Subcontracting Process in SAP MM

Basic definition of Subcontracting:

Subcontracting refers to the practice of bringing outside vendor company or person to perform specific task or part of the project.

Subcontracting is mainly used in manufacturing industries, when specific task is not carried out by the manufacturer. They should relay on outside companies or person to perform the same.

Subcontracting in SAP MM:

In SAP MM, Sub contracting is defined under special procurement process. The raw materials or semi-finished product is given to subcontracting vendor to get the Finished product and By-Product (if any) from the vendor. The subcontractor will invoice the manufacturer with service charge for the service performed and additional cost if component used from subcontractor end.

We explained the Pre-requisite and steps to be followed to perform Subcontracting in SAP MM.

Pre requisite:

  1. Material Master record – MM01/MM02/MM03
  2. Vendor Master record – XK01/XK02/XK03
  3. Purchase info record (Subcontract) (optional)– ME11/ME12/ME13
  4. BOM (optional) – CS01/CS02/CS03

*  Info record to be created for the final product receiving from the supplier.

Process Flow:

Subcontracting process is similar to Procure to Pay process with few additional steps.

  1. Purchase Order with Item category L – ME21N/ME22N/ME23N
  2. Check the stock availability - MMBE
  3. Post transfer posting with reference to Subcontracting PO/ Other – MIGO
  4. Check the stock status - MMBE
  5. Post GR with reference to Subcontracting PO – MIGO
  6. Post Invoice – MIRO

Subcontracting process

Step 1 PO creation ME21N:

  1. Purchase order to be created for Subcontract Vendor for the finished product.
  2. Item category must be provided as “L” in the line-item screen.
  3. In the item detail screen under material data tab, click on the components (material) to add the raw material or semi-finished material provide to the vendor with quantity.
  4. Maintain the material in negative quantity in components tab if there is any By-Product you will receive from the vendor.
  5. If valid BOM is maintained for the finished product, click on explode BOM under Material data tab in Item detail.
  6. In BOM also By-Product to be maintained in negative Quantity.


Step 2 – Check stock availability in MMBE:

  1. This is a preliminary check on stock on before doing transfer posting.
  2. Make sure enough stock available for the raw material or Semi-finished product before doing transfer posting.

Step 3 - Post transfer posting with reference to Subcontracting PO/ Other – MIGO/ME2O

  1. The raw materials or semi-finished product to be issued to sub-contracting vendor.
  2. It can be performed through T code MIGO /ME2O
  3. In MIGO, select transfer posting select other in the next tab, choose movement type 541.
  4. Provide the component details (from location, qty, etc) and vendor details in the item tab and save.
  5. Another way of doing it is, go to transaction ME2O. Provide vendor, plant details in the selection screen. It will provide the list of open subcontract purchase order.
  6. Select the relevant purchase order and click post good issue and save it.
  7. In both steps d & f, no accounting entries will get posted. Only material document will get posted under movement type 541.

Step 4 - Check the stock status – MMBE

  1. We can see the goods issue stock under, material provided to vendor.

Step 5 - Post GR with reference to Subcontracting PO – MIGO

  1. Select Goods receipt in MIGO transaction and select purchase order in the next tab and input the Sub contract PO number.
  2. Select the finished product and post GR.
  3. Material documents will get posted with movement types 101 (Goods Receipt), 543 (consumption of raw material or semi-finished product) & 545 (Goods receipt of by-products from subcontracting)
  4. We explain the accounting entries in sub-contracting process in separate section.

Step 6 - Post Invoice – MIRO

  1. Post Invoice with reference to sub contract PO in MIRO screen.

Accounting Entries in Sub contracting:

  • Always debit is negative and credit is positive.

Eg: Raw material: 10 USD (1 Qty)

Vendor invoice: 50 USD (1 Qty for finished product)

Finished Product: 160 USD

At the time of GR

1Stock A/c of assembly (BSX)
(Finished Product)
2Change in Subcontracting Stock (BSV)160
3Subcontracting Charges (FRL)50
4GR/IR (WRX)50
5Consumption A/c of components (GBB -VBO)10
6Stock A/c of components (BSX) (Raw material or semi-finished)10

At the time of invoice

1GR/IR (WRX)50
2Vendor Account50



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