontracting Configuration for GST

 Define Shipping Data for Plants: Assign Sales Organization, Distribution Challan and Division
should be maintained for Supplying Plant from which the components are to be delivered. Table
view – V_001W_IV, T. Code – SM30 Or SPRP -> SAP Ref. IMG -> Materials Managment ->
Purchasing -> Purchase Order -> Set up Stock Transport Order -> Define Shipping Data for Plants

 New Billing Type define – ZSN SC Challan (No Taxes), ZSP – SC Invoice (with Taxes)

 Classify Subcontracting Billing Types: Maintain View J_1IG_V_SUBINV through Code – SM30 –
Company Code, Sales Type, Billing Type, Billing Class – ZSN for Create Challan and ZSP for Create
Invoice

 Use the existing SD Pricing Procedure or define a new Pricing Procedure for Subcontracting
process

 Set up “Delivery to Billing Type” Copy Control. Copied with Billing Type “FX” and Sales Order “OR

Steps for Subcontracting Process:

 Material Master - Material Master should be available in system for both Finished and Raw
Materials (T. Code – MM01). Components must have stock in the system. Extend the Sales View
for the Raw Materials or Components

 Customer - Create Customer (T. Code – XD01) with necessary details as per Subcontractor
Vendor
  Vendor - Maintain Subcontractor Vendor (T. Code – XK01) and assign Customer in the Vendor
Master data.

 Sales Condition Record - Maintain Sales Condition Record for Material Pricing (T. Code – VK11)

 Subcontracting Info Record - Create Subcontracting Info Record (T. Code – ME11) (Optional)

 Subcontracting Purchase Order - Create Subcontracting Purchase Order (T. Code –

ME21N) against Subcontracting Vendor with Item Category L. This will activate the
“components” button in the Material data tab in the Item of the Purchase Order. Explode BOM
or maintain the components manually and with zero tax

 Goods Issue to Subcontractor - Enter Transfer Posting with reference to Subcontracting

Purchase Order through (T. Code MIGO/ MB1B)using 541 Movement type. This will issue the
material to the Subcontractor. No Accounting Document generate at the time of Transfer
Posting. This will update the stock of the material in the Stock Provided to Vendor in Stock
Overview.

 If we are using T. Code – ME2O for issuing components to vendor, then system will create
Outbound Delivery. And then Go To Change Delivery (T. Code – VL02N) to do PGI, which will
generate Goods Issue document using Movement Type – 541.

 Subcontracting Challan - Create Subcontracting Challan with reference of Material Issue

Document through T. Code -J1IGSUBCON. Then create Challan using “With Challan”, this will
generate the Billing Document (ZSN – SC Challan Document in SD). No taxes have been
maintained in the Challan Document. Any changes can be done in the Billing Document by
using T. Code – VF02.

 Post Goods Receipt - When Vendor sends the materials, we post the Goods Receipt in the
system using T. Code – MIGO with reference to Subcontracting PO having Movement Type 101
for final or end products and Mov. Type 543 for Components. Consumption of Components
material from the Vendor Stock and Stock update for the Final Products.

 Reconcile Challan - Reconcile Challan with reference to goods receipt material document
through T. Code – J1IGRECON. Select Manual and enter the Challan No. and Save the Data.

 Invoice Receipt - Post Invoice Receipt for Subcontracting Vendor for the service charges paid to
the Subcontractor through T. Code – MIRO with reference to Subcontracting PO

Accounting Entries at the time of Goods Receipt:

BSX – Stock A/C for Assembly/ Semi-Finished – Dr. 11000

BSV – Change in Subcontracting Stock Cr. 11000-

FRL – Subcontracting Charges Dr. 10000

WRX – GR/IR Clearing (Semi-Finished) A/C Cr. 10000-

BSX- Stock A/C for Components Cr. 1000

GBB-VBO Consumption A/C for Components Dr. 1000

Accounting Entries at the time of Invoice Receipt:

GR/IR Semi Finished Clearing A/C Dr. 10000

IGST or SGST/CGST Taxes A/C Dr. 900, 900 (CGST/SGST) or 1800 (IGST)

Vendor A/C Cr. 11800

T. Code - MBLB To display Stock to Subcontractor