Special Procurement in SAP MM: Consignment, Subcontracting, and Pipeline Stock Explained

Published by : BELMACHIA Alaaeddine

Publication date : 27 January 2026

In this article :

Why Special Procurement Exists and How It Fits into Daily Operations

Consignment – Vendor-Owned Stock Sitting in Your Warehouse

Subcontracting – Sending Components Out and Getting Finished Goods Back

Pipeline Stock – Materials That Flow Continuously Without Storage

Putting the Three Processes Side by Side in a Real Implementation

Common Real-World Considerations When Supporting These Processes

When you sit down with a client who runs a manufacturing plant or a distribution center, you soon discover that standard procurement covers only part of what actually happens on the shop floor. Some materials sit in the warehouse but still belong to the supplier until the moment they get used. Others get sent out to a vendor who turns them into something else before they come back. And then there are materials that never really sit anywhere at all—they just flow in continuously and get consumed as needed. These are the three special procurement processes that every SAP MM consultant ends up configuring sooner or later: consignment, subcontracting, and pipeline stock. They are not complicated once you see how the system tracks ownership, stock, and financial impact, but they do require a clear understanding of the master data, movement types, and integration points. Getting them right early in a project saves weeks of rework later when the finance team starts questioning why inventory values look off or why vendor liabilities are appearing in unexpected places.The beauty of these processes is that they follow the same core logic as regular procurement—purchase order, goods movement, invoice—but the system treats ownership, valuation, and stock location differently. In a typical project you will set them up during the blueprint phase, test them thoroughly in integration scenarios, and then train the key users on the exact transactions they will touch every day. Once live, they run quietly in the background, handling thousands of movements without anyone noticing until month-end reconciliation or physical inventory time. The goal here is to walk through each one in the order you usually encounter them in real implementations: first consignment because it is the simplest to explain, then subcontracting because it touches production, and finally pipeline because it is the most different from everything else.

Why Special Procurement Exists and How It Fits into Daily Operations

In most companies the procurement team spends a lot of time negotiating prices, managing delivery dates, and chasing invoices. But certain categories of materials do not fit neatly into that cycle. A supplier of fasteners might want to keep ownership of the stock until the production line actually uses the parts, so they can reduce their own credit risk. A machine builder might prefer to send raw steel and paint to a subcontractor who welds and assembles the frames, keeping the company’s own workshop free for higher-value work. A chemical plant might have natural gas delivered continuously through a pipeline, with no physical receipt and no storage—just a monthly meter reading that becomes the invoice. SAP handles all of these through special procurement keys and stock indicators that tell the system exactly who owns what at every step.These processes directly affect MRP, inventory valuation, and accounts payable. When you run MRP on a material that uses special procurement, the system generates different proposals—sometimes a purchase requisition for consignment info records, sometimes a subcontracting purchase order with component explosion. The stock overview screen shows special stock segments so planners can see at a glance what is available for use even though the company does not legally own it yet. Finance sees the correct liability only when consumption or settlement happens, which keeps the balance sheet clean. In practice you will often configure these alongside the material master and purchasing info records during the realization phase, then validate them in the integration test scripts that include production orders, physical inventory, and month-end closing.The three types we are covering here cover the majority of real-world cases you will meet. Consignment is common in automotive and electronics where suppliers want to push inventory risk downstream. Subcontracting shows up everywhere from apparel to heavy machinery where specialized skills are needed outside the plant. Pipeline materials appear in process industries—oil, gas, utilities, and chemicals—where the flow is literally continuous. Once you understand how the system tracks these movements, you can explain them to any stakeholder in ten minutes and they will immediately see why the standard process would not work.

Special Procurement Types Comparison Infographic

Consignment – Vendor-Owned Stock Sitting in Your Warehouse

Consignment starts with the idea that the vendor delivers material to your plant but keeps legal ownership until you actually consume it. The stock sits in your warehouse, you can see it, you can use it in production, but it does not hit your inventory value or create a payable until the moment of consumption. This arrangement gives the vendor confidence that their material is protected, while giving you the flexibility to pull what you need without committing cash upfront.You set this up first in the material master and the purchasing info record. In the material master you flag the material as relevant for consignment in the purchasing view, and you create a consignment-specific info record using info category K. That info record carries the price that will be used later for settlement, even though the purchase order itself shows zero price. When the buyer creates the purchase order in ME21N, they use item category K. The system automatically pulls the consignment price from the info record but does not display it on the PO because no financial commitment exists yet. The vendor ships the goods, and the warehouse team posts a goods receipt with movement type 101 and special stock indicator K. The stock appears in the consignment segment of the stock overview—visible, available for planning, but valued at zero.From that point the material can sit for weeks or months. When production needs it, the consumption posting—usually through a goods issue to a cost center, production order, or cost object—triggers movement type 201K or 261K depending on the context. At that exact moment the system creates a consignment liability for the vendor based on the price in the info record and the quantity consumed. You can see this liability building up in the consignment stock report and in the vendor line items. At the end of the period, usually monthly, the accounts payable team runs the consignment settlement transaction MRKO. This program groups all the withdrawals for each vendor and material, creates a settlement document, and posts the invoice to accounts payable. The vendor receives a credit memo or invoice from your company for exactly what was used—no more, no less.In a real project you will often see this process used for high-value or fast-moving items where the supplier wants to keep control. Think of a Tier-1 automotive supplier delivering electronic components to an assembly plant. The components sit in the supermarket racks right next to the line. The moment the operator scans one for a vehicle build, the system records the consumption and the liability appears. The plant never carries the inventory on its books until it is actually needed, which improves working capital and reduces obsolescence risk. During physical inventory the team counts the consignment stock separately and reconciles it with the vendor, usually through a joint count or a simple confirmation process. The system handles the stock type automatically as long as the special stock indicator is maintained correctly in the material master and the movements.The valuation side is straightforward. Consignment stock never appears in the company’s own stock value. Only after the transfer posting to own stock (movement 411K) does it move into unrestricted stock and pick up the company’s valuation price. Most companies avoid that transfer because it defeats the purpose of consignment. Instead they consume directly from consignment stock so the financial entry happens at the right time. In S/4HANA the Fiori apps for consignment monitoring make it even easier to see open liabilities and unsettled quantities, but the underlying logic has stayed the same for years.

Subcontracting – Sending Components Out and Getting Finished Goods Back

Subcontracting is the process where your company supplies raw materials or semi-finished components to a vendor who performs specific operations and returns a finished or semi-finished product. The vendor charges only for the service—the labor and any additional materials they add—while your company retains ownership of the components the entire time. This is extremely common in industries that need specialized equipment or skills without investing in them in-house.The foundation is the bill of materials and the subcontracting info record. You create a BOM for the finished material that lists all the components the vendor will receive. In the material master of the finished good you set the special procurement key to 30 (subcontracting) in the MRP 2 view. This tells MRP to generate subcontracting purchase requisitions instead of normal ones. The purchasing info record, created with info category L, stores the subcontracting price—the amount the vendor will charge for the service.When the buyer creates the purchase order in ME21N they use item category L. The system explodes the BOM and shows the components that must be provided to the vendor. The PO goes to the subcontractor with the component list attached. Once the PO is released, the warehouse team posts a goods issue to the vendor using movement type 541. The components move from your unrestricted stock into subcontracting stock (special stock O) at the vendor location. The stock overview now shows the quantity at the subcontractor, still owned by your company.The subcontractor performs the work—welding, painting, assembly, whatever the operation is—and ships the finished goods back. The goods receipt is posted with movement type 101 against the subcontracting PO. At the same time the system can automatically backflush the components (movement 543 O) or you can post them manually if the consumption is not exactly according to the BOM. The finished good now sits in your own stock, valued at the standard cost plus the subcontracting charges from the PO. The vendor sends an invoice for the service only, which you verify in MIRO against the PO. The system matches the quantity received and the price agreed.In practice this process runs thousands of times a day in companies that outsource painting, heat treatment, or final assembly. A typical example is a pump manufacturer that sends castings and seals to a subcontractor who machines the housings and assembles the complete pump. The components are issued to the vendor on Monday, the finished pumps arrive on Friday, and the invoice for machining services comes the following week. The entire cycle is visible in the stock overview and in the subcontracting cockpit (ME2O in older systems, the Fiori monitor in newer releases), so planners can see exactly what is at the vendor and when it is due back.One detail that often surprises new consultants is how the system handles scrap or excess consumption. If the subcontractor reports more components used than the BOM calls for, you post an additional goods issue 543 O. If they return unused components, you post a reversal 542 O. The system keeps the material balance correct so that costing and inventory are accurate. During month-end the finance team reconciles the subcontracting stock report (MBLB) with the vendor’s confirmation to make sure nothing has gone missing.

Pipeline Stock – Materials That Flow Continuously Without Storage

Pipeline stock is the most different of the three because there is no physical stock movement at all. The material—natural gas, electricity, water, steam, or any other utility—flows directly from the supplier’s pipeline or cable into your plant and is consumed immediately. There is no goods receipt, no storage location, and usually no purchase order. The system simply records consumption and creates a liability based on the price in the pipeline info record.You set this up by creating a material master with material type PIPE. In the purchasing view you maintain a pipeline info record with info category P. The price in that record is the rate per unit of measure—cubic meters of gas, kilowatt-hours of electricity, liters of water. Because the material is always available, MRP does not generate any requisitions or orders for it. Instead, when production or a cost center consumes the material, the system posts a goods issue directly from the pipeline (movement type 201P) without any prior receipt. The stock quantity never appears in inventory reports because there is nothing to store.At the end of the billing period the vendor sends a meter reading or consumption statement. The accounts payable team posts a pipeline settlement invoice that references the info record price and the total quantity consumed during the period. The system creates the financial posting directly to the consumption account and the vendor payable. In some industries the meter reading is entered daily or weekly so the consumption is visible in real time, but the actual payable is settled monthly.A chemical plant provides a clear picture of how this works. Natural gas flows through a dedicated pipeline from the supplier into the cracker unit twenty-four hours a day. Every hour the distributed control system records the flow rate and posts a goods issue to the production order via interface. At the end of the month the supplier’s invoice arrives for the exact cubic meters recorded. The system has already posted the consumption to the correct cost object, so the only remaining step is the invoice verification. No warehouse team is involved, no storage bins are needed, and the inventory value never includes pipeline material.In process industries this process is often integrated with the process order or production order confirmation so the consumption is captured automatically. The key is making sure the unit of measure and the price condition in the info record match exactly what the vendor uses on their invoice. Small mismatches here cause more reconciliation headaches than almost anything else in special procurement.

Putting the Three Processes Side by Side in a Real Implementation

When you configure these for a client you usually start with a workshop where the procurement and production teams map out which materials fall into which category. Consignment materials are typically high-volume, low-value items that the supplier is willing to finance. Subcontracting materials are those where the company wants to keep control of the components but needs external capacity. Pipeline materials are the utilities and consumables that have no discrete receipt.The master data setup follows a similar pattern for all three. You maintain special info records, set the appropriate special procurement key or stock indicator in the material master, and make sure the movement types are allowed for the material type. In the IMG you verify that the account determination for the special stock movements points to the correct G/L accounts—usually consumption accounts rather than inventory accounts for consignment and pipeline.During testing you run end-to-end scenarios that include MRP, production orders, physical inventory, and month-end. For consignment you simulate consumption and settlement. For subcontracting you issue components, receive finished goods, and post the service invoice. For pipeline you post manual consumptions and then settle the periodic invoice. The integration with FI is the part that usually needs the most attention because the postings happen at different times than in standard procurement.In live operation the day-to-day work is surprisingly light. Warehouse staff post the movements they already know—goods receipt for subcontracting, goods issue for consignment and pipeline. The accounts payable team runs the settlement programs once a month. Planners monitor the special stock reports as part of their daily routine. The system does the heavy lifting of tracking ownership and generating the correct financial entries.

Common Real-World Considerations When Supporting These Processes

Once the processes are live, the questions that come up are usually around exceptions. What happens when a consignment item becomes obsolete? You can return it to the vendor with movement 122K or negotiate a settlement. What if the subcontractor damages components? You post a write-off or a return and adjust the PO. What if the pipeline meter reading is disputed? You post a manual adjustment to the consumption quantity and reconcile with the vendor.Reporting is straightforward once you know where to look. The stock overview (MMBE) shows special stock segments. The consignment and subcontracting stock reports (MBLB, ME2O) give vendor-level visibility. Pipeline consumption appears in the standard material documents and cost reports. In S/4HANA the embedded analytics make these even easier to slice by plant, material, or vendor.The biggest value these processes deliver is flexibility and working capital improvement. Consignment reduces inventory carrying cost. Subcontracting extends capacity without capital expenditure. Pipeline eliminates handling and storage for commodities. When you explain them to a new team or a client stakeholder, keep it simple: the system knows who owns what, when the liability is created, and how the cost flows to the right place. Everything else is just the transactions you already use every day.These three special procurement types—consignment, subcontracting, and pipeline stock—cover the majority of non-standard scenarios you will meet in SAP MM. Master them and you will be able to design procurement solutions that actually match the way the business operates instead of forcing the business to fit a standard process. That is what separates a good consultant from an average one.