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Cost Component Views in SAP Product Costing

TomKingI'm writing a book on SAP Product Cost Planning and in the process getting a better understanding of the importance of cost component views in product cost estimates.

The cost component split and cost component views provide valuable insight into a cost estimate. Setting up cost components correctly in a cost component structure leads you to a multi-faceted understanding of a product cost within a single cost estimate. At the beginning of the implementation our priority was to develop standard costs and we ignored additional information we could have obtained with a better understanding of cost component views.

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Improve Performance of SAP Material Ledger Closing Cockpit

Ashish Sampat 2018 12 1Many SAP installations experience long run-times during Material Ledger close. This Blog explains a function that can help expedite Material Ledger close.

Knowing how much a product costs is essential to determining actual profitability. Yet most decisions are based on the standard cost of the product, given that it is not always easy to get an accurate picture of the actual cost. Actual costing functionality provided by the Material Ledger component of SAP Controlling bridges this gap. It provides the ability to capture actual costs by tracking variances at the material (product) level. This section provides an overview of actual costing in SAP Material Ledger.

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Guest — Praveen Ratawal
Excellent learning for material ledger.
Friday, 19 July 2019 15:12
John Jordan
I agree Praveen - good solid SAP Material Ledger basics without the HANA hype. Remember you can meet Ashish and other expert speak... Read More
Friday, 19 July 2019 22:41
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The Art & the Science of a Strong S/4HANA Business Case

Business CaseWriting an effective S/4HANA business case is both a science and an art. As a business and digital transformation specialist, this continues to be my most important takeaway.

The science part is easier to handle. SAP provides you with tools and you probably have your own that you devise and use such as metrics and KPIs which assist you determine the quantitative aspects of what you want out of S/4HANA.

Art is the more difficult aspect since no two customers are alike. You can't use a one size fits all approach. I approach each business case discussion with a minimum set of success factors or criteria. Here are a few of the key components:


 

  • Business drivers: Don't forget the word business in ‘business transformation’. You need to derive your business case for implementing/converting to S/4HANA from your enterprise corporate strategy & KPIs

  • Pain points: Most organizations hate this cliché but there's no escaping it. You can rephrase it to challenges or maybe improvements needed. This aspect is related to business drivers but whereas business drivers are strategic, pain points are tactical and emanate from the business user community

  • Key success factors (KSFs): Qualitative key factors such as better user experience, opportunities for innovation and real-time analytics

  • Stakeholder analysis: Even the most air-tight business case will not succeed if you do not have the right level of stakeholder engagement and support. So, it is important that you analyze and ensure that you maximize stakeholder buy-in

  • Organizational readiness: Some organizations do not consider an assessment of their organizational readiness before embarking on a business transformation journey. There needs to be an organic appetite for change

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Let's me move to the science aspect of an S/4HANA business case. SAP provides customers with many tools to help quantify their case for S/4HANA. Among the tools we employ are SAP Transformation Navigator and Business Scenario Recommendations (BSR). Some customers use their own tools, techniques snd calculations. Popular financial KPI's include Net Present Value (NPV) and Internal Rate of Return (IRR). KPIs can be leveraged in every functional/business process area the business transformation is covers.

Building a powerful business case for your S/4HANA journey requires extensive planning and execution. If you would like to learn more on this important topic, please attend my session How to Build a Business Case for S/4HANA  during SAP Controlling Conference in San Diego, CA, October 7-10.

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Guest — Sathik
What is the difference between SAP HANA and SAP S4 HANA ?
Sunday, 11 August 2019 04:30
Guest — Sathik
What is the difference between SAP HANA and S4 HANA ?
Sunday, 11 August 2019 04:31
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GR/IR (Goods Receipt / Invoice Receipt) Processing

GR/IRoss Christoph 2017R is the SAP process to perform the three-way matchpurchase order, material receipt, and vendor invoice.  You use a clearing account to record the offset of the goods receipt (GR) and invoice receipt (IR) postings.  Once fully processed, the postings in the clearing account balance.

Clearing is performed at the purchase order (PO) line item level based on quantity entered. Price variance and exchange rate variance are calculated.  You can write off small differences using transaction MR1.

Purchace Price Variance
This discussion assumes you are using standard price control (S)  for purchased materials. The quantity and amount on the GR and IR postings are important. You must have posted GR to record purchase price variance (PPV). There is no PPV posting for just IR. There can be additional variance postings on IR after GR is posted for differences between PO price and actual price paid.

When posting GR, the price variance is based on the PO price, unless IR has already been posted, then it is based on actual price paid. If IR has already been posted, the GR will be based on the IR up to the quantity of the IR, after that is will use the PO price again.

After all postings to a PO line item, the net PPV posted will be the difference between the actual price paid and the standard cost of the material.

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Guest — Dwipanita Sarkar
Thank you very much for keep this information
Tuesday, 27 November 2018 16:24
John Jordan
You're welcome. What other areas interest you in SAP that we could provide information on?
Saturday, 22 June 2019 20:19
Guest — brong
when i run analyzed GR-IR how can i know from what's suppliers and PO?
Thursday, 27 December 2018 04:37
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Moving to S/4HANA: Some Personal Thoughts About Controlling

Tom KingMy company is in the early stages of moving from ECC 6.0 to S/4HANA. I thought it would be interesting to give you my initial impressions of what I found out about Controlling in S/4HANA. Since we started out with ECC 6.0, we don’t have the baggage of things like classic G/L versus new G/L.

We first got access to an S/4HANA sandbox for a test drive of the system. This is an important step in the transition and has helped me get a much better understanding of how the new system works rather than reading documentation and watching training videos. What follows are my initial impressions. Hopefully, this will be useful if you are making the move, or contemplating it. 

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Guest — Dwipanita Sarkar
Nice and well planned blog Love reading the information.
Tuesday, 27 November 2018 16:26
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Explore Various Cost Objects in SAP Controlling

Ashish SampatI often get asked about difference between a Production Order and Process Order. When is it beneficial to use one over another?
As such, from controlling point of view, both objects have similar features. It is mainly on the Production Planning and Shop Floor Execution side where we see a difference. The main advantage of using Process Order is use of Process Instruction Sheet, or PI Sheet for day-to-day shop-floor activities. Whereas both the scenarios use Material Masters and Bills of Materials; Production Orders use Work Center (Machine) and Routing (sequence of operations) – Process Orders use Resource (Machine) and Recipe (sequence of operations and which component is issued during which operation). The decision on whether to go with Production Orders or Process Order would depend upon type of industry and fitment and is largely driven by the Production Planning team.


While we are on this topic of Production Orders and Process Orders, it might be beneficial to speak about other Cost Objects that are offered in Controlling.

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Why should you attend SAP Controlling 2018 conference?

Marjorie WThrough my careers as a cost accountant, accounting manager, project manager, and an education
consultant I’ve attended countless conferences on SAP FI-CO. My first experience with this particular
conference was in 2014. I was quite impressed with the roster of speakers, the breadth of the topics,
and the size of the event. It is just large enough to draw a diverse cross section of SAP CO users and
consultants and just small enough for you to be able to connect with individuals. Where else could
you chat over lunch with the legendary Janet Salmon?

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Thank you for sharing such a nice and interesting blog with us. I have seen that all will say the same thing repeatedly. But in yo... Read More
Tuesday, 27 November 2018 16:28
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Explanation of FI Line Item Texts created by Material Ledger

Paul Material LedgerIf you use Material Ledger’s Actual Costing, then you would know that the Post Closing Step creates accounting documents depending on how the variances for the Material have been distributed. For example, a material with a price (or exchange rate) difference of $100 could be sold, scrapped, used in a production order that is complete, used in a production order that is not complete, transferred to another plant, or left in inventory. And this only refers to the differences that are created on the material itself (single-level), and not the differences that are transferred from other materials (multilevel) which have their own slew of Material Ledger postings.

 Because of this, it is easy to be overwhelmed by the volume of postings that are created by the Material Ledger’s closing entry and what they mean. Some companies choose to label the General ledger accounts appropriately to indicate what the posting is for, but if you do not understand the posting, it is easy to incorrectly label the General Ledger account. Also, you may not need a separate general ledger account for each scenario as that may lead to more General Ledger accounts than you need, and may create even more confusion.

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Activity Postings 7: Category 5 Activity Types and Posting

TomKingWe come to the end of our tour of activity type posting with category 5 (Target=actual allocation).  This one is the low-fat frozen yogurt of activity types.  It tastes great, but you don’t have to work as hard to keep a trim figure.  This works similarly to the category 2 activity type, but does not require an indirect activity allocation cycle in order to post the activity.


Instead, all that is required is that you run transaction KNMA in order to make the postings.

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“How can this be?”, you might ask.  KNMA looks at the amount of receiver activity that is posted and then determines from the planned allocation how much of the allocated activity should be posted.  It’s as simple as that.  I am going to show you two different examples of how this works.  First, let’s look at activity that is planned using a fixed allocation quantity.

In our category 2 examples, the planned activity allocation was planned as variable.  That means that the quantity of activity to post was based on some receiver factor associated with an actual posting.  For fixed allocations, the total planned quantity of activity should be posted regardless of how much of the receiver is posted.  Let’s see how this works.  The receiver activity MACHHR is planned in three cost centers (RCV5A, RCV5B, and RCV5C), and the price of the activity type in each of those cost centers is made up of both costs that are directly assigned in the manufacturing cost center as well as indirect support costs that must be allocated from other support cost centers.  The indirect support costs are allocated in planning from cost center SND5A, activity type CATEG5.  The planned MACHHR activity and the CATEG5 activity allocated for the three cost centers are as follows:


• RCV5A: MACHHR – 8,000 HR and 50,000 units of CATEG5 allocated – fixed
• RCV5B: MACHHR – 16,000 HR and 30,000 units of CATEG5 allocated – fixed
• RCV5C: MACHHR – 24,000 HR and 40,000 units of CATEG5 allocated – fixed

KP06 layout 1-102 is used for the manual activity allocation plan.  In this case, we see that the allocation is planned as fixed rather than variable. 

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This is done for all three of the receiving cost centers, and a total of 120,000 units of CATEG5 have been allocated from cost center SND5A.


Let’s look at the plan for cost center SND5A.  Note that because we intend to do a fixed allocation, we have decided to plan the costs as fixed rather than variable.  This does not appear to be a requirement, but because the actual allocation will end up being the same as the planned activity, it makes sense for the costs to be fixed as well.
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When running KSPI to generate the costs, the activity price will be 100% fixed.
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During period 4 (April), 500 hours of MACHHR was posted in RCV5A, 700 in RCV5B, and 1,200 in RCV5C.  Prior to running KNMA, the Cost Center Target/Actual/Variance report shows this for the four cost centers: SND5A,
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RCV5A,
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RCV5B,
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and RCV5C.
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The targets for the allocations for each of the receiver cost centers are not based on the amount of the MACHHR activity posted, but instead are based on the amount of planned MACHHR activity.  This is because the allocation is fixed instead of variable.


Next, we will run KNMA to post the CATEG5 activity in SND5A.

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As a part of running KNMA, the operating rate is calculated.  The operating rate determines how much activity will be posted in the sending cost center.  Because this is a completely fixed allocation, the operating rate should be 100%, meaning that all the planned activity will be posted.

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In case you are wondering about the operating rate for MACHHR in the three receiving cost centers, that is not calculated during the KNMA run, but instead is determined from the actual activity posting divided by the planned amount.  This is because MACCHR is a category 1 activity type.


The resulting Cost Center Actual/Target/Variance report now shows the result of the CATEG5 activity postings and allocation.  First, SND5A shows that the full amount of activity was allocated out.

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It did not matter how much of the receiving activity was posted because this was a fixed allocation.  The receiver cost centers show the result of the allocation.  First RCV5A.

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Next, RCV5B

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and RCV5C.

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And that is all there is to posting category 5 activities.  This is the simplest type of automated posting and can be a very powerful tool.


I have one more example to go over, and then we will be done with the activity type tour.  If you remember from the blog posts of the category 2 activity types, I indicated we would be revisiting one of the examples.  I included an example where the MACHHR activity posting was the receiver tracing factor, and we calculated the weighting factors for the sender activity using the planned allocation quantities.  Well, guess what! We could have done the exact same thing using category 5 activity types with a variable planned allocation and saved ourselves the trouble of creating an indirect activity allocation cycle.  Let’s see how this works.  The sender cost center is SND5B, and the three receiver cost centers are RCV5D, RCV5E, and RCV5F.  I used the exact same plan as for the fixed allocation example, except the planned allocations are now variable.


The planned MACHHR activity and the CATEG5 activity allocated for the three cost centers are as follows:
• RCV5D: MACHHR – 8,000 HR and 50,000 units of CATEG5 allocated – variable
• RCV5E: MACHHR – 16,000 HR and 30,000 units of CATEG5 allocated – variable
• RCV5F: MACHHR – 24,000 HR and 40,000 units of CATEG5 allocated – variable

Using RCV5D as the example, note that the allocation is planned as variable instead of fixed. 

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This is done for all three of the receiving cost centers, and a total of 120,000 units of CATEG5 have been allocated from cost center SND5B.

Let’s look at the plan for cost center SND5B.  Now the costs are planned in the variable column.

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When running KSPI to generate the costs, the activity price will be 100% variable.

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During period 4 (April), 500 hours of MACHHR was posted in RCV5D, 700 in RCV5E, and 1,200 in RCV5F.  Prior to running KNMA, the Cost Center Target/Actual/Variance report shows this for the four cost centers: SND5B,

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RCV5D,

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RCV5E,

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and RCV5F.

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The targets for the allocations for each of the receiver cost centers are entirely based on the posting of the receiver activity MACCHR.  If you refer back to the category 2 activity type example in the previous blog post, you will see the same results.
Next, we will run KNMA to post the CATEG5 activity in SND5B.  If we look at the results of the calculation we see that the operating rate for SND5B/CATEG5 is not 100% like we saw before, but instead is 64.37%. This is based on the actual quantity of MACHHR that was posted in all the receiver cost centers.  This percentage times the planned quantity for the period determines the total quantity being posted.

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The Cost Center Actual/Target/Variance report shows the following results.  Compare this to the previous fixed allocation example to see the difference.  Then compare them to the category 2 activity type example which used receiver activity as the tracing factor.

First, let’s look at SND5B and see what was posted for CATEG5.

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Note that the actual activity posted reflects the activity operating rate that was displayed for KNMA.  The receiving cost centers will show the results of the variable allocation.  First, look at RCV5D,

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and then, RCV5E

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and RCV5F.

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Since this last use of Target=Actual indirect activity allocation is so simple, you may wonder why I showed you a similar example using category 2 activity types.  The reason is because that is what my company has been using for doing our activity allocations!  In our first implementation back in 2008, we originally only used KNMA for doing our activity allocations because we were planning fixed allocations.  When we wanted to move to doing variable allocations, we were shown KSC1 and KSC5 and, of course, we were able to make that work.  What we didn’t know (and I am including our consultants in the “we”) was that KNMA also worked with variable allocations.  I’m sure there is a lesson in there somewhere, but I’ll let you determine what that is.


That ends our journey through activity type postings.  My intent was to help clarify some of the mystery concerning activity types. Hopefully, you have found some useful information that will help you find the best ways to use activity types in your implementations, and maybe you can even find a way to automate some of the manual work currently being done.

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Activity Postings Part 1 of 7: Activity Types Overview

TomKingThis is the first of a series of 7 blogs on SAP activity types.

My company began its journey with SAP in 2007. I was a charter member of the FICO team because of my work with product costing in our legacy world. I quickly discovered the way SAP handles product costing and Controlling is different. The concepts were familiar, but the structures and processes were not. One of the first items I encountered was the activity type. Ah, a familiar concept I thought! 

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