Finished Product Logistic Cost

AGENDA FPLC Definition and Components; FPLC Accounting; FPLC Variance Reports

FPLC and its place Total Delivered Cost = Total Manufacturing Cost + Finished Product Logistics Cost + Product Supply Admin Cost Through the presentation everything which is regulated by SAFE will be given from 2 points – SAFE = how it should be and REALITY = how we do it, and the inconsistency and what variations are allowed / acceptable.

FPLC definition “Cost incurred from the entry of finished, wrapped pallets or unit loads to the warehousing and distribution chain, until delivery of cases to the customer's receiving dock. May include administration costs that would normally be charged to PS-NME, if the administrative tasks are provided directly by third party vendors.” SAFE. P/(L). COPS 02 TDC. Through the presentation everything which is regulated by SAFE will be given from 2 points – SAFE = how it should be and REALITY = how we do it, and the inconsistency and what variations are allowed / acceptable.

FPLC Components FPLC Local Cost Import Cost Warehousing; Inter-site Freight; Customer Freight; Local General Logistics Charges; Distributor Logistics Charges Import Cost Import Freight; Taxes, Customs and Duties; Import Logistics Refer to SAFE. P/(L). COPS 02 TDC or COPS 03 TMC and FPLC Variances. FPLC

FPLC Accounting and Standard Costing Methodology SAFE. P(L). COPS 03 TMC and FPLC Variances. “All P&G businesses throughout the world should use Standard Costing methods and processes for TMC and FPLC accounting.” “FPLC Standards are developed in the SAP-CO-PA module. (Markets which do not yet have CO-PA implemented report FPLC on an actuals basis only – they do not set standards or calculate variances.)”

FPLC Accounting and Standard Costing Process Flow The general process flow for a standard cost management system includes the following five steps (same for TMC and FPLC): Develop Budget / Forecast; Develop Annual Standards; Accumulate Actual Costs; Analyze Variances; Perform Monthly Close. SAFE. P/(L). COPS 03 TMC and FPLC Variances

FPLC Accounting and Inventory Valuation SAFE. P/(L). INVENTORY 02. Inventory Valuation. “The primary basis of accounting for product inventories is cost – the sum of both the applicable direct and indirect expenditures and charges incurred to bring an inventoried unit to its existing condition and location.” This chapter sets a standard treatment of all TDC elements in corporate accounting books for inventory valuation – which element is inventoriable and which is not. Also it covers Variances Holding/Release Policy.

FPLC Accounting and Inventory Valuation FPLC elements Inventoriable / Non-Inventoriable Warehousing Customer Freight Non-Inventoriable / Inventoriable Inter-site Freight Inventoriable (1) GLC Non-Inventoriable (2) Import Freight Inventoriable Tax, Customs and Duties For all Practical purpose this cost is treated as Non Inventoriable and Yearend adjustment made for the Inventory. GLC is charged based on the Peg Rate.

Standard Set-ups Standards are calculated outside the SAP system. This standard “Rate” is then maintained in COPA module at the beginning of FY. (Note: this need to be done before the first shipment) Rates are maintained COPA Module using the COPA Condition type

COPA- Conditions Following Condition Types are used Warehousing ZCFR - Customer Freight ZGLC - Grl Logistics Charge ZIFR - Inter-site /Export Freight ZWHS - Warehousing Storage ZWHH – Warehousing Handling ZFVR – FPLC Variance Thru ICBPs Warehousing

FPLC Standard Settings Key Concepts

Concept I (Component) Several components corresponding to different types of non-inventoriable costs: Warehousing Cost Intersite Freight Customer Freight GMC (General Manufacturing Charges) GLC (General Logistics Charges) Tax Drawback PSAdmin Export Admin Interest on Capital (ESC only) SR&A (Plant F&A) SR&A (Plant MS)

Concept II (Condition Table/Record) Each component has a “standard rate” set per a set of characteristics. This is known as a condition record. For example, GLC can have a rate maintained per shipping DC and per product category. A condition record would specify for the DC “XX50” and the product category “Laundry”, that the GLC rate is $2000 per 1000su. A particular component can actually have many “condition tables”, specified as part of an access sequence. For example, GLC has two condition tables: Table 1: Company Code x Shipping DC x Product Category Table 2: Company Code x TDC VAL It may be for the characteristics of a particular shipment that only one or both rates are maintained.

Concept II (Condition Table/Record) Following Condition Types are used ZCFR - Customer Freight ZGLC - Grl Logistics Charge ZGMC - Grl Manufact. Charge ZIFR - Intersite /Export Freight ZPSN - PS Non-MFG Exp. ZSRF - SR&A (Plant F&A) ZSRM -SR&A (Plant MS) ZTAX - TAX Drawback ZVAR - Variance Thru ICBPs ZWHS - Warehousing Cost

Concept III Access Sequence Where multiple condition tables exist for a particular component, an “access sequence” is established so that the COPA system knows which rate to use in the event that both condition tables are maintained with valid condition records. For example, Table 1: Table 2:

Concept IV Standard Setting At FIRM time, the budget for a particular cost component (eg warehousing) is calculated. This is then allocated to the different characteristic values which will share the budget, for example for DC XX50, TDC VALs laundry liquids and laundry powders. Using this allocated budget and the FIRM shipment volume, a rate for each condition record in a condition table can be calculated.

Concept V - Recovery When a shipment is posted in SAP, a posting is made to the COPS (Cost of Product Sold) account for the inventoriable cost value of the shipment. No posting is automatically made for the non-inventoriable costs. => COPS only corresponds to the inventoriable TMC costs Essentially the standard cost for the non-inventoriable components = the actual shipment volume * the standard rate. This is known as the mix-adjusted value, or the recovery. COPA calculates these values automatically using the shipped volume interfaced into COPA from the SD billing document.

Concept V – Recovery(Cont.) E.g : Customer Frt ($10/Su) x Shipment 100 Su Cust. Frt Std Pppp810 FPLC STD P/L IN0110 $1000 $1000

Concept VI – Actual & Variance Actual costs are being generated for each of the non-inventoriable cost component types. These are captured and managed versus budget on cost centers. For Transportation & Warehousing actual cost will be posted High Level Cost center and for GLC at TDC Val Cc /PC level At the Monthend WH & Tpt Cost will be allocated to TDC Val Cc based on the Agreed Allocation Bases. Using the “recovery” value as calculated by COPA for a particular component and posting this as a standard cost charge to COPS, and a credit to the appropriate non-inventoriable cost center (TDC Val Cc).

Concept VI – Actual & Variance (Cont) Variance is than Calculated at TDC Val level This variance gets cleared to COPS as part of the month end process to give “actual costs” in the COPS account. However, the generated variance is also used for logistics costs scorecard reporting.

Concept VI – Actual & Variance E.g : Customer Frt ($10/Su) x Shipment 100 Su Actual Carrier Invoice is $ 1500.00 FPLC STD P/L IN0110 $1000 Cust. Frt Std PppppTDCV Cust Frt Var PppppTDCV $500 Cust Frt VAR PppppTDVC Cust. Freight PppppTDCV $1500 Carrier Vendor

Ware-Housing

Ware-Housing Definition: Receiving, handling, and storage of finished products at any location prior to delivery to the customer This Comprise Of Ware-House Handling Ware-House Storage

Warehouse- Handling Warehouse Handling: Includes all warehousing costs related to handling incoming and outgoing product: placement, retrieval, pick-pack, issuing to dock, and other general handling operations.

Warehouse- Handling Drivers of warehouse handling costs are: Number of cases which can be stored on a pallet the effort differences of handling the product due to pick-pack operations, ability to stack pallets when moving them around the warehouse, type of pallet handling. Special Product handling Warehouse Storage efficiency Variable Cost

Warehouse - Storage Warehouse Storage: Includes all warehousing costs related to the infrastructure of the DC: rent, depreciation, maintenance, insurance etc.

Drivers of warehouse storage costs are: The number of cases which can be stored on a pallet (Storage Efficiency) The effort differences of storing the product, due to stack height factor, special storage conditions, length of storage etc. Special Storage Requirement (Cold Storage Pringles) Fixed Cost

Warehousing - Budget At the beginning of the FY Total warehousing budget for a particular warehouse is splited into storage & handling This is to enable it to split down to the various product levels (e.g. TDC Val) based on the separate cost drivers for storage & handling. Allocation factors for storage budget will be set based on: positions occupied in the warehouse (stackability) average length in storage (inventory volume) Allocation factors for handling budget will be based on: no. of pallets to be shipped

Warehousing – ‘Budget’ From allocated” budget per product hierarchy apply FIRM shipment volume (Trade + Affiliate) Standard Warehousing Handling and Storage “rate” is calculated in $/su. Also Firm Budget (Absolute Budget) needs to be uploaded in the SAP CO Module at High Level Cc WH Budget is than need to be allocated to TDC Val cc using planned Assessment cycle. This is required for two purpose 1) To track the Actual Warehousing cost against the Budget 2) Split the Warehousing Variance into Spending and recovery Variance for better understanding of Variance cause.

Warehouse – ‘Actual Cost’ Actual WH Cost is be posted to the Cost element which is part of EPSTORAGE and EPHANDLING Grp 50050001 – Salary 51030001 – Dep Machinery & Equip 51750001 – Mntce & Repair 54300011 – Trf to SC WH Storage 54300062 – Trf to SC WH Handling Actual WH Cost center is posted to WH High Level cc. Ppppp800 (pppp = plant Code)

Warehouse – ‘Actual Cost’ At the MEND Total WH Cost will be Allocated to TDC Val Cc using the Assessment Cycle (80011400 : Storage) (80011500 : Handling) Bases of Allocation : Storage : Average Inventory in Pallets Handling : Shipment in Pallets

Allocation – ‘Actual Cost’ Invoice Storage XXXX Handling “800” Cost Centers TDCVAL -1 TDCVAL -2 TDCVAL -3 WH Allocation Storage Handling

Warehouse- ‘Cost Elements’

Warehouse- ‘Standard’ COPA Calculates the Mix Adjusted Standard for each shipment. At the Month-end Cost Accounting post the Recovery entry to WH Cost at TDC Val Entry to Post the Recovery Dr : Trade FPLC (CATPC) Dr : I/C FPLC (CATPC) Cr. WH Storage Mix Adj Std (TDCVAL) Cr : WH Handling Mix Adj Std (TDCVAL)

Cost Flow FI CO COPA High Level CC ACTUAL COPA MIX ADJ STD Plan TDCVAL B TDCVAL A COPA COPA MIX ADJ STD Plan TDCVAL A TDCVAL B

Spending & Recovery Variance Plan/Budget Actual Recovery 100 250 (150) Variance =Actual – Recovery Warehousing Variance is further reclass to Spending and Recovery Variance

Warehouse- Spending/Recovery Variance

FPLC- P/L View P/L as Release P/L Generated WH Storage Spen/Rec (TDCv) FPLC Var tr toP/L TDCv FPLC STD CATPC AA YY XX P/L as Release WH Handle Spend/Rec(TDCv) FPLC STD CATPC BB YY P/L Generated Note : YY = AA +BB

Customer Freight

FPLC Components Customer Freight (=Outbound) Freight to move finished product to the customer from plants, warehouses, RDCs, or custom packers. This is applicable for the customer located in the same country as well as the customer located in a different country.

FPLC Rate “Customer Freight” Cost of transporting the finished product from the selling DC to the customer. Drivers: freight company transportation type route (or source/destination combination) the amount of product which fills the truck (ie volume-full or weight-full) how efficiently the trucks are filled

Customer Freight – ‘Actual’ Actual Cost will be posted to High Level transportation Cost center. Cost Center : Ppppp810 GL Account : 52960034 SD D&T Module Calculate the Shipment Cost for each shipment and post the Accrual entry on daily bases. Non D&T Market, Carrier Invoices are posted through FI/AP Module. No Need for the Accrual Entry at the MEND for those Markets which implemented SD’s D&T Module

Customer Freight – ‘Actual’ At the MEND Total Customer Freight will be Allocated to TDC Val CC using a Distribution Cycle .(Bases – Trade Shipment M3) ZKXX0115 (D&T Mkt) or ZKXXR059 for Others Mkt

Customer Freight –Monthend MEND (Cont) Mix Adj Std will be posted for the Customer Freight recovery based on the COPA Report ( Customer Freight rate x Shipment) Dr . Std FPLC Cr. Customer frt Mix Adj Std Variance will be calculated and MEND tool will pass following Accounting entry Dr. Customer Freight Variance Cr. Frt Var Offset Account

Freight Reclass to MSA Some time P&G ship Free Goods along with normal Goods to the customer. Total Cost of Shipment is charged to the Customer Freight Account Monthend Process is to reclass the Freight cost associated to Free Goods to MSA Account .

Freight Reclass to MSA Monthend tool (ZKXX0115) provides details of Cross charge to MSA Cost Accounting pass the following entry Dr : MSA Cr : Customer Frt Reclass (MSA)

FPLC P/L View P/L as Release P/L Generated Cust Frt Var (TDCv) FPLC Var tr toP/L TDCv FPLC STD CATPC YY YY XX P/L as Release FPLC STD CATPC P/L Generated YY Note : YY = AA +BB

FPLC Rate “Inter-site Freight”

FPLC Components Inter-site Freight Transportation cost to ship finished product from the producing plant to a different ship point or between ship points (e.g., between distribution centers). This is a P&G to P&G transportation cost but only in the same country (boarder = Official National Boarder).

FPLC Rate “Inter-site Freight” Cost of transporting the finished product from the initial local P&G shipment site to the DC that sells the product. Drivers: route to the shipment site (or plant/DC combination) transportation means (Truck/Train) product type (Bulky, Heavy)

“Inter-site Freight” Actual Actual Cost will be posted to High Level transportation Cost center. Cost Center : Ppppp810 GL Account : 51820007 SD D&T Module Calculate the Shipment Cost for each shipment and post the Accrual entry on daily bases. Non D&T Market, Carrier Invoices are posted through FI/AP Module. No Need for the Accrual Entry at the MEND for those Markets which implemented SD’s D&T Module

“Inter-site Freight” Monthend At the MEND Total Intersite Freight will be Allocated to TDC Val CC using a Distribution Cycle .(Bases – Trade Shipment in M3) ZKXX0115 (D&T Mkt) or ZKXXR059 for Others Mkt

“Inter-site Freight”-Variance MEND (Cont) Mix Adj Std will be posted for the Intersite Freight recovery based on the COPA Report ( Inter-site Freight rate x Shipment) Dr . Std FPLC Cr. Inter-site frt Mix Adj Std Variance will be calculated using MEND tool ,which will pass following Accounting entry (ZKXXME20) Dr. Inter-site Freight Variance Cr. Frt Var Offset Account

FPLC Rate “Export Freight”

FPLC Rate “Export freight” Cost of transporting the finished product from the Plant/DC to Exporting Port Drivers: route to the shipment site (or plant/DC combination) transportation means. Container Size product type “ZIFR” Condition Type is used for the Export Freight

Affiliate Freight Accounting Sale at ICBP Affiliate Freight include the Frt. from Plant to Port Actual Frt will be posted to be Posted to High Level Cc Cost Center : Ppppp810 GL Account : 51820011 Ocean Frt / Insurance / Accessorial Cost will be posted to a different Cc ( Harbor Plant Tpt cc or Export Tpt Cc Ppppp830) At the MEND Total Affiliate freight will be Allocated to TDC Val CC using a Distribution Cycle. (Bases :Aff Shipment in M3)

Affiliate Freight Accounting Sale at ICBP MEND (Cont) Mix Adj Std will be posted for the Export Freight recovery based on the COPA Report ( Affiliate Freight rate x Shipment) Dr . Std FPLC Cr. Aff / Export frt Mix Adj Std Variance will be calculated and MEND tool will pass following Accounting entry Dr. Affiliate/Export Freight Variance Cr. Frt Var Offset Account Actual Ocean Frt , Insurance , Accessorial Cost will be reclassed to I/C COPS Frt Reclass Account .

FPLC Rate “GLC”

FPLC Components Local General Logistics Charges Miscellaneous costs incurred in conjunction with the process of warehousing and distributing of finished products. Key GLC cost lines for EE: FP Losses, Manipulation cost, Scrapping cost, Taxes on currency purchase. .

GLC There will be peg-rates for GLC, developed as part of the annual standard setting process. Peg-rates are charged to the P&L on a shipment volume basis throughout the year with the residual versus actual held on the balance sheet until year-end when it is cleared to the P&L at the end of June. Peg-rates can only be adjusted once mid-year.

General Logistic Cost Actual will be posted to the Cost element which is part of EPGLC Grp at TDC Val Cc. 5296xxxx - Rework FP 5296xxxx – Pallets 5296XXXX – FADO Gain/Loss 54300003 – Trf to SC GLC(GLC Cost) Inventory Related GLC Cost will be posted directly to PC Accounting through Movement Type in IM Module Any Cost that can not be identified upfront to any one of the TDC Val Cc is posted to GGLC Cc. At the MEND Total in GGLC Cc will be Allocated to TDC Val Cc using the Distribution Cycle .

General Logistic Cost MEND (Cont.) Mix Adj Std will be posted for the GLC recovery based on the COPA Report ( GLC rate x Shipment) Dr . Std FPLC Cr. GLC Mix Adj Std Variance will be calculated and MEND tool will pass following Accounting entry (ZKXXME03) Dr. GLC Variance (BS) Cr. GLC Variance Trf to BS Account

GLC-Year End Variance Release BS Variance will be Trf to P/L Dr . FPLC Variance to P/L Cr. GLC Variance (BS)

KEY FPLC Reports COPA Reports for Mix Adj Std CC Report for Warehouse Spending and Recovery Variance ZKXX0115 Tpt Variance Analyses

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