What best SAP Solution to use (3rd Party Sales or Subcontracting)?

[Former Member]

Hi Gurus,

We have two SAP plants in Singapore (ex. Orchard & Tuas) under different company codes.

Now Tuas plant is going to sell Kits to external customer; but all the materials are coming from Orchard Plant.

Orchard plant will directly ship the finish goods to external customer after processing.

Orchard plant will bill Tuas plant just for the "processing" or "co-packing" fee.

Tuas will bill external customer for the Finish Goods.

Both Plants will have the same BOM structure

Other key points

• In the sales order or Purchase Order is it possible to show the detailed subcomponents and not just at the part level?
• How do we do it in SAP for Orchard plant will only bill Tuas for the processing fee ONLY?
• How can we reflect in SAP that Tuas ordered the ROH/VERP/subcomponents from Orchard?

We're looking at Third Party Sales process which automatically creates PR (to be converted to PO) but not sure if it is possible to reflect detailed subcomponents up to ROH; and if it's possible to bill just for the processing or "co-packing" fee.

Appreciate your thoughts as we are in chaos what solution to use (subcon,consignment,3rd party etc).

[Former Member · Accepted solution]

TW, it is because Tuas plant needs to record the production value in their books.

Actually according to local law requirment, Tuas plant need to buy ingredient and do payment to Orchard plant.; then provide the material to Toll manufacturer then pay the Toll fee; received the finish good, then sold to customer

Example of Materials:

Kit Material sold to ext customer:  Seasoned dough + flavoring in separate containers

HALB A: Seasoned Dough

HALB B: Flavoring

PART A = Dough + plastic container

PART B = Salt + water

After talking more to client, the requirement is more of a "Toll manufacturing process" wherein Tuas asks Orchard Plant(Toll manufacturer) to manufacture  for them. It seems a lot of SAP steps but maybe you can suggest a solution that will simplify the process.

Here is a more detailed business requirement.

1. We have two SAP plants in Singapore (ex. Orchard & Tuas) under different company codes.
2. Now Tuas plant is going to sell Kits to external customer; Kit is a combination of  HALB A & HALB B.
3. HALBs A & B are composed of subcomponents (ROH + VERP).
4. All subcomponents (ROH & VERP) are coming from Orchard Plant (the Toll manufactur) and they will manufacture these subcomponents to compelete HALB A & B.
5. Tuas needs to reflect in ther books that they purchased the subcomponents (ROH & VERP) from Orchard plant. Tuas needs to reflect it in inventory management that it went to their books. This is local legal requirement that shows they buy and pay to Orchard.
6. Physically the subcomponents are all in Orchard so no physicall movement.(I'm thinking do we require "virtual sloc" to be created under Tuas but physically in Orchard?).
7. Tuas will now issue toll packing order to Orchard plant to manufacture the ROH & VERP to turn it into HALB A & HALB B. (looks like we need to transfer stocks back to Orchard..complicated i know)
8. Orchard plant will start manufacturing (what will trigger process orders?) to complete HALB A & B as finish goods.
9. Once the finish goods are done, Sales Order can now be created to external customer.
10. Orchard plant will directly ship the finish goods to external customer since physically the Finish goods are in Orchard plant.
11. Orchard plant as the toll manufacturer will bill Tuas plant only for the Toll fee=service fee for manufacturing.
12. Tuas will bill external customer for the Kit Sales

I hope I was able to clearly explain the requirements.

Currently it is not clear to us how we can map this in SAP solution for the sales orders, stock transfer and purchasing order (subcontracting/interco STO/regular PO). It sounds like this is a rare business process.

[former_member182378 · Accepted solution]

Ted,

5. Tuas needs to reflect in ther books that they purchased the subcomponents (ROH & VERP) from Orchard plant. Tuas needs to reflect it in inventory management that it went to their books. This is local legal requirement that shows they buy and pay to Orchard.
6. Physically the subcomponents are all in Orchard so no physicall movement.(I'm thinking do we require "virtual sloc" to be created under Tuas but physically in Orchard?).

Does Tuas "pay" Orchard for sub components (Raw material and packaging material)?

That means, the purchase cycle by Tuas for these goods, from Orchard.

After purchase, the goods remain in Orchard, but are the property of Tuas. Correct?

These goods have to be shown as inventory in Tuas. This can be done, as you said creating a storage location (e.g. ORCH in plant Tuas)

7. Tuas will now issue toll packing order to Orchard plant to manufacture the ROH & VERP to turn it into HALB A & HALB B. (looks like we need to transfer stocks back to Orchard..complicated i know)

Probably subcontracting process can be used here!

Tuas "sends" the goods from st loc ORCH to Orchard plant (only in SAP), get the finish products back in the same st. location; this location is physically in Orchard. (but in SAP in Tuas plant)

Payment for only processing is done by Tuas, to Orchard.

9. Once the finish goods are done, Sales Order can now be created to external customer.
10. Orchard plant will directly ship the finish goods to external customer since physically the Finish goods are in Orchard plant.

Order entry staff knows the inventory of finished goods (LGORT = ORCH); creates sales order. The tricky part is the starting point of the delivery. In SAP delivery starts from plant Tuas, location ORCH but physically it starts from Orchard plant.

With output functionality a printout or fax etc. can be sent to Orchard plant when this type of deliveries are created.

You can configure a dedication sales document type, delivery type; OR take criteria as plant and storage location to trigger the output.

Other things in the sales process to the end customer shall fall in place (payment by customer to Tuas for KIT material, stock of KIT going down accurately in st location ORCH etc.).

[Former Member · Accepted solution]

TW, YES Tuas will "pay" Orchard for sub components (Raw material and packaging material)?

After purchase, the goods remain in Orchard, but are the property of Tuas. Correct? YES you are right!

[former_member182378 · Accepted solution]

Ted,

For purchase of raw material and packing material -

You can use Intercompany stock transport order process

As discussed, the virtual storage location created in plant Tuas, ORCH

In the system, goods shall move from plant Orchard to Tuas; but physically stay in Orchard.

For processing (assembling) -

You can use subcontracting process (discussed above)

For actual sale of KIT to external customer -

The normal OTC process, with notification to plant Orchard via printout or any other output medium.

[Former Member · Accepted solution]

TW, your suggestion completely makes sense and seems to be the solution that would fit the requirement! Now I see more light coming through

Just need now to perform testing.

Thank you so much and will update you how it went.

[Former Member · Accepted solution]

TW, last query pls...

can we start with Sales Order process 1st?

then followed by stock transfer

then subcon PO?

[former_member182378 · Accepted solution]

Ted,

Yes!

If the process is make to stock (if stock is available) then sales process could be done first. (sales order > delivery > billing)

If the process is make to order (if stock is "manufactured / processed" only when order is got) then sales order can be created but (ideally) delivery and PGI can be done only when stock is available. So in this particular case, process would be as follows -

Sales order > STO intercompany process > subcontracting process > delivery,PGI, billing (remaining of sales process)

Unlike standard 3rd party process where Sales order creates PR automatically, we have discussed that the 3 processes would not be "interrelated" or automatically automatically, these will be triggerred manually (by user creating each process).

Ofcourse, with custom development the sales order can trigger the automatic STO creation, rest steps in STO delivery billing can be done manually. With ehancement comes more testing (and more cost).

[Former Member · Accepted solution]

ALmost done TW. 2 missing piece which not sure how to show.

1. How do I set in SAP wherein Orchard (subcontracting vendor only bills Tuas (Customer) for the toll processing fee only; Should I setup the components in material master as free goods or setup in PIR?
2. after creation of SubCon PO it appears in Tuas plant's MD04 but in Orchard's (subcontracting vendor) the Subcon PO doesn't appear in MD04. is it material master data setup or it really would not appear in subcon vendor's MD04?

        My assumption is it should appear in MD04 of subcontracting vendor because this will be the

        triggering part to start  with Process order right?

[former_member182378 · Accepted solution]

Ted,

1.

For subcontracting process, please see these helpful links

Logistics in SAP: Subcontracting Process in SAP

Subcontracting (SAP Library - Managing Special Stocks (MM-IM))

Here you can see how the components have to be inputted in the Purchase Order.

When the business users of Tuas purchasing organization create subcontract PO for vendor as Orchard, then Orchard shall send the invoice with the amount of processing to Tuas.

Before that Orchard has to be created as a vendor for Tuas.(master data maintenance)

Also you can set Orchard vendor in such a way that for subcontracting POs automatically orchard will be picked as vendor.

2. I don't think you can see the subcon PO in Orchard!

In SAP, while creating a subcon PO from Tuas purchasing organization - it is linked to MD04 (stock requirement) but there is "no link" between vendor (Orchard) and MD04 (of Tuas)!

Side comment - In all the three processes, "the driver" is Tuas.

[former_member182378]

Ted,

If the plants are assigned to different company codes, then why does Orchard not bill Tuas, for the material (along with processing fee and packing material)?

We're looking at Third Party Sales process which automatically creates PR (to be converted to PO) but not sure if it is possible to reflect detailed subcomponents up to ROH; and if it's possible to bill just for the processing or "co-packing" fee.

Yes, your concern is valid!

In 3rd party, only that what (and how much) is done for Invoice Verification, can be billed to the external customer. So if you do invoice verification (pay to plant Orchard) for only processing and packing, then you can billing the external customer only for the same.

Other key points

In the sales order or Purchase Order is it possible to show the detailed subcomponents and not just at the part level?

What do you mean by subcomponents?

• How do we do it in SAP for Orchard plant will only bill Tuas for the processing fee ONLY?

This could be done with a bill from Orchard, that would not be connected with the sales order created by Tuas.

• How can we reflect in SAP that Tuas ordered the ROH/VERP/subcomponents from Orchard?

Separate process, disconnect with the sale of goods to the external customer.

[Former Member]

Great Responses TW!

"What do you mean by sub-components?"

I meant subcomponents would be at the ROH & VERP level.

Kit level-Part level-Main components-Sub components (ROH + VERP)

"Separate process, disconnect with the sale of goods to the external customer."

You mean manually create Purchase Orders? do you think a storage location will have to be created?

What would be your suggestion for our main key procedures to complete such requirement?

[former_member182378]

Ted,

Thanks for your positive comments!

Important question, ask earlier too - Orchard is supplying material, packing material and doing some processing too (in order to get the product ready, to ship to the external customer). And both plants are assigned to different company codes.

Then why does Orchard bill for only processing fee and the packing material, to Tuas?

Please give an example of material used by these plants (and sold to the external customer).

[former_member186385]

Hi Ted,

For your scenario, Neither Third party or subcontracting holds good

you can go with a process Similar to Third party which is INDIVIDUAL PURCHASE order in which goods will be shipped to the receiving Plant instead of to customer

1. Create Sales order from Receiving Plant to customer

2. Create new item category ( by copying TAB ) and new schedule line (by copying CB)

3. CB will allow you to create a PR automatically which can be converted to Purchase order using ME21N

4. Vendor should be created in the Supplying plant and should be used while processing the PO

5. Do MIGO to receive the part from supplying plant to receiving Plant

6. MIRO with reference to MIGO on agreed price

7. You can do outbound delivery with reference to Original sales order once the MIGO is posted from receiving plant to external customer

8. Billing customer with some mark up

Hope it is clear

pelase refer help for any assistance

Individual Purchase Orders - Sales (SD-SLS) - SAP Library

regardfs,

santosh

[Former Member]

Hey Santosh Thanks for your response!

Sorry but what does "CB" mean?

Actually in the requirement, the subcomponents/ROH/VERP materials are sourced from "Orchard Plant". It will be processed there as well.

No physically delivery to "Tuas plant".

After manufacturing by Orchard Plant the finish goods will directly be shipped from Orchard plant to the external customer of Tuas plant (Ship to External customer & Bill to Tuas plant for the processing fee).

[former_member182378]

Ted, Santosh,

Individual purchase order process would not work here, as Ted's requirement is to sent the goes directly from Orchard (manufacturing / supplying plant) to customer.

[former_member182378]

Ted,

Because Orchard (manufacturing / supplying plant) shall be shipping the goods to the external customer directly, therefore subcontracting process also shall not be applicable!

[eduardo_hinojosa]

Hi

In my opinion it sounds to cross company operations. Please, see these notes:

SAP Note 543821 - FAQ: cross-company processing

SAP Note 1514459 - Third-party with CC: Incorrect plant and company code data

SAP Note 38501 - Intercompany billing before customer billing document

SAP Note 109254 - Customizing stock transport order Cross Company

SAP Note  109254 - Customizing stock transport order Cross Company

The idea is Tuas made a SO in a plant of Orchand (there settings for plant Tuas in Company Orchand). With the same delivery you can bill twice, one F2 from Tuas to Customer, and other bill type IV from Orchand to Tuas.

CB is a schedule line (see it in tcode VOV6).

I hope this helps you

Regards

Eduardo