Optimizing Production with Operation Subcontracting in SAP PP

In today’s dynamic manufacturing landscape, companies constantly seek ways to streamline production processes and optimize resource allocation. Operation subcontracting in SAP PP offers a powerful solution for leveraging external expertise and capabilities. This blog dives into subcontracting within SAP PP, exploring its functionalities and benefits.

What is Operation Subcontracting?

Operation subcontracting allows you to outsource specific production operations to a qualified vendor. This vendor utilizes the raw materials or components you provided to complete the designated task, returning the finished product for integration into your final assembly. SAP PP delivers a robust framework for managing this process efficiently.

Critical Steps in Operation Subcontracting

1. Master Data Setup:
   • Create a Bill of Materials (BOM) for your finished product, including components needed for internal and subcontracted operations.
   • Define a routing that outlines the production sequence. Assign a control key, like “PP02,” to the subcontracted operation, indicating external processing.
2. Production Order Creation:
   • Generate a production order for your finished product manually or manually through MRP.
3. Subcontracting Process:
   • During production order processing, the system recognizes the subcontracted operation.
   • You can create a purchase order for the vendor, specifying the components to be sent for processing and the agreed-upon price.
   • Issue the required components to the vendor using a movement type like “541.”
4. Goods Receipt and Completion:
   • Upon receiving the finished product from the vendor, perform a goods receipt using a movement type like “101.”
   • The system updates the production order status, reflecting the completion of the subcontracted operation.

Benefits of Operation Subcontracting

• Increased Flexibility: By leveraging external resources, respond to fluctuating demand or capacity constraints.
• Focus on Core Competencies: Allocate internal resources to activities where your expertise lies.
• Cost Optimization: Potentially reduce production costs by utilizing vendors with lower labor rates or specialized capabilities.
• Improved Time-to-Market: Expedite production by outsourcing specific tasks.

Conclusion

Operation subcontracting in SAP PP is valuable for enhancing production efficiency and achieving strategic business goals. By understanding the core functionalities and following the outlined steps, you can leverage this feature to optimize your production processes and gain a competitive edge.