Module 10 · SAP advanced operations

Subcontracting, Service Orders & Resources

Subcontract purchase order, component issue to vendor, subcontract GR, service POs, resource management, labour tracking and external processing.

Course reading

Understand the process

Part 1

Materials sent to a subcontractor

In subcontracting, your organisation may provide components to a vendor who performs a manufacturing step and returns a finished or processed item. The components remain accountable even when physically located at the vendor. The subcontract PO describes the expected output and the components consumed per unit.

If you send 1,000 components and the vendor returns 900 finished units requiring one component each, 100 components remain to be explained, allowing for approved scrap or other documented consumption. Reconcile vendor-held stock monthly against transfers, receipts and agreed scrap rather than assuming that the vendor's warehouse balance is correct.

Part 2

Services and people need evidence too

A service PO buys work rather than a physical part, so acceptance needs a clear scope, milestone or service entry sheet. Resource planning asks who has the skills and time to perform work, what hours were used and which output was accepted. Without these records, an invoice can arrive before anybody can verify completion.

Define the acceptance criteria before work begins. For both subcontracted materials and services, connect the PO, evidence of work or receipt, approved variance and invoice. The goal is to know what was provided, what came back and what the company is paying for.

What you must take away

Components at a subcontractor are still your stock and still your risk.
A service PO is settled against a service entry sheet, not a delivery note.
Unreconciled subcontract components are one of the most common audit findings.

In the SAP process

Create the subcontract PO with the component list, then issue components to the vendor.
Post the goods receipt for the finished item — components are consumed automatically.
For services, create the service entry sheet and get it accepted before invoice verification.

Case study

Components that left and never came back

Setting. A plant outsourcing heat treatment and plating to three local vendors.

Problem. Yield losses at the vendor were absorbed silently; the stock at vendor balance grew month after month with no reconciliation.

How it was investigated

Compared components issued to the vendor with components consumed by receipts.
Asked each vendor for their own physical stock statement.
Found scrap at the vendor was never reported back or posted.

What was changed

Started a monthly vendor stock reconciliation with a signed statement from each vendor.
Agreed a documented yield allowance per process, with anything beyond it posted as a claim.
Posted vendor scrap in the period it occurred instead of at year end.

Outcome. The stock-at-vendor balance became explainable line by line, and losses became a negotiation rather than a surprise.

Lesson: Reconcile subcontract stock every month. A balance you cannot explain is a loss you have not yet booked.

Illustrative composite of common shop-floor situations — no client names or confidential figures.

Practical template

Subcontract stock reconciliation

Reconcile components at vendor every month, in writing.

Vendor	Component	Opening at vendor	Issued	Consumed by GR	Scrap reported	Closing (system)	Vendor statement	Difference
Vendor X	MAT-2210	1,200	3,000	3,600	60	540	540	0

How to use it

Closing = opening + issued − consumed − scrap. Any difference against the vendor statement needs a named action.
Require the vendor statement before releasing the next issue.
Keep the signed statements — this is the evidence an auditor samples.

Download workbook & KPI template (PDF)

Quick quiz — check your understanding

1. Subcontracting means:
2. In SAP, a subcontract PO uses item category:
3. A service order is used for:
4. Stock provided to a vendor is still:
5. Service acceptance is confirmed by:

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