Explore Various Cost Objects in SAP Controlling

by Ashish Sampat

I often get asked about the difference between a Production Order and a Process Order. When is it beneficial to use one over another?

From a 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 Orders is using a Process Instruction Sheet, or PI Sheet, for day-to-day shop-floor activities. Both scenarios use Material Masters and Bills of Materials.

Production Orders use Work Center (Machine) and Routing  or sequence of operations

Process Orders use Resource (Machine) and Recipe or sequence of operations and which component is issued during which operation.

The decision on whether to go with Production Orders or Process Orders would depend upon the 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.

Cost objects and their uses:

A production order is used to track product cost by order in discrete manufacturing and prerequisites from the master data point of view, including setup of material master, bill of material, work center, and routing. Order Type PP01 is used for creating production orders.

A process order is used to track product cost by order in process manufacturing and prerequisites on the master data side, including setup of material master, bill of material, resource, and master recipe. Order Type PI01 is used for creating production orders.
A CO production order can be used in any industry; prerequisites include the setup of the material master. Order Type CP01 is used for creating CO production orders.

A product cost collector is used in repetitive manufacturing to track product costs by period. A product cost collector is similar to a production order in terms of prerequisites: Material Master, BOM, Work Center, and Routing. You use Order Type RM01 to create product cost collectors.

You can use an internal order to collect, monitor, and settle direct and indirect costs incurred by a specific project. They are cost objects with a more dynamic nature than cost or profit centers. Logistics master data is not necessary for the setup of internal orders.

Several order types are available for use – depending on need and purpose (overhead or investment). You can use orders as a primary cost object, which you then settle to a cost center, or as a statistical posting object, where the primary posting goes to the cost center.

A plant maintenance order is used to track costs related to planned or unplanned maintenance. It uses the work center as the primary master data element, apart from its own internal master data called functional location. Order type PM01 is used for creating plant maintenance orders.

A sales order is another cost object used to assign costs to a sales order. Whereas sales orders are primarily used in the sales and distribution process in both made-to-stock and made-to-order scenarios, the use of sales orders as a cost object part is mainly done in a made-to-order scenario.

A cost center is one of the most widely used master data elements in controlling. Cost centers allow the departmental breakdown of costs. They are often the lowest level of an organization to collect and analyze costs and departmental performance. Cost centers are helpful for departmental budgets and plan versus actual comparison of expenses. Cost centers can also be used for interdepartmental cost allocations through sender-receiver relationships.
Figure 1 depicts a tabular view of a cost objects comparison: prerequisites and setup.

Figure 1: Pre-requisite configuration (order types) and master data for various cost objects

Figure 2 depicts a tabular view of transaction codes for various processes across various cost objects.

Figure 2: Transaction codes for cost object master data and period-end closing steps

Case study:

A client already uses Process Orders. The client has acquired a business unit on another SAP system, but the acquired entity uses Production Orders. The acquiring entity (i.e., the client) wants to migrate the new unit to their SAP platform. The client is wondering if there is any value in having this new business unit switch to Process Orders when they move to the existing system.

If the client is using Process Orders for one business unit, there will be some advantages to continuing to use Process Orders for the new business unit brought over to the client’s system. There is less maintenance, less training to acquiring entity, and so on. At the same time, the functionality from the Controlling point of view is similar.

The main advantage of using Process Orders is the use of a Process Instruction Sheet, or PI Sheet, for day-to-day shop-floor activities. A lot would depend on what the Production Planning team is comfortable with – since the biggest impact is on the shop-floor processes. Of course, suppose the new business unit is from discrete manufacturing (say machine parts), and your current business is in process manufacturing (say chemicals). In that case, there is no point in forcing the new unit to use Process Orders, as they will be better off using Production Orders.

Summary

The decision depends on the type of industry and fitment, the comfort level of the Production Planning Team, and the level of change management effort.