Subcontracting is a common practice in project management where certain project activities or components are outsourced to external vendors or subcontractors. Within the SAP Project System (PS), subcontracting plays a vital role in ensuring that outsourced work is properly planned, monitored, and controlled to meet project timelines and budgets.
This article covers the fundamentals of implementing subcontracting in SAP PS, explaining how subcontracting processes integrate with PS and other SAP modules, and highlighting key configuration and operational considerations.
Subcontracting in SAP PS refers to the procurement of external services or components required to complete a project task. Instead of performing the work in-house, organizations assign portions of the project scope to vendors who supply either the finished work or specific materials.
Subcontracting helps:
- Leverage specialized skills or capacities outside the organization.
- Manage workload peaks without expanding internal resources.
- Improve project flexibility and reduce risks.
Subcontracting is closely linked with the Materials Management (MM) and Project System (PS) modules in SAP. The key integration points include:
- Purchase Requisition and Purchase Order creation for subcontracting services linked to project WBS elements or network activities.
- Goods Receipt and Service Entry Sheet processing to confirm the receipt of subcontracted materials or services.
- Settlement to WBS Elements or Network Activities to capture subcontracting costs within the project.
- Inventory Management for tracking materials provided to vendors and materials received from them.
- Purchase orders for subcontracting are created with reference to a project WBS element or network activity.
- This ensures all subcontracting costs are allocated correctly to the project.
- In many subcontracting scenarios, the company supplies raw materials or semi-finished components to the subcontractor.
- These materials are issued from project stock or plant stock and tracked via SAP inventory management.
- Upon completion, the subcontractor delivers finished goods or services.
- Goods receipts or service entry sheets are posted against the subcontracting PO, triggering project cost postings.
¶ 4. Settlement and Cost Capture
- Subcontracting costs, including external service charges and provided materials, are settled to the respective WBS elements or network activities.
- This allows comprehensive cost monitoring and controlling in the project.
-
Define Subcontracting Item Category
Configure subcontracting item categories in the project system to differentiate subcontracting materials and services from in-house activities.
-
Set Up Project-Related Purchase Orders
Enable the creation of purchase orders with reference to PS elements (WBS or network).
-
Material Master and BOM Setup
Define bill of materials (BOM) for materials to be supplied to subcontractors when applicable.
-
Inventory and Stock Management
Configure project stock or plant stock for components supplied to vendors.
-
Cost Settlement Rules
Define settlement rules to ensure subcontracting costs post correctly to project cost objects.
- Cost Transparency: All subcontracting costs are visible within the project, enabling better budget control.
- Process Integration: Seamless flow of data between PS, MM, and Finance modules enhances operational efficiency.
- Resource Optimization: Frees up internal resources by efficiently managing outsourced tasks.
- Inventory Control: Accurate tracking of materials sent to subcontractors minimizes losses and discrepancies.
- Improved Project Tracking: Enables monitoring of subcontracted work progress and timely financial reconciliation.
¶ Challenges and Best Practices
- Material Provisioning: Ensure accurate tracking and clear documentation when sending materials to subcontractors.
- Timely Goods Receipt: Prompt recording of receipts and service confirmations is crucial for real-time cost updates.
- Coordination with Procurement: Close coordination between project management and procurement teams avoids process gaps.
- Regular Cost Monitoring: Periodic review of subcontracting costs ensures adherence to budgets and early detection of overruns.
Implementing subcontracting within SAP Project System enhances an organization’s ability to manage outsourced work with precision and transparency. By integrating subcontracting processes with project planning, procurement, and cost controlling, SAP PS provides a holistic view of subcontracted activities and their financial impact on projects.
For organizations relying heavily on external vendors, mastering subcontracting in SAP PS is essential for effective project execution and cost management.