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