Operation subcontracting: Within in-house production if some capacity bottleneck exists in any operations then you can assign this job to some vendors to carryout this job in his premises and supply us the semi-finished part. This can be done via control key example PP02 (external processing control key and activate the subcontracting Check box in routing). Option1: 1) In Control key PP02 enable external processing and in the routing in the operation detail enable external processing under radio button sub contract. 2) In Order type dependent parameter T code OPL8 enable reservation / PR creation - 3 (immediate reservation / PR creation) during release / confirmation. 3) Create Info record T code ME2O only for vendor no material combination. (You are not going to issue material for the vendor through SAP) system will not allow through ME2O since it is operation subcontract. 4) Run MRP it will not create PR directly since the it is enable in OPL8 only after release. 5) Do the In-house operation then confirm the in -house operation in CO11n. Once the previous operation is confirmed PR is generated automatically. 6) Then Convert PR to P.O. In purchase order only operation description will appear. since no component is assigned. And the order type will be F. 7) Then make separate DC (Gate pass). Consult your MM guy for this. 8) If any component is assigned to the operation. Do stock transfer to Vendor storage location till such time it comes to factory again. 9) While return from vendor do MIGO against the P.O and it will come settle in prod order. 10) Payment to the vendor is through service record entry concept. Consult MM gut for this. Option 2: 1) You have to create separate material master for that operation. Treating that it will be a different material 2) Create Vendor master with Material and Vendor combination 3) Create BOM with header material and this material as item for the header. 4) Create Routing for the header material with only one operation with control key PP02. 5) Assign the item material to this operation. 6) Run MRP this will create PR automatically. Then convert PR to PO 7) Send material to the vendor through ME2O 8) Do the GR MIGO the item will come have header material and it will automatically update in unrestricted stock. 9) Payment to the vendor will be with different not as service entry concept consult MM guy for this.