SAP Fiori Apps for Variance Analysis in Manufacturing
by Tom King
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Tom King recently retired from Milliken, a leading global manufacturer of specialty textiles, floor covering, and chemicals based in Spartanburg, South Carolina. He was lead SAP CO analyst and has more than 30 years of experience in manufacturing and product costing. Tom has published three SAP books with Espresso Tutorials:
- Practical Guide to SAP CO Templates
- SAP S/4HANA Product Cost Planning Configuration and Master Data
- SAP S/4HANA Product Cost Planning Costing with Quantity Structure
My company is in the early stages of moving from SAP ECC 6.0 to SAP S/4HANA.
I thought it would be interesting to give you my initial impressions of what I found out about Controlling in SAP S/4HANA. Since we started out with ECC 6.0, we didn't have to worry about things like classic G/L versus new G/L.
When we first got access to an S/4HANA sandbox for a test drive, this helped me get a much better understanding of how the new system works rather than reading documentation and watching training videos. Here are my initial impressions, which may be useful if you are making the move, or considering it.
Over the last seven weeks expert Tom King has shared detailed information on SAP activity types . This blog post provides a recap and link to each post in the series.
Activity type posting with category 5 (Target=actual allocation) works similarly to the category 2 activity type, but does not require an indirect activity allocation cycle in order to post the activity.
Prev Blog: SAP Activity Postings 6: Category 4 Activity Types and Posting
Category 4 activity types do not allow any sort of allocation. They are manually posted like category 1 and category 3 activity types. The activity stays in the cost center. Why have an activity type that cannot allocate costs between cost objects? Isn’t that the main purpose of the activity type?
Next Blog: SAP Activity Postings 7: Category 5 Activity Types and Posting
Prev Blog: SAP Activity Postings 5: Category 3 Activity Types and Posting
The main takeaway from category 2 type activities in previous blogs is that the quantity of activity posted is calculated based on information derived from receiver cost objects.
What if you do know how much activity should be posted, but don’t want to manually determine how to allocate the posting to other cost objects? That is where category 3 (manual entry, indirect allocation) activity types come in.
Next Blog: Activity Postings 6: Category 4 Activity Types and Posting
Prev Blog: Activity Postings 4: Category 2 Activity Types and Posting – Part 2
In previous blogs, we examined how to automate activity type postings with the indirect activity allocation cycle and category 2 activity types. We posted a statistical key figure to receiver cost centers to calculate the sender activity type quantities. This required some manual postings for the statistical key figure, but the calculation of the activity type quantity and the actual postings were automatic.
Next Blog: SAP Activity Postings 5: Category 3 Activity Types and Posting
Prev Blog: SAP Activity Postings 3: Category 2 Activity Types and Posting
Category 2 activity types are for indirect determination and indirect allocation.
Let's start with activity type category 1 (manual entry, manual allocation) which is the most common. Activity types defined with this category post directly from a cost center to a receiver cost object.
Look at the definition of activity type CATEG1 as shown in Figure 1. In this case, Actl Acty Type Cat. (Actual Activity Type Category) is blank, which means it is the same as the plan activity type category, or 1 in this example.
When I was a charter member of my company's SAP FICO product costing team, the first items I encountered were activity types. I discovered that activity types are not cost drivers but instead allocate costs from cost centers to cost objects.
First, in this article, let's create an activity type with the assigned fields.
You create an activity type with the Manage Activity Types app (SAP Fiori ID F1605A) to display activity types master data, create new activity types, and manage existing ones.
You can also use SAP GUI Transaction KL01 and assign a unit of measure as shown in Figure 1.
Figure 1 Create Activity Type Basic Data Tab
In this example, we assign KWH for electricity consumption, or you could assign HR for machine hours.
You next assign a secondary cost element type 43 (internal activity allocation) as shown in Figure 2.
Figure 2 Assign Secondary Cost Element
The cost element identifies the cost, crediting the sender cost center and debiting the receiver cost object.
You next assign an AType (Activity Type) category as shown in Figures 3 and 4.
Figure 3 AType Category 1
Figure 4 AType Category 2
The category defines the method you use for planning as described in the red text.
You enter the Price indicator as shown in Figures 5 and 6.
Figure 5 Price Indicator 1
The price indicator determines if the value is calculated based on cost element postings, see red text.
Figure 6 Price Indicator 5
Now that we've introduced activity types, let's look at more allocation activity categories. We'll explore each of the five categories in detail in the following blogs.
An accrual order enables you to monitor period-related accrual calculation between expenses posted in Financial Accounting and Controlling.
A cost center is master data that identifies where the cost occurred. A responsible person assigned to the cost center analyzes and explains cost center variances at period-end.
Fixed assets are company-owned, long-term tangible assets, such as forms of property or equipment. These assets make up its day-to-day operations to generate income. Being fixed means they can't be consumed or converted into cash within a year.
An activity type identifies activities provided by a cost center to manufacturing orders. The secondary cost element associated with an activity type identifies the activity costs on cost center and detailed reports
An allocation structure allocates the costs incurred for a sender by cost element or cost element group, and it is used for settlement and assessment. An assignment maps a source cost element group to a settlement general ledger account.
While there can only be one cost center standard hierarchy, you can create as many alternative hierarchies as you like. You create an alternative hierarchy by creating cost center groups
Automatic account assignment allows you to enter a default cost center per cost element within a plant with Transaction OKB9.
Availability control enables you to control costs actively by issuing warnings and error messages when costs are incurred.
A bill of material (BOM) is a structured hierarchy of components necessary to build an assembly. BOMs together with purchasing info records allow cost estimates to calculate material costs of assemblies.
You use the controlling area currency for cost accounting. You specify the controlling area currency when defining the controlling area in customizing for Controlling . You can assign more than one company code with different currencies to a controlling area.
A cost center is master data that identifies where the cost occurred. A responsible person assigned to the cost center analyzes and explains cost center variances at period end.
A cost component identifies costs of similar types, such as material, labor, and overhead costs by grouping together cost elements in the cost component structure.
Cost component groups allow you to display cost components in standard reports. In the simplest implementation, you create a cost component group for each cost component and assign each group to a corresponding cost component. You assign cost component groups as columns in cost estimate list reports and costed multilevel BOMs.
The cost component split is the combination of cost components that makes up the total cost of a material. For example, if you need to view three cost components (material, labor, and overhead) for your reporting requirements, the combination of these three cost components represents the cost component split.
You define which cost components make up a cost component split by assigning them to a cost component structure. Within the cost component structure, you assign cost elements and origin groups to cost components.
Each cost component is assigned to a cost component view. When you display a cost estimate, you can choose a cost component view, which filters the cost components displayed in the cost estimate.
Cost elements are included as part of a general ledger account. Primary cost elements identify external costs, while secondary cost elements identify costs allocated within controlling, such as activity allocations from cost centers to manufacturing orders.
A cost estimate calculates the plan cost to manufacture a product or purchase a component. It determines material costs by multiplying BOM quantities by the standard price, labor costs by multiplying operation standard quantities by plan activity price, and overhead by costing sheet configuration.
A costed multilevel BOM is a hierarchical overview of the values of all items of a costed material according to the material’s costed quantity structure (BOM and routing). You display a costed multilevel BOM on the left side of a cost estimate screen. You can also view a costed multilevel BOM separately with Transaction CK86_99.
Costing BOMs are assigned a BOM usage of costing and are usually copied from BOMs with a usage of production. You can make adjustments to costing BOMs if you require them to be different from production BOMs. With system-supplied settings, standard cost estimates search for costing BOMs before production BOMs.
The costing lot size should be set as close as possible to actual purchase or production quantities to reduce lot size variance. Unfavorable variances may result if you create a production order for a quantity that is less than the costing lot size. You need setup time to prepare equipment and machinery for production of assemblies, and that preparation is generally the same regardless of the quantity produced. Setup time spread over a smaller production quantity increases the unit cost. This also applies to externally procured items because vendors typically quote higher unit prices for smaller quantities.
A costing run is a collective processing of cost estimates, which you maintain with Transaction CK40N.
A costing sheet summarizes the rules for allocating overhead from cost centers for cost estimates, product cost collectors, and manufacturing orders. The components of a costing sheet include the calculation base (group of cost elements), overhead rate (percentage rate applied to base), and credit key (cost center receiving credit).
The costing type determines if the cost estimate can update the standard price.
The costing variant contains information on how a cost estimate calculates the standard price. For example, it determines if either the purchasing info record price is used for purchased materials, or an estimated price is manually entered in the Planned price 1 field of the Costing 2 view.
The currency type identifies the role of the currency such as local or global.
Demand management involves planning requirement quantities and dates for assemblies, as well as defining the strategy for planning and producing/procuring a finished product.
Dependent requirements are caused by higher-level dependent and independent requirements when running MRP. Independent requirements, created by sales orders or manually planned independent requirement entries in demand management, determine lower-level dependent material requirements.
Detailed reports display cost element details of manufacturing orders and product cost collectors. You can drill down on cost elements to display line-item reports during variance analysis.
You maintain distribution rules in settlement rules in manufacturing orders and product cost collectors.
As of SAP S/4HANA release 2022, event-based processing is available, where goods movements and confirmations represent events that trigger the calculation of overhead according to the costing sheet. Then, depending on the status of the order, this triggers either the posting of a journal entry for the work in process (WIP) or the cancellation of any existing WIP and the calculation of production variances.
External processing of a manufacturing order operation is performed by an external vendor. This is distinct from subcontracting, which involves sending material parts to an external vendor who manufactures the complete assembly via a purchase order.
A goods issue is the movement (removal) of goods or materials from inventory to manufacturing or to a customer. When goods are issued, it reduces the number of stock in the warehouse.
GR/IR is the SAP process to execute the three-way match- purchase order, Material Receipt, as well as vendor invoice. You use a clearing account to record the offset of the Goods Receipt (GR) and Invoice Receipt (IR) postings. As soon as completely processed, the postings in the cleaning account balance.
An internal order monitors costs and revenue of an organization for short- to-medium-term jobs. You can carry out planning at a cost element and detailed level, and budgeting at an overall level with availability control.
Long-term planning allows you to enter medium- to longer-term production plans, and simulate future production requirements with long-term MRP. You can determine future purchasing requirements for vendor RFQs, update purchasing info records, and transfer planned activity requirements to cost center accounting.
Margin Analysis is the refined version of Account-based COPA. The Universal Journal combines financial and managerial accounting and directly records all dimensions, including custom fields. Margin Analysis provides consistent financial information without any reconciliation needs along with a financial audit trail. All innovations developed for the Universal Journal are immediately available within Margin Analysis. A consistent approach ensures common usage of ledgers, currencies, valuations, predictions, and simulations, as well as their availability in planning and reporting.
Master data is information that stays relatively constant over long periods of time. For example, purchasing info records contain vendor information such as a business name, which usually doesn’t change.
A material master contains all the information required to manage a material. Information is stored in views, each corresponding to a department or area of business responsibility. Views conveniently group information together for users in different departments, for example, sales and purchasing.
A process order is a manufacturing order that is used in process industries. A master recipe and materials list are copied from the master data to the order. A process order contains operations that are divided into phases. A phase is a self-contained work-step that defines the detail of one part of the production process using a primary resource.
In process manufacturing, only phases are costed, not operations. A phase is assigned to a subordinate operation and contains standard values for activities, which are used to determine dates, capacity requirements, and costs.
A procurement alternative represents one of a number of different ways of procuring a material. You can control the level of detail in which the procurement alternatives are represented through the controlling level. Depending on the processing category, there are single-level and multilevel procurement alternatives. For example, a purchase order is single-level procurement, while production is multilevel procurement.
A production order is used for discrete manufacturing. A BOM and routing are copied from master data to the order. A sequence of operations is supplied by the routing, which describes how to carry out work-steps.
An operation can refer to a work center at which it is to be performed. An operation contains planned activities required to carry out the operation. Costs are based on the material components and activity price multiplied by a standard value.
Product drilldown reports allow you to slice and dice data based on characteristics such as product group, material, plant, cost component, and period. Product drilldown reports are based on predefined summarization levels and are relatively simple to setup and run.
Production variance is a type of variance calculation based on the difference between net actual costs debited to the order and target costs based on the preliminary cost estimate and quantity delivered to inventory. You calculate production variance with target cost version 1. Production variances are for information only and are not relevant for settlement.
A production version determines which alternative BOM is used together with which task list/master recipe to produce a material or create a master production schedule. For one material, you can have several production versions for various validity periods and lot-size ranges.
When raw materials are valued at the standard price, a purchase price variance will post during goods receipt if the goods receipt or invoice price is different from the material standard price.
A profit center receives postings made in parallel to cost centers and other master data, such as orders. Profit Center Accounting (PCA) is a separate ledger that enables reporting from a profit center point of view. You normally create profit centers based on areas in a company that generate revenue and have a responsible manager assigned.
Costing-based profitability analysis enables you to evaluate market segments, which can be classified according to products, customers, orders (or any combination of these), or strategic business units, such as sales organizations or business areas concerning your company’s profit or contribution margin.
Transaction ME20 ia a subcontract stock overview and requirments list. You enter a material or vendor and you will see the stocks and the requirements. Based on this info you can create deliveries to supply stock to the vendor as needed.
A purchasing info record stores all of the information relevant to the procurement of a material from a vendor. It contains the Purchase Price field, which the standard cost estimate searches for when determining the purchase price.
A purchase order is a legal contract which binds the supplier to supply materials or services and the purchaser to pay after receiving the materials or services.
A purchase requisition is a request or instruction to Purchasing to procure a quantity of a material or service so that it is available at a certain point in time. There is no legal requirement to carry out the purchase until a purchase order is created. You can record the purchase requisition in commitment management because it may lead to actual expenditure in the future.
The procurement type in the MRP 2 view defines the material as assembled in-house, purchased externally, or both:
The special procurement type can be used to override the procurement type.
The Special Procurement Type field found immediately below the procurement type in the MRP 2 view is used to more closely define the procurement type. For example, it may indicate if the item is produced in another plant and transferred to the plant you are analyzing. Special procurement type 30 indicates the material is procured by subcontracting.
A standard hierarchy represents your company structure. A standard hierarchy is guaranteed to contain all cost centers or profit centers because a mandatory field in cost and profit center master data is a standard hierarchy node.
The standard price in the Costing 2 view determines the inventory valuation price if price control is set at standard (S). The standard price is updated when a standard cost estimate is released. You normally value manufactured goods at the standard price.
You supply component parts to an external vendor who manufactures the complete assembly. The vendor has previously supplied a quotation, which is entered in a purchasing info record with a category of subcontracting.
Target costs are plan costs adjusted by the delivered quantity. For example, if the quantity delivered to inventory is 50% of the plan quantity, target costs are calculated as 50% of the plan costs.
The valuation variant is a costing variant component that allows different search strategies for materials, activity types, subcontracting, and external processing. For example, the search strategy for purchased and raw materials typically searches first for a price from the purchasing info record and then Planned Price 1.
Variance analysis involves comparing actual with target costs and dividing the balance into variance