3 fi 01(ap-subcontracting)

Accounts Payable Subcontracting

Document Control

Document Reference: Business Blueprint Strategy

Author: Date: 15/04/2003

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Approved By:

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Change Record

Issue Date Author Comments

1.0 15.04.2003

Business Blueprint Format

Business Scenario Code / Name AP- Purchase Subcontracting.Business Process Code / Name AP- Purchase Subcontracting.Process OwnersProcess Team MembersApplication ConsultantsModules Influenced FI, MM


1. Requirements/Expectations1.1. Quantitative details of the materials party wise / material wise and history of the contract.

2. General Explanations

In subcontracting, the vendor receives materials (components) with which it produces the end product. The material to be produced by the vendor can be ordered as a subcontract item in a purchase requisition, purchase order, or scheduling agreement. Each subcontract item has one or more sub-items that contain the individual components the vendor needs to perform the subcontract work or value-added service.

3. Business Model

3.1 Business Process Description:

3.1.1 Purchase RequisitionOn entering a subcontract item with components in a purchase requisition or copy it from a bill of material, the system automatically creates dependent requirements for each component. These are only relevant for MRP. This PR can be made to follow the release process:

1. PR is generated in the system by the end-user

2. PR is reviewed in the system and released by HOD

3.1.2 Purchase Order / Scheduling Agreements and Schedule LinesEach subcontract item in the purchase order has component items. They are either copied from the purchase requisition, entered manually, or copied from a bill of material. The purchase order price is the subcontract price for manufacturing the ordered material. In a scheduling agreement you enter the material that is to be produced in a subcontract item. In each schedule line you enter the components that are to be provided to the vendor or copy them from the bill of material. This means that the components and their reservation items and arranged below the schedule lines. This also applies to scheduling agreement schedule lines and schedule lines in purchase requisitions and purchase orders.

The end product is ordered using a subcontract order. The components that the vendor needs to manufacture the end product are specified in the purchase order.

File Name: document.doc of 7


3.1.3 Material document

In Inventory Management, the components are posted to the stock of material provided to vendor. The components are then supplied to the vendor.

3.1.4 Subcontracting ChallanMaterials, which are supposed to go without payment of excise duty, subcontracting challan (57AC5) is created and printout is taken. This challan mentions the assessable value as decided and maintained as master data. One can always change this value as per the requirement.

3.1.5 Goods Receipt into Stock

The vendor performs its service and delivers the ordered material (the end product). The consumption of the components is posted.

3.1.6 Reconciliation of challan for good receipt

If, after the goods receipt has been posted, the vendor informs you that a larger or smaller quantity of the components was actually consumed than planned in the purchase order, then must make an adjustment.

3.1.7 Vendor’s Invoice Verification

The vendor charges for his or her service. The invoice is posted in Invoice Verification. The invoice verification is the standard Invoice verification process as is done of the raw materials, consumables etc… The invoice verification shall be as per the GR and PO.

3.3.1. PROCESS PRE-REQUISITES

Creation of Vendor Master, Material Master, CIN Masters (for excise), Purchase Organization and Company code.

3.3.1. PROCESS WORKFLOW:



Sub –Activity No Sub-Process SAP(T.CODE)

REMARKS

3.3.1.1 Creation of Purchase Requisition3.3.1.2 Creation of Subcontract Order3.3.1.3 Creation of Material Document 3.3.1.4 Creation of Subcontracting Challan3.3.1.5 Goods Receipt into Stock3.3.1.6 Reconciliation of challan for good receipt3.3.1.7 Vendor’s Invoice Verification

3.4.1 Accounting

PROCUREMENT-SUBCONTRACTING

Procurement Sub-contracting Process

Requirements / General Expectations

1.Quantitative details of the materials party wise / material wise and history of the contract.2. Rates to be taken from the Contracts by system.

Purchase Requisition

There is no budget in the legacy for the Sub-contracting.Contract forms the base for the accounting purposes.

In SAP R/3 Purchase requisition can be raised.

Sub-Contract Order

Procurement process of Sub-contracting at present.

1.In the Yarn unit the Yarn is sent out on Job-work for Doubling.

2.In the TTD unit the Towel is sent out on Job-work for Dyeing and/or embroidery.

3. In the Paper unit the Paper is sent out on Job-work for Printing labels.

Material is sent out for the job work wide Returnable gate pass (RGP)



raised from the stores. Original + Duplicate copy of 57F(4) is sent along with the consignment. 57F4 Challan is self-authenticated and the Serial No is intimated to the Asst. Commissioner Excise. The details are noted in Annexure IV register. The material may be returned within 180 days; otherwise to reverse the cenvat credit availed on the material sent for the job work. Scrap / waste arisen during the processing of the inputs must be returned to the parent factory. The material received after job work is sent to respective department along with the invoice of the vendor. The respective department approves the quality and quantity and sends the invoice to Contract Bill Cell department.

Contract Bill Cell approves the bill, which is forwarded to the accounts department. Job work bills are booked in the accounts department.

Components of cost

1. Job work Charges

Business Model In SAP R/3

Subcontracting Order will be raised in the SAP R/3 system. Material document shall be posted in the system for the material provided to the vendor. Challan shall be printed for the materials to be sent to the vendor for the Job Work. The Raw material/semi-finished goods are sent to Sub contractor for processing, on the goods being sent there is no accounting entry generated, as it involves a change of storage location in the system from RM-Storage location to material provided to Vendor.

Goods Receipt On receiving the sub contract processed goods the accounting entry is generated for the accounting of the material consumed, processed goods received and the Job work charges incurred as:

Stock (Finished goods) A/c DrStock consumed (Raw Material) DrJob Work Charges A/c Dr To Stock (Raw Material) A/c To Change in Finished Goods A/c To GR/IR A/c

Invoice verification

On Verification of the invoice as per the Sub contract Purchase Order, the liability to vendor is created to the extent of Job work charges and the following accounting entry is posted in the system along with the entry for the TDS payable



GR/IR A/C Dr To Vendor A/c To TDS Payable A/c

Vendor Accounting

On the payment being made as per the payment terms the Vendors open line item is cleared and the following entry is made in the system. Vendor A/c Dr To Bank A/c

Payment of the withholding tax

On the due date the payment is made and the following entry is made in the system. TDS Payable account Dr To Bank Account

Special Organizational Considerations

Organization positions (user levels) has to be identified for Release procedures Changes to existing Organization

Manual making of the challans will be stopped. Reconciliation shall be in the SAP R/3 system.



Description of ImprovementsStandardization of the process, in some units manual challans are made, in some computer print out of the manually keyed in items are taken, in SAP R/3 direct challans will be taken from the system, reconciliation too shall be done in the system.Paper being sent out for making labels will be fully accounted

Description of Functional Deficits None

Approaches to covering Functional Deficits None

Notes on further Improvements NIL

System Configuration Considerations

As per MM Purchase configuration.

ABAP Development Requirements

Authorization and User Roles


3 fi 01(ap-subcontracting)

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