Overview
Subcontracting is a procurement process in which you send raw materials/components to a vendor (subcontractor), who processes them and returns the finished product. You pay the vendor only for the service/processing charges.
Prerequisites
- Material Master of the finished product exists
- BOM exists for the finished product (components to be provided)
- Info Record or Source List for the subcontractor (optional but recommended)
- Vendor master is maintained
- Authorization for ME21N, MIGO, MIRO
Step-by-Step Process
1
Create Subcontracting Purchase Order (ME21N)
- Go to transaction ME21N
- Enter Vendor (Subcontractor)
- Enter Purchasing Organization, Purchasing Group, Company Code
- Enter the Finished Material (the material you will receive back)
- Enter Quantity and Delivery Date
- Important: Set Item Category = L (Subcontracting)
- System automatically explodes the BOM and shows the components to be provided
- Check the components in the “Components” or “Material Data” tab
- Save the Purchase Order and note the PO number
2
Transfer Components to Subcontractor (Goods Issue)
- Go to transaction MIGO
- Action: Transfer Posting or Goods Issue
- Movement Type: 541 (Transfer to Subcontractor)
- Reference: Purchase Order (or enter components manually)
- Enter the components and quantity to be sent
- Post the document
Stock of components is reduced from your unrestricted stock and shown as “Stock Provided to Vendor” (special stock O).
3
Goods Receipt of Finished Product (MIGO)
- Go to transaction MIGO
- Action: Goods Receipt → Reference: Purchase Order
- Enter the Subcontracting PO number
- Movement Type: 101
- System automatically proposes the finished product and also consumes the components (Movement Type 543)
- Post the Goods Receipt
Finished product stock increases. Components provided to vendor are consumed.
4
Invoice Verification – Service Charges (MIRO)
- Go to transaction MIRO
- Enter the Purchase Order number
- System proposes the subcontracting service charges (not the material value)
- Enter the invoice amount (processing charges from vendor)
- Post the Invoice
Vendor is paid only for the processing/service charges.
Quick Process Flow
ME21N (Item Cat. L) → MIGO 541 (Send Components) → MIGO 101 (GR Finished Material) → MIRO (Service Charges)
Important Movement Types
| Movement Type | Description |
|---|---|
| 541 | Transfer of components to Subcontractor |
| 542 | Reverse of 541 (Return components from Subcontractor) |
| 101 | Goods Receipt of finished product from Subcontractor |
| 543 | Consumption of components provided to vendor (automatic during GR) |
| 544 | Reverse of 543 |
Related Transaction Codes
| T-Code | Description |
|---|---|
| ME21N | Create Subcontracting Purchase Order (Item Category L) |
| ME2O | Subcontracting Stock Monitoring (SC Stock) |
| MIGO | Goods Movements (541, 101, etc.) |
| MB51 | Material Document List |
| MIRO | Invoice Verification (Service Charges) |
| MMBE | Stock Overview (check special stock “O”) |
| ME2N | Purchase Order report |
Important Notes:
- Item Category L is mandatory for Subcontracting PO.
- BOM must be maintained for the finished material so that components are automatically determined.
- Stock provided to vendor can be monitored using transaction ME2O.
- During Goods Receipt (101), the system automatically posts consumption of components with movement type 543.
- You pay the vendor only for the value-added service, not for the components.
Helpful Tips
- Always check the component list in the PO after setting Item Category L.
- Use ME2O regularly to monitor stock lying at the subcontractor’s premises.
- You can send components using 541 with reference to the PO for better tracking.
- If components are returned unused, use movement type 542.
- Make sure the subcontracting info record is maintained for accurate pricing of service charges.