subcontracting with vendor furnished material

[Former Member]

Hello everyone,

I hope you can help me with that:

We have several items that are produced by our vendors according our design/specifications. Through a purchase order we send them the BOM component (standard 541 mov) and we receive the final assembly. So far so good.

It gets complicated when we have vendor furnished material.

- If we put them in the BOM it happens that the MRP plans their requirement (purchase/production whatever) and those are expected to be sent to the vendor.

- If we do not put them in the BOM it works fine with subcontracting but it is not properly correct.

What my colleagues did was: create a BOM for production (1) to use in subcontracting and create a BOM for cost calculation (6) that contains all the item

Is there another way to identify and plan accordinly the vendor furnished material ?

I read few post about duplicating the material version and specify it in the purchase info record.

I thought we could have one BOM for internal production with all the data and one BOM for subcontracting that exclude the vendor material, but I am not sure it is ok for cost calculation... unfortunately I am not a PP expert and I am afraid I am missing something.

thanks everyone in advance!

valentina

[former_member244427 · Accepted solution]

Hello Valentina,

Are you saying that this material can be manufactured in-house as well as procured from a subcontracting vendor?

And if this is the case how should it be costed?

there are various ways you can approach this, it dependants on the business policy viz..

1. You can have an standard cost estimate base on just the production process or the Subcontrating process. This can be achieved via the solution described by expert Rupesh above.

2. Do you want to tack the cost and stocks separately for inhouse and Subcontrating. You can explore the split valuation Split Valuation - MM - Material Price Change (MM-IV-MP) - SAP Library

Product Costing at Valuation Type Level - Product Cost Controlling and Valuation - SAP Library

3. You want to have a predefined weight-age for inhouse and external procurement and have a single cost estimate having components of both sources, then you can explore mixed costing Mixed Costing - Product Cost Planning (CO-PC-PCP) - SAP Library

Regards,

Abhishek Rai

[Former Member · Accepted solution]

Hello Abhishek,

Yes, the material can be manufactured in-house as well as procured from a subcontracting vendor.

To me the production BOM has to be complete and reflect all the components that our Technical Dept decided.

Item A bike

- item B number 2 wheels

- item C number 1 structure

- item D number 1 seat

- item E number 1 moving mechanism

I decide to subcontract the production of my bike and my supplier purchase on its own the wheels. So the wheels are the "vendor furnished material". He builds the bike with my components and put the wheels as well. If I build it on my own I have to take care of the wheels too.

I used to work with Baan and it has this feature. You have one BOM and you can check/uncheck the material that the supplier add. So you have one BOM only and it is complete with all the material. I really liked that

At the moment our production BOM in SAP is without wheels!

Item A bike

- item C

- item D

- item D

otherwhise SAP would plan the purchase of my wheels and try to send them to the vendor (through the subcontracting purchase order).

I'll explore option 1 and discuss about maintaining multiple production BOM.

I did not know I could define the default production version for costing.

Thank you very much!

[Former Member · Accepted solution]

Hello Abhishek,

I want to add one consideration/question

If the material has to be produced in the "same way" internally or externally isn't it wrong to have 2 production BOM ?

At the end my supplier will have to consult the full BOM and technical design because (despite who furnish the material) the item has to be assembled in one way and it will containt ALL the components.

The subcontracting BOM feels to me a kind of workaround to have the correct Purchase Order of the main item.

Please help me to "open my view"

thanks again!

valentina

[rupesh_brahmankar3 · Accepted solution]

Hello,

There is nothing wrong to have two BOM different BOM for the same product,one for in-house production and the second for sub-contracting.

Create two different BOM and two production version,one for in-house by combining the BOM and the routing and the second production version containing only the BOM.later the production version can be assigned in the sub contracting purchase info record in ME11.

If you want to have a same BOM defined material provision indicator in BOM component for subcontracting BOM

So in-house production, no material provision indicator MRP will plan all components.

If set material master with subcontracting , Components with Matl Provision Indicator L , will not be planned by MRP.

Best Regards,

R.Brahmankar

[Former Member · Accepted solution]

thank you very much, the procedure is clear

I'll test on my own and expose to my colleagues

best regards!

valentina

[former_member244427 · Accepted solution]

Hello Valentina,

In principal the finial product is same as you said, but technically the process are different at your end when you decide to make it inhouse or from an external source.

In SAP there are different ways to map the same business requirement. When you create the BOM there is a input called as BOM usage. If you are looking at BOM from a technical prescriptive you can use an Engineering BOM which is used for design and costing purpose only. This BOM then can be converted to a production BOM which then can be used for production process also Material Costing if required.

You can then further refine the BOM by various parameters inside the BOM. One of such, which can be of importance in this context can be Production relevant tick in the item level in the Status/Lng text tab. If you have this ticked this component will not be relevant for production and will not be exploded, but you can choose to make it relevant for costing. So structurally the BOM will have the Wheels but will not be considered for planning or production or Subcontracting. But again if you want to make it inhouse you will need the Wheels to be exploded

Now lets talk about the planning part, when system is planning using any method say MRP it needs to arrive at a definitive source inhouse or External procurement, if its in-house wheels need to be procured and if externally procured wheels are not required as per you example. How will the system decide what needs to be done? It can be either one of these as a default process other one should be an exception and adjusted manually in the production order or purchase order. Or it can be based on a predefined Share of Business in other terms quota arrangement. Any ways if it arrives at a source it needs to treat the BOM in a different manner, hence you would need separate BOMs for the system to be decisive and give correct results wheels or no wheels from planning perspective....(Design and Costing can have there own opinion.... OR same as planning) There is no escape to this if planning, manufacturing and costing look at the same humble bike with different glasses...  I think it would be same even in any other ERP system.

Hope this helps!

Regards,

Abhishek

[Former Member · Accepted solution]

Abhishek,

I have to further investigate on this "Production Relevant" field and understand if it works for me.

I would guess that if I have this BOM

Item A bike

- item B number 2 wheels ----> not relevant for production

- item C number 1 structure ---->  relevant

- item D number 1 seat ----> relevant

- item E number 1 moving mechanism ----> relevant

MRP would plan purchase of item from C to E and not consider item B.

My subcontractor would then take care of purchasing the wheels.

At the moment the item is not produced internally but my boss told me that it will be so I have to come up with some idea.

Thank you very much for your help, I apreciated

[rupesh_brahmankar3]

Hello,

In this case you can have the multiple BOM and production versions.

In costing tab of your material master you can define the default production version for costing.

So while  costing system will consider the BOM assigned to that production version.

Best Regards,

R.Brahmankar

[Former Member]

Thank you very much Brahmankar

I think I'll explore this solution!