Both arrangements mean the same thing on the shop floor: an outside vendor performs a step for you. The difference lives in the account determination, and you can identify which one a company actually implemented by reading the keys in the material document.
Here are the three fingerprints, from a sandbox where I ran all of them on the same product.
In-house production
Consumption posts with VBR / AUF. The production order is the cost collector: components go in, the finished material comes out, and the order carries the difference until settlement.
Nothing surprising — this is the baseline the other two get compared against.
Subcontracting
You send components to the vendor (541 movement) and receive back a different material number.
- Consumption of the provided components posts with VBO
- The subcontracting fee lands via BSV
The fee gets its own account (9050 in my build) because it is a purchased service embedded in a material, not internal labour. From the system's point of view the vendor made the part; you supplied ingredients.
External processing
The operation stays on your production order. The order remains the cost collector (VBR / AUF), and the external step arrives as an FRL posting against a separate account (9070). The material never leaves your books as a different number — it is still your part, one of whose operations happened elsewhere.
The practical consequence for product costing
This is where the choice stops being academic.
Subcontracting appears in the standard cost estimate as a purchased price. The itemization gives you one line and no visibility into what that line is made of. If your cost estimate suddenly lost its material breakdown for one component, this is usually why — and it means your variance analysis for that part is blind.
External processing keeps the BOM explosion intact. You still see the components, and the external operation shows up as one more cost element alongside labour and machine time.
Neither is wrong. But if someone asks "why can't I see what's inside this part's cost," the answer is often that a procurement decision, made years ago for entirely non-accounting reasons, collapsed the structure.
How to tell which one you are looking at
Open the material document and read the account determination key. VBO plus BSV means subcontracting. VBR/AUF plus FRL means external processing. VBR/AUF alone means you made it yourself.
From a dumpling factory built from scratch in S/4HANA to document a full month end-to-end. There is a free 16-page sample of the write-up.
