Subcontracting by definition is a process which involves the procurement of a product from a supplier (the subcontractor) to whom the procuring entity provides components for the purpose.

Eg. A chemical manufacturer produces a chemical in bulk and sends it to Subcontractor who in turn fills and packs small containers of the chemical. These Small containers are the final saleable product..

Why map Subcontracting as In-house production?

Assume a situation where the Subcontracting vendor has multiple resources which are dedicated to your production site & you (as a Supply Chain Planner) want to perform capacity planning of those resources in SNP because you often get into capacity related issues like orders are getting delayed or re-prioritized and rescheduled with last minute notifications. Of course, there is an option available to you to analyze the capacity manually and set the priority to orders and keep changing them as you do not have visibility of capacity load. Would it not be great if you can model these dedicated resources in APO SNP to perform capacity leveling? Let’s explore how we can achieve this!

Master data required:

ECC:

  • Material Master: Procurement Type “F” with Special Procurement “30” at Subcontracting Plant
  • Material Master: Production version with details of BOM and Routing at Subcontracting Plant
  • Purchasing Info record (Subcontracting Type)
  • Source list
  • Bill of Material
  • Work center: To be created at Subcontracting plant in ECC. Should have all the capacity details of the dedicated resource available at vendor
  • Routing: Should have at least one operation (scheduling relevant) based on the Work center

APO:

  • Product Master at Subcontracting Location (Via CIF)
  • SNP PDS (created by Core Interface (CIF) Integration model). Select normal SNP PDS not SNP Subcontracting PDS while generating Integration model
  • Vendor Location master
  • Resource Master data at Subcontracting Plant (Transferred via CIF Integration model)

Ways of working:

  • Executing SNP Heuristics run for Subcontracting Product-Location combination will create SNP Planned orders. SNP PDS will be automatically adopted as source of supply
  • These Planned orders will show the exact resource utilization and hence SNP Capacity leveling can be performed using Capacity data view in SNP Planning book
  • SNP Planned order is created for header product. This also creates Dependent demand for Component products (via PDS explosion).
  • During execution cycle, convert SNP Planned order à Purchase Requisition à Purchase order
  • Once Planned order is converted to Purchase requisiton, Dependent demand (SNP:DepDmd)for Component will reflects as Subcontractor requirements (SubReq)

Benefits:

  • SNP capacity planning & capacity leveling can be done for vendor resources
  • Alternative bill of material can be easily used. Just by changing a production version in ECC or by changing a SNP PDS in APO, dependent demand will propagate to all relevant components
  • Alternative resources can also be used to plan capacity

Challenges:

  1. Planned order to Purchase order conversion

–      Problem: In subcontracting scenario, generally end users are used to Purchase requisitions as an output of planning run. These Purchase requisitions are later on converted to Purchase orders as a part of execution. But when we map Subcontracting as in-house production, heuristics run creates SNP Planned orders. These planned orders should first be converted to Purchase requisitions and then only a Purchase order can be created. Thus this can be a point of resistance from end users as it will add one step to their manual work

–     Solution: Use transaction MD14 (Single order) or MDUM (Multiple orders) to convert Planned orders to Purchase requisitions. Report “RMCVPLRQ” can be customized to convert Planned orders to Purchase requisitions in bulk using background jobs.

2. Vendor stock consumption

–      Problem: It is quite possible that items like packaging material; labels etc. are supplied in bulk to vendor. So the stock of these items is maintained as vendor stock and replenishment of these items are planned via ECC MRP run instead of planning in APO. ECC MRP run will not net the vendor stock if the component demand is in form of “Depdem”. It will net only against “Subreq”

–      Solution:

Either Plan component replenishment in APO where vendor stock is netted against Depdem as well as Subreq

Or

Change policy: Issue only limited stock to vendors. Remaining stock should be maintained as plant stock which can be netted against dependent demand

Or

Convert SNP Planned order to Purchase requisition in near term horizon Eg. 3-4 weeks. This horizon should be empirically decided such that it at least takes care of the lead time of subcontracting product

Key Points to remember:

  • Vendor and Stock should be a part of same integration model for Vendor Stock to be visible in APO at Subcontracting Location. (Special Stocks at Vendor indicator in the integration model)
  • Vendor stock available at Subcontracting plant will be considered to calculate Projected Available Balance in SNP Planning book. Default Stock category group should include vendor stock category CE.
  • PPDS PDS is not required in APO
  • BOM status in ECC should always be “Active”. Else Planned orders can’t be converted to Purchase requisition
  • Maintain set up time in routing equal to planned delivery time. Otherwise dependent demand on component will be on same day as that of planned order date of header product
  • InMDO4, Planned Order details will show “Procurement Type E” even though Material master has Procurement type “F”
  • Alternate production version / PDS can only be changed in planned orders. Not possible to change once Planned order is converted to Purchase Requisition
  • In case of manual intervention,
  • User can create only SNP planned order in SNP planning book
  • User can change planned orders only in SNP planning book or in ECC system (MD04). Can’t use Product view in APO
  • Manual creation or changes will «FIX» the order immediately
  • Direct Purchase requisiton can only be created in ECC. Use respective order type for the plant and item category as «L»

Hope this information helps fellow consultants. Your comments are appreciated.

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