Subcontracting with Third-Party Provision of Components in PP/DS

Purpose

The functionality for the third-party provision of components enables the components of a product that is to be manufactured by a subcontractorto be provided by an external supplier instead of your own plant.

For example, a firm sells handheld devices in the U.S.A. However, it does not manufacture them itself, but has the entire production carried out by a subcontractor in Asia. The components for the handheld device, such as the housing, and so on, are procured from an external supplier who is likewise located in Asia.

In the normal form of subcontracting, the Asian supplier would deliver the components to the plant in the U.S.A. The latter would then send them back to Asia – to the subcontractor. To avoid this unnecessary detour, the component supplier can send the components directly to the subcontractor.

Through third-party provision of materials in external procurement, you can now replicate this process in the SAP system.

In the SAP APO system, you must manually create a transportation lanefor the components that are to be procured externally between the supplier who is to provide the components (start location) and the subcontractor (destination location) who is to manufacture the handheld devices. This transportation lane must reference the external procurement relationship.

If a purchase requisitionis created at the subcontractor location, the SAP R/3 system automatically assigns the address of the subcontractor in Asia (not the address of the plant in the U.S.A) as the delivery address. At the same time, the Subcontracting Vendor indicator is set. The delivery address in the requisition is adopted in the PO during the document conversion process. When a goods receipt is posted against such a purchase order, the components of the handheld device are automatically posted to the “stock of material provided to vendor” (stock with subcontractor).

Prerequisites

Business partners involved	Representation in SAP R/3	Representation in SAP APO
Customer	Plant	Location - type plant 1001
Vendor	Vendor	Location - type vendor 1011
Subcontractor	Vendor	Location - type vendor 1011 or Location – type subcontractor 1050

Data in the SAP R/3 System

The following data must have been created in the SAP R/3 system and transmitted to the SAP APO system via APO CIF ( SAP APO Core Interface):

The end product

A production versionmust be defined in the material master record (MRP 2).
The components to be provided to manufacture the end product
A routingor a master recipe for the end product

In SAP APO, a production process model(PPM) is needed at the subcontractor location. The PPM consists of components and operations. To transfer a PPM from the SAP R/3 system, you need a production version with a bill of materials and a routing or master recipe. For the subcontracting process, you must create a routing or master recipe in SAP R/3. Alternatively, you can maintain the PPM directly in SAP APO.
The supplier (vendor) who provides the components for the item that is to be manufactured.
The supplier (vendor) who manufactures the end product as subcontractor
A purchasing info record of type subcontracting that documents the subcontractor as the source of supply for the end product;
The production version stored in the material master must be specified in the info record. From the production version, the system recognizes the vendor location in which the PPM must be created in SAP APO.
A purchasing info record of the category standard in each case, documenting the supplier as the source of supply of the components

Integration Model

The integration model of the SAP APO Core Interface with which you wish to transfer your data from the SAP R/3 system to the SAP APO system must contain all the above-mentioned data. Note also that the R/3 routing or the R/3 master recipe must be transferred as the subcontractor PPM in order for it to be created in the vendor location in SAP APO.

For more information, see Integration of Master and Transaction Data .

Data in SAP APO System

The following data must exist in the SAP APO system:

External procurement relationships and transportation lanes

The SAP APO system automatically generates the following from the purchasing info records:
- An external procurement relationship of the category subcontracting and a transportation lane from subcontractor ( source location ) to plant ( destination location ) for the finished product.
  This transportation lane is assigned to the external procurement relationship for the end product.
- An external procurement relationship of the category standard and a transportation lane from the vendor (source location) to the plant (destination location for each of the subcontracting components.
  
  See also: Transportation Lane and Automatic Creation of Transportation Lanes
Location of type subcontractor

This is only required, if the subcontractor processes the same product for multiple plants. In this case, you must manually create a location with the type subcontractor for each plant-vendor combination.
Production process model

When you transfer a routing or a master recipe from SAP R/3, the SAP APO system generates a production process model (PPM) from it. Alternatively, you can create a PPM for the end product directly in SAP APO.
See also: Production Process Model
Transportation lanes from vendor to subcontractor

You must manually create a transportation lane from the vendor (source location) to the subcontractor (destination location) for each subcontracting component you wish to have sent directly by the vendor (component supplier) to the subcontractor.
You assign the associated external procurement relationship to each transportation lane. The external procurement relationship contains the plant needed when the PO is transferred to the SAP R/3 system.
Transportation lanes from plant to subcontractor

You must manually create a transportation lane for each subcontracting component you wish to send from the plant to the subcontractor.
Product master in the subcontractor location

You must create the end product and all components in the subcontractor location and assign them to model 000.

Process Flow

Creation of purchase requisition

You carry out automatic planning or interactive planning for your product requirement.
Depending on the planning type, either the system determines a vendor as an allowed source of supply, or you choose a source manually.

After the source of supply has been chosen, the SAP APO system carries out the following activities:
- It generates an external procurement order of the category subcontracting. The order contains the subcontractor as the source of supply.
- The system determines a valid PPM in the subcontractor location and uses it to generate an in-house-production order for the ordered product in the subcontractor location.
- It plans the subcontracting components for the in-house production order at the subcontractor location and carries out a source determination process there:
  - If a transportation lane from the plant to the subcontractor exists, the system creates stock transfer reservations. These are transferred to SAP R/3.
  - If a transportation lane from vendor to subcontractor exists, the system creates a purchase requisition containing the vendor as the source of supply.
    
    After the CIF transfer, the following data is created in the SAP R/3 system :
- The purchase requisition for the end product with the subcontractor as the source of supply
  
  It contains the item category subcontracting and the components of the subcontracting planned order.
- The purchase requisitions for the subcontracting components with the vendor as the source of supply
  
  It contains the item category standard . In the purchase requisition, the Subcontracting Vendor indicator is set, and the address of the subcontractor entered as the delivery address. This means that when a goods receipt is booked, it is posted directly to the subcontractor’s stock. The subcontractor is also represented as a vendor in the SAP R/3 system.
  
  See also: Source Determination in PP/DS
Conversion of purchase requisition for end product

You convert the requisition of the category subcontracting for the end product into a purchase order. In interactive planning you can carry out the conversion directly from the SAP APO system if you set the conversion indicator there. Alternatively, you make the conversion in the SAP R/3 system. Through the conversion, the requisition is deleted in SAP APO and the PO created.

See also: Converting Purchase Requisitions
Converting the purchase requisition for the subcontracting components

You convert the requisition (category standard ) for the subcontracting components into a purchase order. Through the conversion, the requisition is deleted in SAP APO and the PO created. When creating the purchase order, the system adopts the delivery address from the requisition.
Posting the goods receipt for the subcontracting components

You post the goods receipt for the subcontracting components in the SAP R/3 System. In the material document, it is noted that the movement type goods receipt to subcontractor-vendor is involved and the address of the subcontractor is specified as the receiving vendor. This means that the subcontracting components are posted to stock with subcontractor in the SAP R/3 system. Correspondingly, in the SAP APO system the open PO quantity is reduced and the stock of material provided to vendorincreased accordingly.
Posting the goods receipt for the end product

You post the goods receipt for the end product in the SAP R/3 system. In the SAP APO system, the PO quantity is reduced by the quantity of the goods receipt. The system increases the unrestricted-use stock for the end product.
At the same time the goods receipt is posted, the goods issue for the subcontracting components provided to the subcontractor is posted. The “stock of material provided to the vendor” is reduced accordingly.