As a manufacturing company that outsources some production to a third-party manufacturer, you may face challenges in tracking finished products and recording them as inventory in your SAP software. This process can seem complex, especially if you’re not a warehouse or supply chain expert. However, with the right steps, you can seamlessly bring those finished products into your SAP system as stock, ensuring accurate records and smooth operations. This article explains a straightforward solution using SAP’s subcontracting process, broken down into easy-to-understand steps, so anyone in your organization can follow along. Let’s dive in!
Understanding the Scenario
Your company sends raw materials or components to a third-party manufacturer, who uses them to create finished products. These products are then returned to you, and you need to record them as inventory in SAP, a widely used software for managing business operations. The goal is to update your stock records quickly and accurately, avoiding delays or confusion. The solution uses SAP’s Materials Management (MM) module, which handles inventory, and follows a standard process called subcontracting. Here’s how to do it in five simple steps.
Step 1: Set Up the Basics in SAP
Before you can record the finished products, you need to ensure SAP has all the necessary information about your materials and the third-party manufacturer. Think of this as setting up a filing system so SAP knows what’s what.
Create Records for Products and Materials: In SAP, every item you deal with—like the finished product (e.g., a bicycle) and the raw materials you send (e.g., tires, frames)—needs a record called a “material master.” These records include details like the product’s name, type (finished good or raw material), and value. Your SAP team can check or create these using a tool called the material master (transaction MM01/MM02). For example, the bicycle would be marked as a “finished good,” while tires would be “raw materials.”
List the Ingredients (Bill of Materials): You need to tell SAP which raw materials go into making the finished product. This is done by creating a “Bill of Materials” (BOM) in SAP (transaction CS01). For instance, the BOM for a bicycle might list two tires, a frame, and a seat. This list helps SAP track what you send to the manufacturer.
Set Up the Manufacturer as a Vendor: The third-party manufacturer must be registered in SAP as a vendor (transaction XK01). This record includes their contact details and pricing for their manufacturing service. Think of it like adding them to your supplier list.
Step 2: Create a Subcontracting Purchase Order
To start the process, you create a special order in SAP called a subcontracting purchase order (PO). This tells the third-party manufacturer what to produce and what materials you’re providing.
Place the Order (Transaction ME21N): Use SAP’s purchase order tool to create a PO for the finished product, like 100 bicycles. Mark it as a “subcontracting” order (item category “L” in SAP). Then, add the BOM to specify the materials you’re sending, such as 200 tires and 100 frames for those bicycles.
Send Materials to the Manufacturer: Next, you need to record that you’re sending raw materials to the manufacturer. In SAP, use a tool called ME2O or MIGO (movement type 541) to move the materials from your inventory to a special category called “stock with subcontractor.” This is like telling SAP, “We’ve sent these tires and frames to the manufacturer.” Physically ship the materials to them as well.
Step 3: Record the Finished Products
When the third-party manufacturer delivers the finished products (e.g., the bicycles), you need to update SAP to show they’re now in your inventory.
Receive the Products (Transaction MIGO): Use SAP’s goods receipt tool (MIGO, movement type 101) to record the arrival of the finished products. For example, when 100 bicycles arrive, you enter this against the PO. SAP automatically deducts the raw materials (tires, frames) you sent from the “stock with subcontractor” and adds the bicycles to your inventory. If the products need quality checks, they’ll go into a “quality inspection” stock first, which you can release later (transaction QA32).
Check Your Inventory: After recording the receipt, you can check your stock in SAP using a tool called MMBE. This shows you how many bicycles are now in your warehouse, ready for sale or use.
Step 4: Pay the Manufacturer
The third-party manufacturer will send you an invoice for their work, which needs to be recorded in SAP.
Verify the Invoice (Transaction MIRO): Use SAP’s invoice verification tool to enter the manufacturer’s invoice. This matches the invoice to the PO and the goods receipt, ensuring you only pay for what you received. For example, if they charge for making 100 bicycles, SAP checks that you received 100 bicycles before approving payment. This step only covers their service fee, as you provided the materials.
Step 5: Monitor and Confirm Everything
To make sure everything went smoothly and avoid mistakes, use SAP’s reporting tools to double-check.
Track Materials and Stock: Use the ME2O tool to ensure the raw materials you sent were used correctly by the manufacturer. You can also use MB51 to see a history of all goods movements, like when the bicycles were added to your stock.
Check Inventory Levels: Run MB52 to view your current stock of finished products. This helps confirm that your warehouse records are accurate and up to date.
Tips to Avoid Delays
To ensure this process runs smoothly and resolves any team disagreements:
Write a Clear Guide: Create a simple document outlining these steps for your team. Include the SAP tools (ME21N, MIGO, ME2O, MIRO) and what each does.
Test First: Try this process with a small batch of products in a test version of SAP to make sure it works before doing it for real.
Train the Team: If your team is new to SAP, have a quick training session on these tools. You can also ask an SAP expert to help set things up.
Make a Decision: If your team is unsure whether to use this subcontracting process, agree to use it because it’s a standard SAP method designed for exactly this situation—when you provide materials and receive finished products.
Why This Works
This process is built into SAP and used by many companies for third-party manufacturing. It ensures your inventory is accurate, tracks materials sent to the manufacturer, and handles payments correctly. By following these steps, you avoid manual errors, keep everyone on the same page, and get those finished products into your stock quickly.
Next Steps
Start by checking your SAP system for material and vendor records. Create a test PO for a small batch of products, record the goods receipt, and verify the stock. Share this plan with your team to build confidence and get started. If you need help, an SAP consultant can guide you through the setup in a day or two. With this approach, your finished products will be recorded in SAP without delay, keeping your operations running smoothly!
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