Sell from Subcontractor - With Shipment Processing...

ZeyadHossam · ‎2025 Jan 07

Business Background

The sell-from-subcontractor cycle is a strategic solution that can be employed by companies to address manufacturing capacity constraints while ensuring efficient fulfilment of customer demands. In this process, raw materials are sent to a subcontractor, who leverages their facilities and expertise to manufacture finished goods in accordance with the company’s specifications. These goods are then maintained in customer consignment stock under the supplier’s ownership, providing flexibility and readiness for customer orders. When a customer demand arises, the company strategically authorizes the subcontractor to ship the finished products directly to the customer, bypassing internal logistics and minimizing lead times. This streamlined approach not only alleviates manufacturing bottlenecks but also enhances operational efficiency, reduces costs, and ensures prompt delivery. Leveraging SAP functionalities, such as subcontracting purchase orders, consignment stock management, and delivery processes, this cycle provides end-to-end visibility and control, enabling companies to maintain high levels of customer satisfaction and operational excellence. Below is the value chain diagram of the scenario.

Table of Content

Material Master
Business Partner
Supplier Info Record
Create Sales Order Subcontractor Fill-up
Create Purchase Order
Create Outbound Delivery - Raw Materials
Create Shipment & Shipment Completion (Goods Issue)
Post Goods Movement - Place in Storage
Post Goods Movement - Goods Receipt
Create Outbound Delivery - Customer Consignment
Create Supplier Invoice & Outgoing Payment
Bonus
Resources

Visit https://community.sap.com/t5/enterprise-resource-planning-blogs-by-members/sell-from-subcontractor-w... for the Configuration Guide.

Master Data

The master data section will focus on maintaining key elements to enable the sell-from-subcontractor process effectively. This includes updating the material master by adding valuation types to support split valuation and defining special procurement keys to support subcontracting processes. Furthermore, the creation of business partner records will be discussed, emphasizing the integration of supplier and customer roles to streamline interactions across procurement and sales processes. Additionally, the supplier info record setup will be covered, establishing a link between materials and subcontractors while detailing procurement-specific attributes such as pricing, lead times, and subcontracting parameters. These setups ensure accurate and integrated master data, providing a solid foundation and automation throughout the sell-from-subcontractor cycle.

1. Material Master

1. First, for the finished goods, go to MRP 2 view in the material master and maintain procurement type X. The procurement key indicates that this material can be used for inhouse production. Therefore, being able to use it in production process as well as being able to use it in subcontracting scenario. Add special procurement 30. Special procurement is used to get the subcontracting service cost in the sales order cost estimate.

2. In the same view, add stock determination group Z001 that is maintained and mentioned in Stock Determination configuration section. The stock determination group will be used in the automatic determination of the internal finished goods valuation type.

3. In MRP 4, activate the version indicator by choosing production version, as this needs to be activated to be used in BOM.

4. In Accounting 1 view, add the valuation category created in the Split Valuation configuration section.

5. Now, after saving Accounting 1 view, maintain the standard price for the internal and external valuation types. Re-enter the Accounting 1 view and add the internal manufacturing valuation type first then repeat for the external subcontracting valuation type.

a. In this scenario, you can maintain a separate valuation class for the sales order stock. Note, this will affect G/L account of the inventory finished goods used in the cycle. This will be discussed further in the processes.

6. For the raw material, go to the MRP 4 view in the material master and for the Individual/Coll.Req maintain 2 (Collective Requirements Only). By doing this, you would be able to issue the raw materials from company's own stock.

2. Business Partner

1. Create supplier business partner and extend it to customer. Note that Maintain Business Partner application was used in this scenario as there are fields that do not exist in Manage Business Partner and that is because of the following SAP note 2865228.

2. Maintain the normal data for the customer, as of general information, customer pricing procedure, but most importantly the delivering plant as it is used in the determination of delivery type that is mentioned in Subcontracting Delivery configuration section.

3. Maintain the normal data for the FI supplier role and supplier. However, the Returns supplier flag needs to be raised in order to enable the creation of outbound delivery for raw materials.

a. You can also maintain it manually by adding the customer number in the vendor general data.

3. Supplier Info Record

1. Maintain supplier info record with info type Subcontracting. The supplier info record will be used in the subcontracting service cost of the finished goods as well as automatic pricing in the purchase order.

Business Processes

After finalizing the configuration and defining the necessary master data for the "Sell from Subcontractor" cycle, these elements will form the foundation for demonstrating the end-to-end process of the scenario. The configuration ensures system settings align with the specific business requirements, while the master data—such as vendor details, subcontracting materials, and pricing conditions—supports accurate and seamless execution. Together, they illustrate the efficient handling of the scenario ensuring clarity and precision in each step of the cycle.

1. Create Sales Order - Subcontractor Fill-up

Create sales order using the Create Sales Order (VA01) application, add the supplier created in the Business Partner master data section. Moreover, add the material and the total quantity of finished goods that should be at the supplier's site.

2. At item level of the material add the External Subcontracting valuation type (ZEXTER-SC). Note, if the outbound delivery was created before adding the valuation type in the sales order, it can be added in the outbound delivery in the Goods Movement Data tab.

3. After displaying the sales order, the Schedule Line and Requirement Class created in the configuration section can be seen under the procurement tab.

4. In the schedule line tab, automatic Purchase Requisition was created after saving the sales order.

5. To view the sales order cost estimate, press on Menu, Extras, then press on Costing.

6. Under Qty. Struct., it can be seen the BOM Number used in the scenario based on the criteria mentioned in point 1(B) in Sales Order Cost Estimate configuration section, Production Version, Special Procurement Key that is coming from the material master. In step 4, these are the components and components quantity that make up the finished goods. Finally, in step 5, the system searches for the oldest active supplier info record based on material and plant.

7. As a result of the sales order cost estimate, condition type EK01 is updated after saving the document with the total value of the sales order cost estimate. Note, EK01 is a standard condition type.

2. Create Purchase Order

1. Create the purchase order, using Create Purchase Order (ME21N) application, with reference to the purchase requisition created by the sales order. Add storage location for the finished product in order to not added manually in the goods receipt.

3. Create Outbound Delivery - Raw Materials

1. Using the Subcontracting Monitor (Tcode ADSUBCON) application, select the purchase order and press on Delivery for PO.

2. Press on Create delivery.

3. Message shows that the outbound delivery has been created successfully.

4. Create Shipment & Shipment Completion (Goods Issue)

1. Go to Create Shipment (VT01N), add the below parameters, and press on Deliveries to add the outbound delivery created in the previous step.

2. After selecting all the statuses and pressing on Shpmt Completion and saving the document, the outbound delivery assigned to the shipment will be goods issued and that is because of the activity assigned to the shipment completion status mentioned in Goods Issue on Shipment Completion configuration section. No FI document is created for the material document generated from the outbound delivery.

3. If you go and check Stock at Subcontractor report, you can see that components are now in transit.

5. Post Goods Movement - Place in Storage

1. After the subcontractor contacts the company that the components have been received, go to Post Goods Movements (MIGO) and choose Place in Storage to add the material document generated from the previous point to state that the subcontractor has received the components, and the goods are now moved from in transit to unrestricted at subcontractor for usage. Movement type 30C to change stock from in transit to unrestricted use. No FI document is created here.

2. If you go and check Stock at Subcontractor report again, you can see that components have moved from in transit stock to unrestricted use stock.

6. Post Goods Movement - Goods Receipt

1. If your S/4HANA version is older than 2023 FPS02, you might face an error on goods receipt. To Avoid the error, implement SAP note 3421186.

2. The subcontractor shall contact the company to state the quantity of finished goods that have been manufactured, and the company should then receive this quantity. Go to Post Goods Movement (MIGO), choose Goods Receipt, and add the Purchase Order number. Stock should then be received on sales order stock that is created in Create Sales Order - Subcontractor Fill-up section.

3. The below accounting document generated from the goods receipt records the following. The debited inventory trading goods account means that the current value of the sales order stock is 200, which is the value coming from the Sales Order cost Estimate. If no valuation class is maintained in the material master in VC: Sales Order Stk in the material master Accounting 1, the G/L account is then taken from the normal valuation class. The GR/IR is then credited with 100 representing the amount to be paid to the supplier. The Subcontracting Services (Non-operating expense account) is debited with 100 to record the expense to the supplier. The Raw Materials Consumed (stock outward movement) are credited with 50 each against the debited Raw Material Inventory account with 50. Finally, the COGS trade (Non-operating expense account) represents the subcontracting expense and the consumption of raw materials and is credit with 200. Note, the actual COGS will be recorded in the consignment issue sales.

4. If you go to Stock - Multiple Materials report, you can see that the sales order stock for the created sales order has increased.

4. Create Outbound Delivery - Customer Consignment

1. To be able to use the finished goods in sales, outbound delivery for the Sales Order Subcontractor Fill-up has to be created and issued to decrease the sales order stock and increase the customer consignment stock. Go to Create Outbound Delivery - From Sales Orders application and create the outbound delivery. Press on Post Goods Issue and display the FI document from material document generated on the outbound delivery.

2. As seen below, the Inventory Trading Goods account is credited with 200, which is coming from the Inventory Trading Goods G/L account that of the goods receipt against the debited Inventory Trading Goods, G/L account that is of the normal valuation class with 200.

3. The previous accounting entry is a normal standard system behaviour, and that is because the valuation price of the sales order stock is separated from the valuation price of company's own stock. Therefore, in order to avoid price difference in the previous entry and for the consignment stock to have the same value of goods receipt, Split Valuation was needed as well as to Change the Price of Material for the external subcontracting valuation type in MR21. Check SAP note 212286, Price differences and exchange rate differences section, and SAP note 1915998.

4. If you go to Stock - Multiple Materials report, you can see that the customer consignment stock has increased after the goods issue for ZEXTER_SC valuation type.

4. Create Supplier Invoice & Outgoing Payment

1. Finally, create supplier invoice using the Create Supplier Invoice - Advanced (MIRO) application and payment for the supplier using the Post Outgoing Payment application.

Bonus

Case 1:

1. You can manually add your own costs, e.g. adding certain supplier info record or route, by using Unit Costing instead of Product Costing. To use Unit Costing, maintain the below parameters in the requirement class using the following path Sales and Distribution>Basic Functions>Account Assignment/Costing>Transfer of Requirements>Maintain Requirement Classes for Costing/Account Assignment.

2. When you create the sales order, choose Menu, Extras, then press on Costing.

3. Below are the item categories representing which type of costs can be added in the sales order costing. After adding the desired costs, in the same screen, go to Menu, Functions, Mark, and Set.

Case 2:

1. You can directly receive the raw material at subcontractor instead of own company by doing the following, create normal purchase order and in the Delivery Address tab add the Subcontractor Business Partner number and raise SC Supp flag.

2. Upon receiving the goods, the unrestricted quantity at the supplier's stock will increase.

Case 3:

1. To sell to a customer and at the same time deduct from the customer consignment of the subcontractor, create consignment issue sales order and add partner function SB Special Stk Partner and add the subcontractor.

Case 4:

1. If you create standard cost estimate, the supplier info record will be added automatically to the cost estimate because of the special procurement in the material master. To avoid this you will need to add the Production Version under the Qty. Struct. Tab. By doing this, Routes will be re-determined and Special Procurement will not be used in the cost estimate.

Case 5:

1. For repetitive manufacturing planned orders using the Confirm Repetitive Manufacturing (MFBF) application, the valuation type will be needed to be added Manually. Add the valuation type in the Receiving Batch field for the Internal Manufacturing valuation type.

Conclusion

The Sell from Subcontractor process is a critical component in managing the seamless integration of subcontracted goods and services into a company’s sales and distribution framework. This process relies on precise master data management, robust SAP configuration, real-time coordination, and strict compliance adherence. When executed effectively, it enhances operational efficiency, minimizes lead times and costs, and ensures customer satisfaction. By streamlining this process, organizations can achieve greater agility, strengthen supplier relationships, and drive sustainable business growth.

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