Procurement of Subcontract Materials 

Purpose

This scenario describes the procurement and management of a material sourced from a subcontractor (external supplier performing subcontracting work such as external processing or assembly).

In subcontracting, the vendor receives materials (components) which are then used to manufacture the finished product.

" Procurement of Subcontract Materials" describes the integrated use of the following R/3 components:

SAP Component

Functions

Purchasing

Create purchase requisitions,
Create and transmit purchase orders/contract release orders/SA delivery schedules,
Monitor provision of material to vendor

Warehouse Management/Inventory Management

Placement of material into storage; manage, and valuate stocks,
Manage and replenish stocks of materials provided to subcontractor,
Post subsequent adjustments for components

Quality Management

Inspect quality of goods received against a purchase order

Invoice Verification

Post invoice and arrange payment

Prerequisites

The relevant Quality Management process flows in this scenario are described in detail in QM in Materials Management.

Process Flow

Purchase Requisition

Procurement of subcontract materials begins with the generation of a purchase requisition:

Purchasing

  1. Once they have been created, you can assign requisitions to a source of supply, taking previous purchase orders or contracts into account in the process. If no suitable source of supply exists, you must:
    1. Issue requests for quotation to potential vendors
    2. Compare the quotations you receive in response
    3. Assign the purchase requisition to one of the quotations received

If required, the vendor must have been approved by Quality Management.

Purchase requisitions to which a release strategy has been assigned must be released (approved) before they can be converted to purchase orders, contract release orders or scheduling agreement (SA) delivery schedules.

  1. Depending on the source of supply, you create and transmit one of the following documents:

– Scheduling agreement delivery schedule

– Purchase order/contract release order

Purchase orders subject to release strategies must be released before they can be sent to the vendor.

You can monitor the stocks of components maintained on the subcontractor’s premises for the subcontracting work ordered and replenish them if they are running low.

  1. You monitor the order. The system is able to automatically print urging letters for you to send to the vendor, as required.
  2. You can maintain vendor confirmations (e.g. acknowledgments and shipping notifications) relating to purchase orders or scheduling agreement delivery schedules. These enable precise planning, as you always have reliable information on expected deliveries in the period between ordering goods and the requested delivery date. Shipping notifications can be referenced at the time of goods receipt, allowing you to identify and investigate any quantity variances in good time.

Goods Receipt

  1. As soon as the ordered goods arrive, you post the goods receipt. The material is thus recorded in the inventory management system. If the material is subject to a certificate requirement, you must confirm the existence of such a certificate.
    The goods receipt triggers the following activities:

– Quality Inspection

– Placement of the material into storage (stock putaway)

– Settlement with regard to the goods received

  1. If variances occur in the consumption of components (input materials) by the subcontractor during the manufacture of the ordered product, you must post the amount of any over- or underconsumption.

Invoice Verification

When the vendor’s invoice arrives, you match it with the purchase order or the goods receipt. After investigation and clarification of any discrepancies, you release the invoice for payment.

If the invoice verification process reveals any variances that the buyer needs to discuss with the vendor, you can park the invoice and continue processing it later.

Under certain circumstances, you can post an invoice as soon as you have posted the goods receipt (Evaluated Receipt Settlement). This allows you to settle goods receipts without receiving an invoice.

Storage

When the R/3 System releases the GR quantity after incoming inspection has given the all-clear, you place the goods into storage.

If the continuous inventory method is employed in your warehouse or stores, the system updates the necessary data at the time of stock putaway.