Sell From Subcontractor - With Shipment Processing...

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

Customer Consignment Fill-up & Subcontracting Outbound Delivery Schedule Lines
Requirement Class
Sales Order Cost Estimate
Customer Consignment Fill-up Pricing Procedure
Subcontracting Delivery
Route Determination for Outbound Delivery – Raw Materials
Goods Issue on Shipment Completion
Split Valuation
Stock Determination

Visit https://community.sap.com/t5/sap-for-industrial-manufacturing-blogs/sell-from-subcontractor-with-shi… for the Master Data & Business Processes Guide.

Configuration

The following configuration steps will be discussed to ensure the seamless execution of the sell-from-subcontractor process in SAP. First, the schedule line category for customer consignment will be configured to enable efficient planning and fulfilment of consignment stock. Next, the schedule line category for subcontracting outbound deliveries will be addressed to facilitate smooth delivery processes. Following this, the requirement class will be set up to define the necessary planning and procurement strategies. The configuration of the sales order cost estimate will then be covered to ensure accurate costing in the customer consignment fill-up process. Additionally, we will discuss the setup for the shipment of raw materials to the subcontractor, including movement types and handling requirements ensuring a fully integrated and traceable workflow across procurement and delivery stages. Finally, the configuration for split valuation and stock determination will be reviewed to enable precise inventory management and ensure optimal stock handling throughout the process. Note, New sales order type, delivery order types, and item categories have been copied from the standard type not to affect the standard types in terms of determination.

1. Customer Consignment Fill-up & Subcontracting Outbound Delivery Schedule Lines

The first schedule line to be configured, is the schedule line of the consignment fill-up. Go to the following path Sales and Distribution>Sales>Sales Documents>Schedule Lines>Define Schedule Line Categories or use Tcode VOV6. Take a copy of E0 schedule line. Add the purchase requisition type, item category 3, and account assignment category M. Note, a new item category was created, item category ZKBN, which is a copy from KBN for this scenario to be managed separately.

2. The second schedule line to be configured, is the schedule line that of the outbound delivery to be generated from the subcontracting purchase order. Take a copy of schedule line category LB. Change the movement type from 541 to 30A, thus, enabling the raw materials to be in transit upon issuing the goods. Note, a new item category was created, item category ZLBN, which is a copy from LBN for this scenario to be managed separately.

2. Requirement Class

1. The Requirement class will be responsible from where the stock is to be issued (Sales Order stock for example) and how the valuation of the finished goods will be managed in the scenario. Create a new requirement class using the following path Sales and Distribution>Basic Functions>Availability Check and Transfer of Requirements>Transfer of Requirements>Configure Requirement Classes or use Tcode OVZG. Under account assignment, add account assignment category M.

a. The account assignment category M is chosen as the sales order will not be carrying costs and revenue, meaning that no settlement of costs is needed on the sales order, this is controlled by leaving the consumption posting field blank in Tcode OME9 (Check Account Assignment Categories). Moreover, the special stock indicator should be E to be able to issue the finished goods to customer consignment after the goods receipt on the subcontracting purchase order from the sales order stock.

2. After setting up the requirement class, go to the following path Sales and Distribution>Basic Functions>Account Assignment/Costing>Transfer of Requirements>Maintain Requirement Classes for Costing/Account Assignment to set up how the costs are to be managed in the customer consignment fill-up. First, is the account assignment category, which is M, assigned in the requirement class. Second, is the valuation M. This indicator is used to indicate that the valuation of the materials in sales order will be valued differently from the standard valuation price of the material manufactured at the company. For the costing ID, add B which means that the sales order will be automatically costed and marked upon saving the sales order. Costing method 1 is used as the costing type used in this scenario is product cost. Meaning that the costs of the finished goods will be brought automatically based on the material's BOM, Routes, and Supplier Info record. Add costing variant PPC4, more explanation on this costing variant will be discussed in the upcoming section. Finally, add condition type line items EK01, as this condition will be the only condition type used in consignment fill-up pricing procedure to be populated from the total value of the cost estimate.

3. Create a new requirement type and assign it to the requirement class from the previous point by going to Sales and Distribution>Basic Functions>Availability Check and Transfer of Requirements>Transfer of Requirements>Configure Requirement Types or use Tcode OVZH.

4. Finally, go to the following path Sales and Distribution>Basic Functions>Availability Check and Transfer of Requirements>Transfer of Requirements>Determine Requirement Type by Item Category and MRP Type or use Tcode OVZI to assign the requirement type to the item category assigned consignment fill-up order type. The 1 under source requirement type means that the requirement class will be determined from item category and not from the material master.

3. Sales Order Cost Estimate

1. The sales order cost estimate is maintained under the following path Controlling>Product Cost Controlling>Cost Object Controlling>Product Cost by Sales Order> Preliminary Costing and Order BOM Costing> Product Costing for Sales Order Items/Order BOMs>Costing Variants for Product Costing>Check Costing Variants for Product Costing or use Tcode OKY9. Using the sales order cost estimate you can control multiple things, including the determination of the BOM (raw materials that make up the finished goods) and routing (Activities such as labour cost per hour) in the sales order cost estimate. To further view the determination of BOM and routing, press on Qty Struct. Control.

a. Press on BOM Application under BOM to view the BOM determination or Routing Selection under Routing to view the routing determination.

b. BOM Selection based on priority, usage, and minimum BOM requirement that is needed in order for BOM to be derived in the sales order cost estimate.

c. Route usage based on priority, task list, plan usage, and status of the routing to be derived in the cost estimate based on the below determination.

2. Note that you need to assign the primary cost elements to the cost component structure, such as for materials consumption and third party maintained in the material account determination (OBYC). This is done in the following path Controlling>Product Cost Controlling>Cost Object Controlling>Product Cost by Sales Order> Preliminary Costing and Order BOM Costing> Product Costing for Sales Order Items/Order BOMs>Define Cost Components or use Tcode OKTZ.

a. Choose the active version of cost component structure.

b. Choose the desired cost component attribute (e.g. Direct Material or Third Party).

c. Assign the cost component to cost element G/L interval that is maintained in your chart of accounts.

4. Customer Consignment Fill-up Pricing Procedure

Below is the pricing schema for the consignment fill-up. Condition EK01 is the same condition type added in the requirement class.

5. Subcontracting Delivery

1. Make a copy from delivery type LB in 0VLK (Define Delivery Types) then go to Materials Management> Purchasing>Purchase Order>Set Up Subcontract Order or use Tcode OMGM and assign the newly created delivery type, ZLB delivery type, to the supplying plant. The supplying plant is then to be added to the supplier's customer role in business partner, as this is how the determination of the delivery type will be derived.

2. To use the schedule line maintained in point 2 in section Customer Consignment Fill-up & Subcontracting Outbound Delivery Schedule lines, the determination of the delivery item category needs to be maintained first. Go to Logistics Execution> Shipping>Deliveries>Define Item Category Determination in Deliveries or use Tcode 0184. In the determination, make sure that the usage used is V as it relates to purchase order. Assignment of item category to schedule line can be then maintained through Tcode VOV5 (Assign Schedule Line Categories).

6. Route Determination for Outbound Delivery – Raw Materials

1. First, maintain transportation relevance for the delivery type of the subcontracting, delivery type ZLB that is mentioned in the previous section, under Logistics Execution>Transportation>Shipments>Shipments>Maintain Transportation Relevance or use Tcode V_TVLK_TR.

2. Second, maintain transportation relevance for the delivery item category type of the subcontracting, delivery type ZLB that is mentioned in the previous section, under Logistics Execution>Transportation>Shipments>Shipments>Maintain Transportation Relevance or use Tcode V_TVLP_TL.

3. Third, maintain route transportation relevance under Logistics Execution>Transportation>Shipments>Shipments>Maintain Transportation Relevance use Tcode V_TVRO.

4. Finally, the route is determined based on the Route Determination with Weight Group (Delivery). Go to Logistics Execution>Transportation>Basic Transportation Functions>Routes>Route Determination>Maintain Route Determination or use Tcode 0VRF. Select the desired departure and receiver zone in step 1 and go to Route Determination with Weight Group (Delivery) step 2, that is because the route here will be determined in delivery and not in order (sales order).

5. Add the route determination as below. Make sure that the weight group to be chosen is 9999. The weight group is determined based on the total weight of the outbound delivery.

a. The weight group is maintained under Route Determination with Weight Group (Delivery). Go to Logistics Execution>Transportation>Basic Transportation Functions>Routes>Route Determination>Define Weight Groups. Here the standard weight group 9999 is maintained.

b. After maintaining the weight group, the standard is designed that the total weight is a large dummy weight as seen below.

7. Goods Issue on Shipment Completion

1. For the sake of this scenario, upon pressing shipment completion in the shipment document (goods in the delivery document to be issued from the company), the following configuration was implemented. Go to the following path Logistics Execution>Transportation>Shipments>Define and Assign Activity Profiles or use Tcode 0VTL. Add Z variant then press on maintain.

2. Select Carry out goods issue posting during save then save the variant.

8. Split Valuation

1. The split valuation is used in this scenario as to split the valuation price cost of the finished product manufactured at company site and the finished product manufactured at subcontractor site. First, you need to activate the split valuation using the following path Materials Management>Valuation and Account Assignment>Split Valuation>Activate Split Valuation or use Tcode OMW0.

2. Next, go to Materials Management>Valuation and Account Assignment>Split Valuation>Configure Split Valuation or use Tcode OMWC. Choose Global Types.

3. Maintain the following two valuation types. Valuation type ZEXTER-SC represents the valuation price of the subcontractor and ZINTER-FG represents the valuation price of the internal manufactured goods. For both EXT.POs and Int.POs, three options are available which are:

if the valuation type can't be used for external/internal (STO) purchase orders, which is defined as 0.
if the valuation type can be used for external/internal (STO) purchase orders but with warning, which is defined as 1.
if the valuation type is allowed be used for external/internal (STO) purchase orders, which is defined as 2.

Finally, the account category reference represents a group for the valuation class assigned to the material master.

a. Press on Account Cat. Ref. to view the assigned valuation classes assigned to the Account Category Reference.

b. To edit the below assignment, go to the following path Materials Management>Valuation and Account Assignment>Account Determination>Account Determination Without Wizard>Define Valuation Classes or use Tcode OMSK and press on Valuation Class

4. Next step is to define the valuation category. Press on Global Categories.

5. The global category is used to define which valuation types can be defaulted when processing external or internal procurement. Both flags, external procurement (ExP) and Inhouse production (Inh), are used for not allowing the valuation type to be overtyped in the procurement process. Press on Types->Cat.

6. Activate both newly created valuation types for the Z valuation category.

7. Final step is to activate the valuation category on plant level. Press on Local Definitions.

8. Select the plant and press on Cats.->OU.

9. Select the valuation category and press on activate.

9. Stock Determination

1. The stock determination is used in this scenario and that is because before any goods issue of outbound delivery for materials that are relevant for split valuation, the valuation type must be entered at either sales order or outbound delivery. This process can be automated when the outbound delivery is subjected to goods issue for non-special stock, meaning it can be automated for normal sales and not sales from consignment stock for example. Other than that, it needs to be added manually. Go to the following path Materials Management>Inventory Management and Physical Inventory>Stock Determination>Define Strategies for Stock Determination or use Tcode OSPX. First, create stock determination group as seen below.

2. Create stock determination rule.

3. Go stock determination Header Table and maintain the combination between the plant to be used for this scenario, the created stock determination group, and the stock determination rule.

a. Double click on the previously created stock determination header table and maintain the below settings.

4. Go to the item level of the stock determination header of the previous step and maintain the below. The F under the special stock indicator column represents the unrestricted stock of the company. It is mandatory to add priority, add 1. Finally, add the valuation type of the internal manufactured goods (created in the split valuation section point 3).

5. Finally, go to Materials Management>Inventory Management and Physical Inventory>Stock Determination>Assign Stock Determination Rule in the Applications>Delivery to assign the created stock determination rule for the delivery item category of the normal sales or consignment fill-up other than the consignment fill-up order used in this scenario.

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