Hi Mukul,
This is more of procurement and production process than sales process.
One point to be noted is that the sending material and receiving material codes need to be different.
i.e. Every raw material you send and every finished product / semi-finished component you receive should be different.
Your sending material and receiving material should be different
There should be some value addition to the product from the vendor.
There is a standard subcontracting process in MM. If you get the help of an MM consultant, he can map this process (may be through a service PO) to you.
I talked to my MM consultant and the process is like this
A subcontracting PO should be created to the Vendor with the raw materials in the PO.
This is followed by Goods issue (to send the materials to the Vendor)
Now the vendor works on these raw materials and makes the semifinished component which is part of PP in his organisation
He now sends the semi-finished component to us with the additional cost of value addition.
Now the new material is received by using a Goods Receipt for the Subcontracting PO using the new material code.
But you can discuss with your MM consultant for the detailed configuration and enabling the process.