SAP Outsourced Manufacturing: EHP4 and LOG_MM_OM_1

By Ross Christoph

SAP outsourced manufacturing connects subcontracting procurement with component consumption and manufacturing cost analysis. The Outsourced Manufacturing business function (LOG_MM_OM_1), introduced with SAP ERP 6.0 Enhancement Package 4 (EHP4), added capabilities for timely consumption and integration with Cost Object Controlling.

Scope: This article develops Ross Christoph’s original 2015 implementation note. The EHP4 functionality is discussed in its SAP ERP context, with references to related SAP S/4HANA on-premise documentation. The appropriate design depends on your installed release, integration landscape, and process requirements.

For the standard purchasing and inventory process, start with our SAP subcontracting guide.

What EHP4 Added to Outsourced Manufacturing

The enhancement supports closer tracking of the subcontractor’s production progress and the quantities consumed. In the relevant integrated scenario, a subcontracting purchase-order item can be associated with a CO production order so that outsourced activity is visible in cost-object processing and reporting.

These features require the applicable business function, configuration, and master data. Creating a normal purchase order does not automatically create a CO production order.

Timely Component Consumption

In the conventional subcontracting flow, the finished-material goods receipt normally triggers component consumption. Timely consumption posting separates the consumption posting from that goods receipt, allowing inventory records to reflect supplier-reported usage earlier in the process.

For the documented SAP SNC integration, the purchasing info record must have the Timely Consumption Posting indicator selected. Supplier work-order information is transferred through the configured integration, and consumption is recorded in Inventory Management and the component-consumption history.

When timely consumption is used, the later finished-material receipt does not repeat the component consumption. Consumption corrections and the relationship between goods receipts, component history, and order costs need to be included in process testing.

CO Production Orders and SAP SNC Integration

SAP’s documented process checks whether the subcontract order is relevant for the SAP SNC integration. When the prerequisites are met, it creates a CO production order for each relevant purchase-order item and links the account-assignment reference to that item.

The collaboration process then links procurement, supplier work orders, and cost objects:

1. Create the subcontracting purchase order and the related CO production orders for eligible items.
2. Create the associated supplier work orders through the configured SAP SNC integration.
3. Provide components to supplier stock.
4. Receive supplier production-progress and consumption information.
5. Review the component-consumption history and the quantities captured for Cost Object Controlling.
6. Post the finished-material receipt and complete the applicable order-cost processing.

The CO order provides a cost-object view of the outsourced work. It should be assessed alongside the organization’s internal manufacturing reporting and period-end processes. For that wider context, see our S/4HANA Product Cost Controlling guide.

Group Valuation: Ross’s Implementation Note

Ross’s original example concerned internal subcontracting within one SAP instance. The group-valuation requirement was to use the manufacturing plant’s cost estimate in the inventory-owning company’s costing, rather than relying on its purchasing info record price.

For that implementation, Ross reported a custom program change for the group cost estimate, while group-value recording at invoice receipt could use standard processing. This describes the design of that project. A new implementation should assess the required valuation flow against the available standard functions and supported enhancement options for its release.

Document the legal and group valuation requirements, inventory ownership, manufacturing location, and intercompany pricing before choosing how to derive the cost. For valuation background, see our SAP Material Ledger overview.

SAP S/4HANA Considerations

SAP S/4HANA on-premise documentation describes CO production orders integrated with SAP SNC, including references to the purchase-order item and supplier work orders. Use the documentation for the target release to confirm the supported integration and prerequisites.

When reviewing an ECC design for S/4HANA, assess the supplier collaboration solution, licenses, interfaces, and costing process together. A historical EHP4 description is not a deployment guide for SAP S/4HANA Cloud Public Edition.

Implementation Review Checklist

• Process: Decide whether component consumption needs to be recorded separately from the finished-material receipt.
• Scope: Identify the relevant subcontracting items, materials, plants, and supplier collaboration arrangements.
• Prerequisites: Check the business-function status, purchasing info-record indicator, integration settings, and CO-order configuration.
• Quantity controls: Test supplier updates, corrections, partial receipts, and reconciliation to component-consumption history.
• Costs and valuation: Test component values, supplier charges, differences, settlement, and any group-valuation requirements.
• Reporting: Confirm how users trace a purchase-order item to its CO order and supplier work orders.

For a related example of combining production or procurement alternatives in costing, see SAP mixed costing.

SAP Documentation

Use these SAP Help references for the relevant release:

• Outsourced Manufacturing business function LOG_MM_OM_1
• Timely consumption and goods movement posting with SAP SNC
• CO production orders with SAP SNC integration in S/4HANA

Glossary

CO Production Order

A cost object used to collect and analyze production-related quantities and costs. In the documented integrated subcontracting scenario, it is linked to a relevant purchase-order item.

Component Consumption History

A record of component usage for the subcontracting process, used to trace supplier-reported consumption and related quantity adjustments.

Enhancement Package 4 (EHP4)

An enhancement package for SAP ERP 6.0 that introduced the LOG_MM_OM_1 Outsourced Manufacturing business function.

Group Valuation

A valuation perspective used to view transactions and inventory from a group standpoint. Its costing and intercompany treatment must be defined for the specific system and process.

LOG_MM_OM_1

The technical name of the Outsourced Manufacturing business function introduced with SAP ERP 6.0 EHP4.

Purchasing Info Record

Purchasing master data for a material and supplier. The timely-consumption indicator in the relevant subcontracting info record is a prerequisite in the documented integration.

SAP SNC

SAP Supply Network Collaboration, a supplier collaboration application used for work-order information and consumption updates in the integration described here.

Subcontracting

A procurement process in which a supplier processes or manufactures a material using components provided by the purchasing company.

Timely Consumption Posting

Posting component consumption separately from the goods receipt of the subcontracted material, using the applicable configuration and supplier-consumption data.