In subcontracting, the vendor (subcontractor) is provided with input materials (components) by the buying entity, which are then used to manufacture the end product. This involves the following steps:

1. You order the end product by means of a subcontract order. The components that the vendor needs to manufacture the end product are specified in the purchase order.
2. In Inventory Management, the components are posted to the stock of material provided to the vendor. The components are then supplied to the vendor.
3. The vendor performs the necessary service (i.e. does the required assembly or processing work) and delivers the ordered material (the end product). You post the consumption of the components.
4. If, after the goods receipt has been posted, the vendor informs you that a larger or smaller quantity of the components was actually consumed than planned in the purchase order, you must make an adjustment posting.
5. The vendor issues an invoice for the service provided. This invoice is then checked in Invoice Verification.

The quantities of the components to be provided to the vendor are entered into the stock of material to be provided to vendor. This stock has the following features:

• It is managed as part of your total valuated stock, and is available for MRP.
• This is managed only at plant level, since it is not stored at your own company but on the vendor's site.
• Two stock types are possible:

• You can take a physical inventory of the stock of material to be provided to vendor.