Introduction to SAP ERP

Introduction to SAP ERP
SAP University Alliances Version 1.0 Authors Bret Wagner Stefan Weidner Stephen Tracy Product SAP ERP 6.0 Global Bike Inc. Level Beginner Focus Cross-functional integration SD, MM, PP, FI, CO Abstract This teaching material is intended to explain how the fundamental business processes interact with SAP ERP in the functional areas of Sales and Distribution, Materials Management, Production Planning, Financial Accounting, Controlling, and Human Capital Management.

Course Content Introduction to SAP Navigation Sales & Distribution Materials Management Production Planning Financial Accounting Controlling

“Systems, Applications, and Products in Data Processing”
Name of the Company SAP AG SAP America SAP UK Name of the Software SAP R/2 SAP R/3 SAP ERP

Who is SAP? SAP AG Company Statistics
Founded in Walldorf, Germany in 1972 World’s Largest Business Software Company World’s Third-largest Independent Software Provider Company Statistics Over 40,000 employees in more then 50 countries 1500 Business Partners 36,200 customers in more then 120 countries 12 million users 100,600 installations Source: SAP AG website SAP is the world's largest inter-enterprise software company and the world's third-largest independent software provider overall. We have a rich history of innovation and growth that has made us a true industry leader. SAP Americas 12 Million Users. 100,600 Installations. 1,500 Partners. SAP Americas is a subsidiary of SAP AG, the world's largest inter-enterprise software company and the third-largest software supplier overall. SAP Americas's corporate headquarters is located in Newtown Square, PA, a suburb of Philadelphia. Our officers and executives lead a team of professionals dedicated to delivering high-level customer support and services. Founded in 1972 as Systems Applications and Products in Data Processing, SAP has a rich history of innovation and growth that has made us the recognized leader in providing collaborative business solutions for all types of industries -- in every major market. The company, headquartered in Walldorf, Germany, employs more than 37,700 people in more than 50 countries, and serves more than 34,600 customers worldwide. Experience, Knowledge, and Technology for Maximizing Business SAP has leveraged our extensive experience to deliver mySAP Business Suite, the definitive family of business solutions for today's economy. These solutions are open and flexible, supporting databases, applications, operating systems, and hardware from almost every major vendor. What's more, mySAP Business Suite allows employees, customers, and business partners to work together successfully -- anywhere, anytime. By deploying the best technology, services, and development resources, SAP has delivered a business platform that unlocks valuable information resources, improves supply chain efficiencies, and builds strong customer relationships. And through the Global Solution Center, SAP Americas identifies customer needs and develops solutions to meet these needs. SAP is listed on several exchanges, including the Frankfurt Stock Exchange and the New York Stock Exchange, under the symbol "SAP."

SAP ERP Enables a company to link it’s business processes Ties together disparate business functions (integrated business solution) Helps the organization run smoothly Real-time environment Scalable and flexible

Client/Server Environment
SAP Architecture Client/Server Environment Client – hardware/software environment that can make a request for services for a central repository of resources Server – hardware/software combination that can provide services to a group of clients in a controlled environment Three – Tier Structure GUI Graphical User Interface or Web Interface Application Server One or more, help distribute work load Database Server One single data repository

Internet Transaction Server
SAP Architecture Database Application Presentation Browser Client PCs, Laptops, etc. Network Application Servers Internet Transaction Server Web Server 3-tier client server system Web server Internet transaction server Brings it to a single database across the world. What is Client-server Computing? The short answer: Client/server is a computational architecture that involves client processes requesting service from server processes. The long answer: Client/server computing is the logical extension of modular programming. Modular programming has as its fundamental assumption that separation of a large piece of software into its constituent parts ("modules") creates the possibility for easier development and better maintainability. Client/server computing takes this a step farther by recognizing that those modules need not all be executed within the same memory space. With this architecture, the calling module becomes the "client" (that which requests a service), and the called module becomes the "server" (that which provides the service). The logical extension of this is to have clients and servers running on the appropriate hardware and software platforms for their functions. For example, database management system servers running on platforms specially designed and configured to perform queries, or file servers running on platforms with special elements for managing files. It is this latter perspective that has created the widely-believed myth that client/server has something to do with PCs or Unix machines. What is a Client process? The client is a process (program) that sends a message to a server process (program), requesting that the server perform a task (service). Client programs usually manage the user-interface portion of the application, validate data entered by the user, dispatch requests to server programs, and sometimes execute business logic. The client-based process is the front- end of the application that the user sees and interacts with. The client process contains solution-specific logic and provides the interface between the user and the rest of the application system. The client process also manages the local resources that the user interacts with such as the monitor, keyboard, workstation CPU and peripherals. One of the key elements of a client workstation is the graphical user interface (GUI). Normally a part of operating system i.e. the window manager detects user actions, manages the windows on the display and displays the data in the windows. What is a Server process? A server process (program) fulfills the client request by performing the task requested. Server programs generally receive requests from client programs, execute database retrieval and updates, manage data integrity and dispatch responses to client requests. Sometimes server programs execute common or complex business logic. The server-based process "may" run on another machine on the network. This server could be the host operating system or network file server; the server is then provided both file system services and application services. Or in some cases, another desktop machine provides the application services. The server process acts as a software engine that manages shared resources such as databases, printers, communication links, or high powered-processors. The server process performs the back-end tasks that are common to similar applications.

SAP ERP Business Modules
Collections of logically related transactions within identifiable business functions MM (“Buy”) PP (“Make”) SD (“Sell”) FI and CO (“Track”) HCM

Navigation SAP University Alliances Version 1.0 Authors Bret Wagner
Stefan Weidner Stephen Tracy Product All Level Beginner Focus SAP ERP Abstract This material explains how to navigate in SAP systems. It is aimed at students at educational institutions, such as schools, universities of cooperative education, universities of applied sciences, and other universities, with no previous experience of SAP software. It can be used in the classroom or for self-study. On completion of the course, students will be able to navigate through the user interface to deal with business processes and case studies.

Content User guidance User specific settings Navigation in SAP Easy Access Menu Help

Log on to an SAP system

SAP Easy Access Menu

Role-based User Menu

DYNPRO Elements System function bar Application function bar
Command field (transaction code) System function bar Application function bar Input fields Checkbox Auswahl (Mehrfachwahl möglich!) Auswahl 4 Auswahl 2 Auswahl 3 Check box Radiobutton Alternative (nur eine Alternative möglich!) ODER Alternative 2 oder ..... Anzeigen Ändern Radio buttons Tabs Überblick Press buttons Status bar

ENJOY Initiative – Old Design
Initial screen Header data Position overview Position details

ENJOY Initiative – New Design
header data position overview position details

Help Functions F1: Description of Input Fields F4: value list

Favorites

Global Bike Inc. SAP University Alliances Version 1.0
Authors Bret Wagner Stefan Weidner Stephen Tracy Product SAP ERP Level Beginner Focus Global Bike Inc. Integration Abstract This material explains the company on which the introduction material is based on. It describes its enterprise structure in detail.

Global Bike Incorporated
Company in the bicycle business Initially buys and re-sells different lines of bicycles Sells to both wholesale and Internet – procure and distribute Later acquires a production facility to manufacture its own product – produce and distribute We will setup and execute the 3 major processes an organization We created a pen because it was very easy to setup and understand. The IDES has a motorcycle, but that is more complex than we need to teach the system.

Core Business Processes
Global Bike Inc. Sell – Sales and Distribution (SD) Buy – Procurement (MM) Plan – Production Planning (PP) Make – Manufacturing Execution (PP) Track – Financial Accounting (FI) Track – Controlling (CO)

Two Approaches of Learning
Standard Training Level 1: Introductory Level 2: Business processes Level 3: Configuration Business Process Integration Approach Cross functional Understand business processes and their relationship to SAP's organizational structure Highlight integration/configuration

Cross-functional integration
ERP - Enterprise Resource Planning - breaks down the traditional barrier that exist within a corporation. For anyone to benefit from ERP, everyone has to contribute, this is the key to ERP survival. There has to be a common agenda throughout the business. To get the commitment from everyone, everyone has to believe their needs and objectives are addressed by the plan, learning the tools and techniques to accomplish this is then relatively easy. Source Unknown

Process Integration Procurement Process Purchase Requisition Purchase
Order Run MRP Goods Receipt Sales Order Entry Check Availability Invoice Receipt Pick Materials Receipt of Payment Payment to Vendor Post Goods Issue Invoice Customer

Process Integration Procurement Process Production Process Purchase
Order Procurement Process Purchase Requisition Convert Production Proposal Goods Receipt Production Process Schedule and Release Run MPS w/MRP Goods Issue Invoice Receipt Check Availability Completion Confirmation Payment to Vendor Sales Order Entry Quality Inspection Pick Materials Goods Receipt Receipt of Payment Order Settlement Invoice Customer Post Goods Issue

Enterprise Structure (Global Bike Inc.)
Plant Client Chart of Accounts Company Code Fiscal Year Variant Credit Control Area Purchasing Organization Group Shipping Point Sales Distribution Channel Division Sales Area Controlling Area SL10 SL20

Sales and Distribution (SD)
SAP University Alliances Version 1.0 Authors Bret Wagner Stefan Weidner Stephen Tracy Product SAP ERP 6.0 Global Bike Inc. Level Beginner Focus Cross-functional integration Sales and Distribution

Functionality Sales Support Sales Shipping and Transportation Billing Credit Management Foreign Trade

Sales and Distribution Org. Levels Sales and Distribution Master Data
Chapter Overview Sales and Distribution Org. Levels Sales and Distribution Master Data Sales Order Process Order-to-Cash

Organizational Structure
S&D Structure Client Company Code Sales Area Sales Organization Distribution Channel Division Plant Shipping Point Loading Point Internal Sales Structure Sales Offices Sales Groups Salesperson

Structure for Sales Order Processing
Client 410 Company Code C100 Plant P100 Plant P101 Sales Area Sales Org S100 Distribution Channel (RE) Division (01)

Internal Sales Structure
US Sales Office S100 Western Sales Office Northwest Sales Group Southwest Sales Salesperson 1 Eastern Sales Salesperson 2 Salesperson 3 Salesperson 4 Salesperson 5 Salesperson 6 Salesperson 7 Salesperson 8 Salesperson 9

Structure for Distribution
Client 410 Company Code C100 Plant P100 Plant P101 Shipping Point Express Dock Loading Point LP01 Freight Dock Rail Dock LP02 LP03

SD Master Data Customer Master Material Master Sales Condition

Customer Master Data Customer Master Created by Sales Area
Contains all of the information necessary for processing orders, deliveries, invoices and customer payment Every customer MUST have a master record Created by Sales Area Sales Organization Distribution Channel Division

Customer Master Data The customer master information is divided into 3 areas: General Data Company Code Data Sales Area Data

Customer Master Client 410 Company Code 102 Sales Org. 101
General Information relevant for the entire organization: Name Address Communication Company Code specific information: Acc. Mgmt Payment Bank Sales Area specific information: Sales Office Currency

Material Master Data Material Master
Contains all the information a company needs to manage about a material It is used by most components within the SAP system Sales and Distribution Materials Management Production Plant Maintenance Accounting/Controlling Quality Management Material master data is stored in functional segments called Views

Material Master Views Material Master Basic Data Sales Data
Controlling Data Forecasting Data Purchasing Data Mat. Plan. Data Accounting Data Storage Data Quality Data

Material Master Client 410 Sales Org 102 Storage Location 20
General Information relevant for the entire organization: Name Weight U/M Sales specific information: Delivery Plant Loading Grp Storage Location specific information: Stock Qty All of this together makes up the Master Record for a Material.

Customer Material Information Record
Data on a material defined for a specific customer is stored in a Customer material info record. Info Records contain: Customer-specific material number Customer-specific material description Customer-specific data on deliveries and delivery tolerances You can also maintain default text to appear on sales orders for that customer

Condition Master (Pricing)
Condition master data includes: Prices Surcharges Discounts Freights Taxes You can define the condition master to be dependent on various data: Material specific Customer specific Conditions can be dependent on any document field

Output Output is information that is sent to the customer using various media, such as: Mail EDI Fax XML Output examples: Quotation Confirmation Invoice

Sales Order Process Sales Order Entry Post Goods Issue Invoice Customer Pick Materials Receipt of Customer Payment Pack Check Availability Pre-sales Activities

Pre-Sales Activities (CRM Light)
Sales Support is a component of SD that assists in the sales, distribution, and marketing of a companies products and services to its customers. It contains the following functionality: Creating and tracking customer contacts and communications (sales activity) Phone call records On-site meeting Letters Campaign communication Implementing and tracking direct mailing, internet, and trade fair campaigns based on customer attributes Pre-sales documents need to be managed within the presales activities: Inquiries and Quotations. These documents help identify possible sales related activity and determine sales probability.

Pre-Sales Activities (CRM Light)
The ultimate goal of all pre-sales activities is to equip the sales technician with all the information necessary to negotiate and complete the potential sale. Information needed: Past sales activity Past communication Contact information General Company info Credit limits and usage Current backorders 360º view of your customer

Inquiry An inquiry is a customer’s request to a company for information or quotation in respect to their products or services without obligation to purchase. How much will it cost Material/Service availability May contain specific quantities and dates The inquiry is maintained in the system and a quotation is created to address questions for the potential customer.

Quotation The quotation presents the customer with a legally binding offer to deliver specific products or a selection of a certain amount of products in a specified timeframe at a pre-defined price.

Sales Order Sales order processing can originate from a variety of documents and activities Customer contacts us for order: phone, internet, Existing Contract Quotations The electronic document that is created should contain the following basic information: Customer Information Material/service and quantity Pricing (conditions) Specific delivery dates and quantities Shipping information Billing Information

Sales Order The sales document is made up of three primary areas:
Header Data relevant for the entire sales order: Ex: customer data, total cost of the order Line Item Information about the specific product: Ex: material and quantity, cost of an individual line Schedule Lines Uniquely belongs to a Line Item, contains delivery quantities and dates for partial deliveries

Sales Order The sales order contains all of the information needed to process your customers request, the following information is determined for each sales order: Delivering Schedule Shipping point and route determination Availability Check Transfer of requirements to MRP Pricing Credit limit check

Delivery Scheduling When an order is created the you must enter a requested delivery date for the order or each line item. The system will then determine a delivery timeline, this will be used when determining our material availability, or ATP (Availability to Promise) date. The system will determine this date using forward and backward scheduling rules you have defined.

Backward Scheduling 5th 1st 2nd 3rd 4th 6th Pick & Pack Time (2 days)
Material Availability Order Date Transp. Sched. Loading Goods Issue Requested Delv. Date 5th 1st 2nd 3rd 4th 6th Pick & Pack Time (2 days) Transit Time (2 days) Transp. Sched. Time (1 day) Loading Time (1 day)

Forward Scheduling 1st 2nd 3rd 4th 5th 6th 7th Transp. Sched. Time
Requested Delv. Date New Delv. Date Order Date Material Availability Transp. Sched. Goods Issue Loading 1st 2nd 3rd 4th 5th 6th 7th Transp. Sched. Time (1 day) Loading Time (1 day) Transit Time (2 days) Pick & Pack Time (2 days)

Shipping & Route Determination
During the creation of the sales order the system must determine the shipping point from which the material will be shipped and the route the material will take to get from your warehouse to your customers location. A shipping point is determined for each line item within the order. The route determination will is used to define the transit time of the material that we used in scheduling.

Availability Check Availability Check Proposes 3 methods of delivery
Determines the material availability date Considers all inward and outward inventory movements Proposes 3 methods of delivery One-time delivery Complete delivery Delayed proposal Rules are created by YOU

Transfer to Planning The order is transferred to Material Requirements Planning as an (CIR) Customer Independent Requirement. If a deficit is found the system will propose a Purchase Req. or Order to fulfill the shortage.

Pricing The system displays pricing information for all sales documents on the pricing screens at both the header and the line item level. Header pricing is valid for the whole order it is the cumulative of all line items within the order Line item pricing is for each specific material. The system will automatically search for price, discounts, surcharges, calculate taxes and freight. You have the ability to manually manipulate the pricing at both the header and line item level within the sales order by entering a condition type and amount. Taxes and freight can be set-up so we can’t manually enter

Credit Check Allows your company to manage its credit exposure and risk for each customer by specifying credit limits. During the sales order process the system will alert the sales rep about the customers credit situation that arises, if necessary the system can be configured to block orders and deliveries.

Shipping & Transportation
The shipping process begins when you create the delivery document for the sales order. This document controls, supports, and monitors numerous sub-processes for shipping processing: Picking Packing Post Goods Issue Integrated with the Material Management (MM) and Finance (FI) modules

Order Combination Partial Delivery Complete Shipping Sales Order 1

Confirms availability Confirms export/foreign trade requirements
Delivery Creation Checks order and materials to determine if a delivery is possible — delivery block (hold), completeness Confirms availability Confirms export/foreign trade requirements Determines total weight & volume The system carries out the following activities when an outbound delivery is created: Checks the order and materials to make sure the outbound delivery is possible (for example, it checks for delivery blocks or incompleteness) Determines the delivery quantity of an item and checks the availability of the material Calculates the weight and volume of the delivery Calculates work expenditure Packs the outbound delivery according to the reference order Checks the delivery situation of the order and any partial delivery agreements Redetermines the route Adds information relevant for export Checks delivery scheduling and changes deadlines (if necessary) Assigns a picking location Carries out batch determination (if material is to be handled in batches) Creates an inspection lot if the material must pass a quality check Updates sales order data and changes order status

Delivery Creation Generates packing proposal Calculates weight and volume Checks scheduling Considers partial deliveries Updates route assignment Assigns picking location Updates sales order Determines batches Quality check (if needed)

Changes to delivery are allowable - products, quantities
Delivery Document The Delivery Document initiates the delivery process and is the control mechanism for this process Picking Packing Loading Posting Goods Issue Changes to delivery are allowable - products, quantities Changes in delivery will update the sales order.

Quantities based on delivery note
Picking Quantities based on delivery note Assigned date when picking should begin Automated storage location assignment Supports serial number/lot number tracking and batch management Integrated with Warehouse Management (WM) In the system standard settings, it is a prerequisite for goods issue to be posted before the item relevant for picking can be picked completely. Therefore, delivery quantity and picking quantity (picked quantity) in the outbound delivery must be equal. Considering the picking lead time the picking date will be assigned based upon material availability The picking process involves taking goods from a storage location and staging the right quantity in a picking area where the goods will be prepared for shipping. Depending on the picking procedure being used, you can either determine delivery-relevant data before picking or wait until after picking is completed to record it. Delivery-relevant data may be made up of the following: Which batches a material is picked from Which serial numbers are picked Which valuation types the stock is taken from The use of the WM transfer order as a picking order offers you the following advantages: Determining of target data for transfer orders Splitting transfer orders according to target data Printing transfer orders or transmitting them in IDoc format Determining actual data for picking with option of executing incentive wage calculations using the Human Resources (HR) module Confirming transfer orders

Identifies and updates accounts associated with returnable packaging
Loading and Packing Identifies which packaging is to be used for specified products (customer preference and UCC-128 considerations) Identifies and updates accounts associated with returnable packaging Tracks the packed product by container Insures weight/volume restrictions are enforced All packed items are assigned to the required means of transportation The Packing component and related packing information enables you to: Update the stock situation of packing materials Monitor returnable packaging stocks at the customer's or forwarding agent's place of business Help you find you what was in a particular container (for example, if a customer maintains that they have received an incomplete delivery) Make sure that the weight and volume limits have been adhered to Ensure that products have been packed correctly UCC-128: Universal Container Code – Uniform packing code

Event that indicates the legal change in ownership of the products
Goods issue Event that indicates the legal change in ownership of the products Reduces inventory and enters Cost of Goods Sold Automatically updates the General Ledger (G/L) accounts Ends the shipping process and updates the status of the shipping documents As soon as the goods leave the company, the shipping business activity is finished. The outbound delivery forms the basis of goods issue posting. The data required for goods issue posting is copied from the outbound delivery into the goods issue document, which cannot be changed manually. Any changes must be made in the outbound delivery itself. In this way, you can be sure that the goods issue document is an accurate reflection of the outbound delivery. When you post goods issue for an outbound delivery, the following functions are carried out on the basis of the goods issue document: Warehouse stock of the material is reduced by the delivery quantity Value changes are posted to the balance sheet account in inventory accounting Requirements are reduced by the delivery quantity The serial number status is updated Goods issue posting is automatically recorded in the document flow Stock determination is executed for the vendor's consignment stock A worklist for the proof of delivery is generated After goods issue is posted for an outbound delivery, the scope for changing the delivery document becomes very limited. This prevents there being any discrepancies between the goods issue document and the outbound delivery.

The billing process is used to generate the customer invoice.
The billing document is created by coping data from the sales order and/or delivery document. Order-based billing Delivery-based billing The billing process is used to generate the customer invoice. It will update the customer’s credit status. Billing represents the final processing stage for a business transaction in Sales and Distribution. Information on billing is available at every stage of order processing and delivery processing. This component includes the following functions: Creation of: Invoices based on deliveries or services Issue credit and debit memos Pro forma invoices Cancel billing transactions Comprehensive pricing functions Issue rebates Transfer billing data to Financial Accounting (FI)

Billing Documents The billing document will automatically create a debit posting to your customer sub-ledger account and credit your revenue account. It is at this point that the sales process is passed over to Financial Accounting to await payment. Creating Billing Documents Explicitly Purpose If you only have to bill specific orders or deliveries, you can carry out manual billing explicitly. When processing the billing due list, you do not need to enter the individual documents to be invoiced. The system lists the documents to be invoiced on the basis of the selection criteria you enter. It can also combine several deliveries in one invoice. Process Flow You select the function for creating a billing due list. You enter the selection criteria for the billing documents to be created. For example, enter billing type F2, if you only want to create invoices with this billing type. You then display the billing due list. The system uses the selection criteria to create the billing due list (a list of sales documents to be billed). You can now process this list, e.g. select some or all of the sales documents to be billed. You select the function for billing. The system creates the corresponding billing documents for the selected documents. Automatic Posting to Finance (next slide)

Delivery based Invoicing
Billing Methods Collective Invoicing Delivery based Invoicing Delivery 8…34 Delivery 8…33 Order 14 Order 9 Delivery 8…56 Invoice 9…68 Order 6 Delivery 8…20 Delivery 8…21 Invoice 9…45 Invoice 9…46 Split Order 32 Delivery 8…86 Invoice 9…92 Invoice 9…91 You can set the system to create one billing document for each sales document, e.g. one invoice per delivery. As long as certain data agrees, you can also combine different documents (orders and/or deliveries) fully or partially in a common billing document: If you want to guarantee that invoices are created separately according to certain criteria, you can do this by defining certain split criteria.

Final payment includes:
Payment is the final step in the sales order process, this step is managed by the Financial Accounting department. Final payment includes: Posting payments against invoices. Reconciling differences between payment and invoice. Payment will create a posting clearing the liability in the A/R account and increases your bank account.

Document Flow The document flow and order status feature allows you to find the status of an order at any point in time. The SAP updates the order status every time a change is made to any document created in the customer order management cycle (Order-to-Cash).

Sales Order Process Debugging
“Never again did I learn so much in such a short time, because twenty participants made mistakes for me! You cannot make so many mistakes all alone” SAP Co-founder Klaus Tschira, on his experiences teaching COBOL to clients at IBM.

Document Flow Gives Order Process Status List of Sales Orders (VA05) Tool to Find Order Need student’s user id/data set number

Materials Management (MM)
SAP University Alliances Version 1.0 Authors Bret Wagner Stefan Weidner Stephen Tracy Product SAP ERP 6.0 Global Bike Inc. Level Beginner Focus Cross-functional integration Materials Management

Functionality Inventory Management Purchasing MRP Physical Inventory Valuation Service Master Invoice Verification Product Catalogs

Organization Structure Master Data Procurement Process
Chapter Overview Organization Structure Master Data Procurement Process Procure-to-Pay Process

Organizational Structure for Procurement
Client An independent environment in the system Company Code Smallest org unit for which you can maintain a legal set of books Plant Operating area or branch within a company i.e. manufacturing facility or distribution facility Purchasing Organization The buying activity for a plant takes place at the purchasing organization Purchasing Group Key that represents the buyer or group of buyers

Purchasing Specific Structure
Purchasing Organization Organization unit responsible for procuring services and materials Negotiates conditions of the purchase with the vendors Purchasing Group Buyer or group of buyers who are responsible for certain purchasing activities Channel of communication for vendors A purchasing organization is an organizational unit within logistics subdividing an enterprise according to the requirements of Purchasing. It procures materials and services, negotiates conditions of purchase with vendors, and bears responsibility for such transactions. A purchasing group is a group of buyers who are responsible for certain purchasing activities. The purchasing group is: - Internally responsible for procuring a material or a class of materials - Usually the principal channel for a company's dealings with its vendors

Purchasing Organization / Group
100 Company Code 101 Plant 100 Plant 101 Centralized vs. Decentralized Purchasing

Structure for Procurement
Client 410 Purchasing Org P101 Purchasing Org P100 Company Code C100 Purchasing Group 100 Plant P100 Plant P101

Purchasing Info Record
MM Master Data Vendor Master Data Material Master Data Purchasing Info Record Condition Master Data Output Master Data

Vendor Master Data Vendor Master
Contains all the necessary information needed to business with an external supplier Used and maintained primarily by the Purchasing and Accounting Departments Every vendor MUST have a master record

Financial Accounting (FI)
Vendor Master Views Client Level Address Vendor Number Preferred Communication Company Code Data Reconciliation Account Terms of Payment Bank Account Purchase Org Data Purchasing Currency Salesman’s Name Vendor Partners General Data Company Code Data Financial Accounting (FI) Purchasing Data Materials Mgmt (MM)

Vendor Master Client 410 Company Code 102 Purchasing Org. 101
General Information relevant for the entire organization: Name Address Communication Company Code specific information: Acc. Mgmt Payment Bank Purchasing Org. specific information: Incoterms Currency

Material Master Data Material Master
Contains all the information a company needs to manage about a material It is used by most components within the SAP system Sales and Distribution Materials Management Production Plant Maintenance Accounting/Controlling Quality Management Material master data is stored in functional segments called Views

Material Master Views Material Master Basic Data Sales Data
Controlling Data Forecasting Data Purchasing Data Mat. Plan. Data Accounting Data Storage Data Quality Data

Material Master Client 410 Plant 102 Storage Location 20 Plant 101
General Information relevant for the entire organization: Name Weight U/M Plant specific information: Purchasing Data Work Sch MRP Storage Location specific information: Stock Qty Picking All of this together makes up the Master Record for a Material.

Purchasing Information Record
Framework for Purchase Order Contains the relationship between a vendor and a material Can be created: Manually Automatically – Quotations Automatically – Pur Orders Reporting Vendor Evaluation Material Master Vendor Master Purchasing Information Record

Purchasing Information Record
Allows buyers to quickly determine: Which vendors have offered or supplied specific materials Info Records contain: Data on pricing and conditions Last purchase order Tolerance limits for deliveries Specific lead times Availability periods Vendor Evaluation data Serves as default information for Purchase Orders

Material Master Vendor Master
Master Data in Use Purchase Order Material Master Vendor Master Purchasing Information Record

Procurement Process Purchase Selection Requisition Order Notify Vendor
Payment to Vendor Notify Vendor Shipment Invoice Receipt Goods Order Selection This is a standard view of the procure to pay process and the most common. It may vary significantly based upon the company procedures, the products/services purchases and other factors. SAP allow businesses to tailor it to their needs. Starts with a requisition or need that needs to be filled. This can come from Planning (MRP), manually or other The purchase order is the document to fill the need: usually includes the vendor, cost/price, quantity, terms and other pertinent information. [ part one of the 3-way match] Notifying the vendor The goods are shipped and brought to the organization The goods are received (typically at the dock) and then put away [ part two of the three way match] An invoice is received from the vendor [third part of the 3-way match] After the tolerances/verification of the 3-way match are met a payment is made according to the terms agreed to on the purchase order.

Requisitions can be created two ways:
Purchase Requisition Internal Document instructing the purchasing department to request a specific good or service for a specified time Requisitions can be created two ways: Directly - Manually person creating determines: what, how much, and when Indirectly - Automatically MRP, Production Orders, Maintenance Orders, Sales Orders Requisitions can be created indirectly in the following ways: Via materials planning and control The component Consumption-Based Planning suggests materials that need to be ordered on the basis of past consumption or usage figures and existing stock levels. The order quantity and the delivery date are determined automatically. Via networks (from the component PS Project System) Requisitions are generated automatically from networks if: A material component with non-stock material or an external service component has been assigned to an operation and the indicator allowing automatic generation of requisitions immediately the network is saved has been set in the network. Via maintenance orders Requisitions are generated automatically from maintenance orders if: A material component with non-stock material has been assigned to an operation, or An operation with the control key for external services has been created. For further information, refer to the section Planning of an Order in the PM Maintenance Orders documentation. Via production orders (from the component PP Production Planning and Control). Requisitions are generated automatically from production orders if: They contain an external processing operation (e.g. subcontracting work). A precondition is that the control key for the operation allows or prescribes external processing. They contain non-stock components.

Requisition Sourcing Once the requisition has been assigned a source of supply it can be released for processing There are a variety of ways that a purchasing department can process a requisition to determine the appropriate Source of Supply: Internal Sourcing Requirements Source List Outlined Agreement RFQ

Internal Sourcing The requisition for materials could be satisfied by sources within our company. It is possible that a plant within your firm could represent a potential source of supply for the material needed (centralized warehouse) If an internal source is identified the requirement is covered by an internal procurement transaction (stock transport order)

Source List A source list is a record that specifies the allowed means for procuring a material for a certain plant within a given time period. If the list contains a sole source the system will assign the vendor to the requisition. If several options exist the system will display a list of vendors for you to choose from. If no source has been established the system will revert to search information records and outline agreements.

These agreements are subdivided into:
Outline Agreement Requisitions can be satisfied through existing longer-term purchasing agreement These agreements are subdivided into: Contracts Consists of items defining the individual materials, material groups, or services with prices and in many cases quantities Quantity Value Scheduling Agreements Total quantity of material is spread over a certain period in a delivery schedule, consisting of line items indicating quantities and their planned delivery date An outline purchase agreement is a longer-term agreement between a purchasing organization and a vendor regarding the supply of materials or the performance of services within a certain period according to predefined terms and conditions. Agreements are subdivided into: - Contracts - Centrally agreed contracts ; Distributed contracts quantity, or value You can also set up corporate buying contracts with your vendors. These are valid for all plants and company codes within a client (see Centrally Agreed Contract). Over the contract validity period, certain quantities of the materials or services covered are released (called off) against the contract as and when required through the issue of purchase orders referencing the latter. Such purchase orders are thus termed "contract release orders" or simply "release orders". (Outside SAP, particularly in the UK; they may also be referred to as "call-off orders".) - Scheduling agreements - Scheduling agreement referencing a centrally agreed contract outline purchase agreement under which materials are procured on predetermined dates within a certain time period. Delivery of the total quantity of material specified in a scheduling agreement item is spread over a certain period in a delivery schedule, consisting of lines indicating the individual quantities with their corresponding planned delivery dates.

Request for Quotation If nothing exist in the system we may need to submit a request for quotation to our vendors. An RFQ is an invitation to a vendor by a Purchasing Organization to submit a bid for the supply of materials or services The accepted quotations will generate Purchasing Information Records Perform Quotation Price Comparisons Finally Select a Quotation Pur Req. generate RFQ Vendor 1 Vendor 2 Vendor 3 Quote P.O. 45…12 Reject Letter Eval. A quotation is legally binding on the vendor for a certain period. A quotation consists of items in which the total quantity and delivery date of an offered material or service are specified Determining which vendors to send RFQs to is the first step in the bidding process. The system can help you to choose which vendors are to receive an RFQ if some or all of the information set out below is available: - Info records - Source list

Quotation from Vendor The quotation received by your company is a legally binding offer, should decide to do business with the vendor, containing price’s and conditions for the materials specified in the RFQ for a predefined period of time. In SAP the RFQ and the Quotation will be become a single document, you will enter the vendor’s response in the RFQ you created.

Vendor Evaluation once Identified
Vendor evaluation helps purchasing evaluate vendors for sourcing while also enabling the company to monitor vendor relationships through performance scores and criteria you put in place. Supports a maximum of 99 main criteria and 20 subcriteria for each main: Price Price Level Price History Quality Goods Receipt Quality Audit Complaints/Rejection level Delivery On-time delivery performance Quantity reliability Compliance with shipping instructions Confirmation Date You then must establish a scoring range (1 -100) and determine the weight factors of scores for each. Price Level This subcriterion compares relationship of a vendor's price to the market price. If the vendor's price is lower than the market price, he/she receives a good score; if it is higher than the market price he/she is assigned a poor score. On the basis of the subcriterion Price Level you can compare a vendor's price to the current market price at a certain point in time. Price History This subcriterion compares the development of the vendor's price with the market price. On the basis of the subcriterion Price History, you can determine whether the vendor's price has increased or decreased over a certain period in comparison with changes in the market price over the same period. Goods Receipt This subcriterion is used to evaluate the quality of the material that the vendor delivers. Quality inspection takes place at the time of goods receipt. Quality Audit This subcriterion is used to evaluate the quality assurance system used by a company in manufacturing products. Complaints/Rejection Level This subcriterion is used to evaluate whether the materials delivered by the vendor are regularly found to be faulty subsequent to incoming inspection (for example, on the shop-floor) leading to additional expense and loss of time (due to loss of production, reworking etc.). The score (QM key quality figure) is calculated in QM Quality Management and the data passed on to MM Vendor Evaluation. This key quality figure is converted for use in the Vendor Evaluation scoring system. On-Time Delivery Performance This subcriterion is used to determine how precisely a vendor has adhered to the specified delivery dates. Quantity Reliability This subcriterion is used to determine whether a vendor has delivered the quantity specified in the purchase order. “On-time delivery performance” and “Quantity reliability” always have to be seen in conjunction. You can specify for each material (in the material master record) or for all materials (in the system settings) the minimum quantity of the ordered materials that must be delivered in order for a goods receipt to be included in the evaluation. This enables you to avoid a situation in which a punctual goods receipt involving only a small quantity of ordered materials is included in the evaluation with a good score for “on-time delivery performance”. If this minimum quantity is not delivered, the vendor is not awarded a score. However, in this case the vendor receives a bad score for quantity reliability. Compliance With Shipping Instructions This subcriterion is used to determine how precisely a vendor complies with your instructions for the shipping or packing of a material. Confirmation Date This subcriterion is used to determine whether a vendor adheres to a previously confirmed delivery date (that is, whether the goods are actually received on the date previously confirmed by the vendor).

Purchase Orders can be created manually
A purchase order is a formal request to a vendor for a specific material or service under the stated conditions Purchase Orders can be created manually Reference a Purchase Order Reference a Purchase Requisition Reference a RFQ/Quotation Without Reference Purchase Orders can be create automatically The purchase order can be used for a variety of procurement purposes. You can procure materials for direct consumption or for stock. You can also procure services. Furthermore, the special procurement types "subcontracting", "third-party" (involving triangular business deals and direct-to-customer shipments) and "consignment" are possible. You can use purchase orders to cover your requirements using external sources (i.e. a vendor supplies a material or performs a service). You can also use a purchase order to procure a material that is needed in one of your plants from an internal source, i.e. from another plant.

Purchase Order A purchase order can be used for a variety of purposes, the item category (procurement type) defined in the PO will dictate the use of the order and the process that the order will follow: Standard Stock or Consumption Services Subcontracting Third-Party Consignment

Purchase Order Structure
Header Vendor Date Doc. Number Currency Terms of Payment PO Price Item Overview Materials Price/UofM Quantities Delivery Date Line Item PO History Tolerances Line Price Delivery Schedule Purchase Order

Once a Purchase Order has been created the vendor needs to be notified
Purchase Order Output Once a Purchase Order has been created the vendor needs to be notified Printed EDI Fax XML There are a variety of forms that aid in the purchasing process and are generated from the Purchase Order Purchase Order Output Order Acknowledgement Forms Reminders Schedule Agreements

Goods Receipt Notify Vendor Vendor Goods Receipt Shipment Purchase
Order Vendor Goods Receipt Shipment

Goods movement in which we accept goods into our system
Goods Receipt Goods movement in which we accept goods into our system If materials are delivered against a Purchase Order we will reference that Order Determine if we got what we ordered System can purpose data for us from the PO Material, quantity Purchase Order History is update with the receipt Updates Physical Inventory Updates Inventory G/L Account If a material is delivered for a purchase order, it is important for all of the departments involved that the goods receipt entry in the system references this purchase order, for the following reasons: - Goods receiving can check whether the delivery actually corresponds to the order. - The system can propose data from the purchase order during entry of the goods receipt (for example, the material ordered, its quantity, and so on). This simplifies both data entry and checking (overdeliveries and underdeliveries). - The delivery is marked in the purchase order history. This allows the Purchasing department to monitor the purchase order history and initiate reminder procedures in the event of a late delivery. - The vendor invoice is checked against the ordered quantity and the delivered quantity. - The goods receipt is valuated on the basis of the purchase order price or the invoice price.

When a goods movement takes place it is represented by a Movement Type
Material Movements When a goods movement takes place it is represented by a Movement Type Movement types are three-digit keys used to represent a movement of goods 101 – goods receipt into warehouse 103 – goods receipt into GR blocked stock 122 – return delivery to vendor 231 – consumption for a sales order 561 – initial entry of stock Destinations for Receipt of Goods Warehouse – Unrestricted, Quality, Blocked Quality Goods Receipt Blocked Stock When you enter a goods movement in the system, you must enter a movement type to differentiate between the various goods movements. A movement type is a three-digit identification key for a goods movement. The movement type plays an important role in - updating of quantity fields - updating of stock and consumption accounts - determining which fields are displayed during entry of a document in the system

Effects of a Goods Receipt
When a Goods Movement for the receipt of goods takes place a series of events occur Material Document is Created Accounting Document is Created Stock Quantities are Updated Stock Values are Updated Purchase Order is Updated Output can be generated (GR slip / pallet label) When you enter a goods movement, you start the following chain of events in the system: A material document is generated, which is used as proof of the movement and as a source of information for any other applications involved. If the movement is relevant for Financial Accounting, one or more accounting documents are generated. The stock quantities of the material are updated. The stock values in the material master record are updated, as are the stock and consumption accounts. Depending on the movement type, additional updates are carried out in participating applications. All updates are based on the information contained in the material document and the financial accounting document. For example, in the case of a goods issue for a cost center, the consumption values of the items are also updated.

Invoice Processing Incoming Invoices are reference against a Purchase Order to verify their content, prices, and arithmetic. If discrepancies arise between the purchase order or goods receipt and the invoice the system with generate a warning or an error Depending on system configuration the difference could cause the system to Block the Invoice Purchase order - Target quantity - - Target price - It is in Logistics Invoice Verification that incoming invoices are verified in terms of their content, prices and arithmetic. When the invoice is posted, the invoice data is saved in the system. The system updates the data saved in the invoice documents in Materials Management and Financial Accounting. An invoice can be processed in Logistics Invoice Verification in various ways: Invoice Verification Online Invoice Verification in the Background Automatic Settlements Invoices Received via EDI Activate display of the MM and FI document numbers using the user parameter IVFIDISPLAY, by entering the value X for the user. In the standard system, only the document number from Materials Management is displayed. Invoice receipt - Actual price - Goods receipt - Actual quantity -

Upon verification the:
Invoice Processing When an invoice is saved it applies the liability from the Goods Receipt of our Purchase Order to a Vendor Upon verification the: Purchase Order is updated Material Master is Updated (MAP) Accounting Document is created Once the Invoice has been posted the verification process is completed and the payment process is initiated within Financial Accounting

Can be done automatically or manually
Payment to Vendor Can be done automatically or manually Post Outgoing Payment vs. Payment Program Elements of the Payment Transaction: Payment Method Bank from which they get paid Items to be Paid Calculate Payment Amount Print Payment Medium Process will create a financial accounting document to record the transaction

Goods Receipt / Invoice Receipt Reconciliation Account
No impact on Financial Accounting (FI) Purchase requisition Purchase order Materials Management (MM) and Financial Accounting (FI) via automatic account assignment Goods receipt Dr Cr Inventory $100 Dr Cr GR / IR $100 Requisition – Nothing really happens unless we get the goods or pay for them The system does the transactions for you using the automatic account assignment When we receive these, it can match the receipt against the PO Debit Inventory (we now have additional inventory value) Credit GR/IR (we are going to owe/pay for that additional inventory)

Goods Receipt / Invoice Receipt Reconciliation Account
Amount owed is assigned and transferred to vendor account payable Invoice receipt Dr Cr GR / IR $100 Dr Cr Vendor A/P $100 Once we get the receipt – Debit GR/IR – now a wash Vendor AP Credit – we owe Some companies book it as a liability right away (previous slides), but it really isn’t until you receive the goods Unique to SAP

vendor and account payable is reduced
Vendor Payment Amount owed is paid to vendor and account payable is reduced Bank Bank Vendor A/P Dr Cr Dr Cr $100 $100 Once we get the receipt – Debit GR/IR – now a wash Vendor AP Credit – we owe (it is debited: now a wash) Some companies book it as a liability right away (previous slides), but it really isn’t until you receive the goods Unique to SAP Credit bank account (paid, now we have less cash)

FI – MM Integration Point
Invoice Receipt Payment Program Goods Receipt AP (Vendor) Dr Cr GR / IR $100 Bank Inventory Goods Receipt Debit Inventory Credit GR/IR Invoice Receipt Debit GR/IR Credit AP Payment Program (A/P) Debit: AP Credit Bank

Production Planning & Execution (PP)
SAP University Alliances Version 1.0 Authors Bret Wagner Stefan Weidner Stephen Tracy Product SAP ERP 6.0 Global Bike Inc. Level Beginner Focus Cross-functional integration Production Planning Production Execution

SAP Divides Production into multiple processes
Production Planning SAP Divides Production into multiple processes Production Planning Manufacturing Execution Discrete Manufacturing Repetitive Manufacturing KANBAN Production – Process Industries Integrated planning tool for batch-orientated process manufacturing Design primarily for chemical, pharmaceutical, food and beverage industries along with batch-oriented electronics

Structure Client Company Code Plants Storage Locations Work Center Locations

PP Master Data Materials Bill of Materials (BOM) Routings Work Centers Product Groups

Material Master Record

Bill of Materials (BOM)
List of components that make up a product or assembly Frame Pedal Break Kit Front Wheel Front Rim Front Tire Front Tube Rear Wheel Rear Rim Rear Tire Rear Tube Gear Saddle Post Seat Clip Handle Bar Bell Clasp Handle Forecasting should be done primarily for end-item demand. In manufacturing situations, this means there is no real need for forecasting component parts which make up the final item. When production quantities for the end item have been determined, component demand can be computed based on the production plan of the end item and knowledge of the bill of materials (BOM).

Single-Level Single-Level Finished Bike Front Wheel Frame Rear Wheel Pedal Kit Saddle Brake Kit Handle Bars

Single-Level vs. Multi-Level Single-Level Finished Bike Front Wheel Rear Rim Multi-Level BOM Frame Pedal Brake Handle Bars Saddle Tire Tube Gear Bell Clasp Bar

Variant Bill of Material (BOM) Several products with a large proportion of identical parts. Single-Level Finished Bike Front Wheel Graphite Frame Rear Wheel Pedal Kit Saddle Brake Kit Handle Bars Single-Level Finished Bike Front Wheel Tubular Frame Rear Wheel Pedal Kit Saddle Brake Kit Handle Bars Similar products: small variations e.g. bike with a different color If you are producing several similar products that have a lot of common parts, you can describe these products using a variant BOM. This is the case, for example, if you replace one material component with another to make a different product. Variants can also differ by containing different quantities of a component. You create the new BOM as a variant of an existing BOM.

BOM – Item Categories Item Category Stock Item Non-stock Item
Variable Material – Sheet of steel Intra Item – Phantom material – process industry Class Item – place holder Document Item Text Item Item Categories Stock Item – place a reservation and removed from stock when needed Non-Stock Item – Purchase Requisition will need to be created for the item Document Item – CAD drawing, Engineering Documents, etc

Routings enable you to plan the production of materials (products).
Routings are used as a template for production orders and run schedules Routing are also used as a basis for product costing. Series of sequential steps (operations) that must be carried out to produce a given product Routings contain: What, Where, When, How Routings enable you to plan the production of materials (products). Therefore, routings are used as a template for production orders and run schedules as well as a basis for product costing. A routing is a description of which operations (process steps) have to be carried out and in which order to produce a material (product). As well as information about the operations and the order in which they are carried out, a routing also contains details about the work centers at which they are carried out as well as about the required production resources and tools (includes jigs and fixtures). Standard values for the execution of individual operations are also saved in routings. In a routing you plan - The operations (work steps) to be carried out during production - The activities to be performed in the operations as a basis for determining dates, capacity requirements, and costs - The use of materials during production - The use of work centers - The quality checks to be carried out during production

BOM – Front Wheel, Rear Wheel and Frame
Routings Routing – Operation 10 Explains the steps involved in this operation BOM – Front Wheel, Rear Wheel and Frame Outlines the components that will be consumed in the routing Work Center – 00WC1 Identifies were the operations will take place and identifies the business transaction to be carried

Time and Unit of Measure
Routings Routing for Finished Bike Operation Plant Description Activity Type Work Center Control Key Time and Unit of Measure

Material Master – Finished Bike Component assignment in routing
Routing and BOM Material Master – Finished Bike Routing BOM Products arrive at the beginning of the operation to which they are assigned Oper. 10 Front Wheel Op. 10 Op. 20 Op. 30 Rear Wheel Oper. 20 Frame Oper. 30 Front Wheel Saddle Handle Bars Saddle Oper. 40 Handle Bars Rear Wheel Oper. 50 Pedals Frame Pedals Time Component assignment in routing

Work Center A location within a plant where value-added work (operations or activities) are performed Work Centers can represent People or Groups of People Johnny Storm, Day Shift 1 Machines or Groups of Machines Ink Mixer, Ink Injection Machine Assembly Lines Pen Assembly Line 2 Work center used to define capacities Labor Machine Output Emissions Capacities used in Capacity requirements planning (CRP) Detailed scheduling Costing Operations are carried out at a work center. In the SAP system work centers are business objects that can represent the following real work centers, for example: - Machines, machine groups - Production lines - Assembly work centers - Employees, groups of employees Use Together with bills of material and routings, work centers belong to the most important master data in the production planning and control system. Work centers are used in task list operations and work orders. Task lists are for example routings, maintenance task lists, inspection plans and standard networks. Work orders are created for production, quality assurance, plant maintenance and for the Project System as networks.

Work centers capture and use the following Resource Related data
Basic Data Person Responsible, Location of Work Center Scheduling Information Queues and Move Times (interoperation), Formula Keys Costing Data Cost Center, Activity Types Personnel Data People, Positions, Qualifications Capacity Planning Available Capacity, Formulas, Operating Time Default Data Control Key, Standard Text Key Data in work centers is used for - Scheduling - Operating times and formulas are entered in the work center, so that the duration of an operation can be calculated. - Costing - Formulas are entered in the work center, so that the costs of an operation can be calculated. A work center is also assigned to a cost center. - Capacity planning - The available capacity and formulas for calculating capacity requirements are entered in the work center. - Simplifying operation maintenance - Various default values for operations can be entered in the work center

Multi- or Single- Level Product Groups
Aggregate planning that group together materials or other product groups (Product Families) Multi- or Single- Level Product Groups The lowest level must always consist of materials Bikes Touring Mountain 24 Speed 18 Speed Red 24T Blue 24T Red 24M Blue 24M Aggregate forecasts of a group of similar products are generally more accurate than individual forecasts of the individual products that make up the group.

Material Planning SOP provides a method for Sales Planning, Production Planning, Feasibility Reyovac Batteries Constant Production building up On-hand inventory 90% of battery sales are in Nov and Dec for christmas

Production Planning & Execution
Demand Management Forecasting Sales & Operations Planning SIS CO/PA MPS MRP Manufacturing Execution Order Settlement Procurement Process Strategic Planning Detailed Planning

Production Planning & Execution
Players in the Game Strategic Planning CEO, COO, CIO, CFO, Controller, Marketing Director Detailed Planning Line Managers, Production Scheduler, MRP Controller, Capacity Planners Execution Line Workers, Shop Floor Supervisors SIS Forecasting CO/PA Strategic Planning Sales & Operations Planning Demand Management Detailed Planning MPS MRP Manufacturing Execution Procurement Process Order Settlement Manufacturing Execution

Forecasting is the foundation of a reliable SOP
Accurate forecasts are essential in the manufacturing sector Overstocked & understocked warehouses result in the same thing: a loss in profits. Forecasts are ALWAYS WRONG Supply chain planning, to a large degree, starts with forecasting. Matching supply and demand is an important goal for most firms and is at the heart of operational planning. It is also of significant importance as the overly optimistic Cisco found in 2001 when it took a $2.2 Billion inventory write-down because of their ability to “forecast demand with near-scientific precision” 1. Since most production systems can’t respond to consumer demand instantaneously, some estimate, or forecast, of future demand is required so that the efficient and effective operational plans can be made. Forecasts are always wrong, but some are “more wrong” than others. Forecasting the demand for innovative products, fashion goods, and the like is generally more difficult than forecasting demand for more “commodity-like” products that are sold on a daily basis. Aggregate forecasts of a group of similar products are generally more accurate than individual forecasts of the individual products that make up the group. Finally, the longer the forecast into the future, the less reliable the forecast will be.

Forecasting Forecasting Models Selecting a Model Trend Seasonal
Trend and Seasonal Constant Selecting a Model Automatically Manually

Planning at Product Group Level Planning at Material Level
Planning Levels Bikes 55% Touring 45% Mountain 70% 24 Speed 30% 18 Speed 40% 60% 50% Red 24T Blue 24T Red 24M Blue 24M Planning at Product Group Level Planning at Material Level

Sales and Operations Planning (SOP)
Information Origination Sales Marketing Manufacturing Accounting Human Resources Purchasing Intra-firm Collaboration Institutional Common Sense A more recent proposal to fix forecast errors is to use collaboration. The idea is that if different parts of the supply chain collaborate on a common forecast and everyone plans based on that single forecast; then there is little need for one part of the chain to hedge based on the uncertainty of what is done in other parts of the chain. Intra-firm collaboration, you would think, would be common place – seems that a little common sense would dictate that everyone in a firm come together with a common set of forecast figures. But this is rarely the case. Marketing has a set of forecasts, so too does operations. Sales has their forecast and it’s possible that for budgeting purposes Finance uses still another. The advancement of enterprise resource planning (ERP) systems is helping ensure that there is only one forecast, based upon the principles of a single data repository used by all areas of the enterprise. Forecasts affect most functional areas of the firm and are the starting point for resource allocation decisions. For example, manufacturing must plan production on a day to day basis to meet customer orders, while purchasing needs to know how to align supplier deliveries with the production schedules. Finance needs to understand the forecasts so that the proper levels of investment can be made in plant, equipment, and inventory and so that budgets can be constructed to better manage the business. The marketing function needs to know how to allocate resources for various product groups and marketing campaigns. Forecasts also determine the labor requirements required by the firm so that the human resources function can make proper hiring and training decisions when demand is expected to grow.

Sales and Operations Planning (SOP)
Flexible forecasting and planning tool Usually consists of three steps: Sales Plan Production Plan Rough Cut Capacity Plan Planned at an aggregate level in time buckets

Link between Strategic Planning (SOP) & Detailed Planning (MPS/MRP)
Demand Management Link between Strategic Planning (SOP) & Detailed Planning (MPS/MRP) The results of Demand Mgmt is called the Demand Program, it is generated from our independent requirements - PIR and CIR Product Groups Bikes 45% Mountain 55% Touring Disaggregation 30% 18 Speed 70% 24 Speed 40% 18 Speed 60% 24 Speed Aggregating forecasts across multiple items reduces forecasting errors. A clothing store, for instance, might be able to estimate within a pretty narrow range what the demand will be for men’s dress shirts. But when that store tries to estimate the demand for individual styles, colors, and sizes of shirts, the accuracy of their forecasts will be considerably worse. Firms handle this kind of forecasting problem usually in one of three ways; they either forecast from the bottom up, from the top down, or they start in the middle and work both up and down. The “top down” forecast essentially estimates total sales demand and then divides those sales dollars level by level until the stock keeping unit (SKU) is reached. The “bottom up” method, as one might expect, starts with forecasts at the SKU level and then aggregates those demand estimates level by level to reach a company–level forecast. Another method, one might call the “in-between” method, starts forecasts at the category level (like men’s dress shirts), and then works up to determine store sales and works down to divide up the forecast into styles, colors and SKUs. 40% Red 24M 60% Blue 24M 50% Red 24T 50% Blue 24T Material

Demand Management Forecast Sales Planned Independent Requirements
Customer Independent Requirements Demand Program MPS / MRP

Transfer from High Level to Detailed Planning
Bikes 55% Touring 45% Mountain 70% 24 Speed 30% 18 Speed 40% 60% 50% Red 24T Blue 24T Red 24M Blue 24M Demand Planning Data Planning at Material Level Disaggregation Planned Independent Requirements At Material and Plant Level Transfer Operative Planning Data Planning at Group Level

Planning strategies represent the business procedures for
The planning of production quantities Dates Wide range of strategies Multiple types of planning strategies based upon environment Make-To-Stock (MTS) Make-To-order (MTO) Driven by sales orders Configurable materials Mass customization of one Assembly orders Planning strategies represent the business procedures for the planning of production quantities and dates. A wide range of production planning strategies are available in the SAP R/3 System, offering a large number of different options ranging from pure make-to-order production to make-to-stock production. Depending on the strategy you choose, you can: Use sales orders and/or sales forecast values to create the demand program Move the stocking level down to the assembly level so that final assembly is triggered by the incoming sales order Carry out Demand Management specifically for the assembly Strategies for Make-to-Stock Production Purpose The planning strategies explained in this section are designed for planning procurement (production or purchasing) of components by planning the final products. If you can plan at component level more easily. Prerequisites Choose a make-to-stock strategy, if: The materials are not segregated. In other words, they are not assigned to specific sales orders. Costs need to be tracked at material level, and not at sales order level. Strategies for Planning Components The planning strategies explained in this section are designed for planning the procurement (production or purchasing) of components by planning the components themselves. This is particularly useful in the following cases: There is a variety of finished products (possibly with an irregular demand pattern where planning is not possible). The finished products are consumption-based. The overall purpose of planning at component level is to procure components to stock (without sales orders) in order to react to customer demand as quickly as possible. Choose a strategy for planning components, if: The components are not segregated; that is, they are not uniquely linked at specific orders. Costs should be tracked at component (material) level and not at order level.

Planning Strategy for Make-to-Stock
Planning takes place using Independent Requirements Sales are covered by make-to-stock inventory Strategies 10 – Net Requirements Planning 11 – Gross Requirements Planning 30 – Production by Lot Size 40 – Planning with Final Assembly Strategies for Make-to-Order (MTO) Production Purpose The planning strategies explained in this section are designed for the production of a material for a specific individual sales order. In other words, you do not want to produce finished products until you receive a sales order. This means that make-to-order strategies always support a very close customer-vendor relationship, because your sales orders are closely linked to production. The same relationship exists between the sales order and production that exists in a make-to-order environment. Make-to-order is also used in the following environments. Production using variant configuration Assemble-to-order Prerequisites Choose a make-to-order strategy, if: The materials are segregated. In other words, they are uniquely assigned to specific sales orders. Costs must be tracked at sales order level and not on material level. Strategies for Configurable Materials Definition A configurable material is a material for which different variants are possible. The strategies for configurable materials allow you to plan products with an almost unlimited number of possible combinations of characteristics and combination value keys. Use these strategies if you want to plan a product that uses a feasible combination of characteristic values and that does not include final assembly. Typical examples of such products are cars, elevators, forklifts, trucks, buses. Assemble-to-order An assemble-to-order environment is one in which the product or service is assembled on receipt of the sales order. Key components are planned or stocked in anticipation of the sales order. Receipt of the order initiates assembly of the customized product. Assemble-to-order is useful where a large number of finished products can be assembled from common components.

Planning Strategy for Make-to-Order
Planning takes place using Customer Orders Sales are covered by make-to-order production Strategies 20 – Make to Order Production 50 – Planning without Final Assembly 60 – Planning with Planning Material

Master Production Scheduling (MPS)
MPS allows a company to distinguish planning methods between materials that have a strong influence on profit or use critical resources and those that do not MPS run MPS Items Bike Set Non-MPS Items Helmet FG Gloves Using MPS you can carefully plan important parts or bottleneck parts in a separate planning run at the highest BOM level before the planning results have an effect on all of the production levels. Frame Handle Bars Saddle Etc.

Material Requirement Planning (MRP)
In MRP, the system calculates the net requirements while considering available warehouse stock and scheduled receipts from purchasing and production During MRP, all levels of the bill of material are planned The output of MRP is a detailed production and/or purchasing plan Detailed planning level Primary Functions Monitor inventory stocks Determine material needs Quantity Timing Generate purchase or production orders The central role of MRP is to monitor stocks and in particular, to automatically create procurement proposals for purchasing and production (planned orders, purchase requisitions or delivery schedules). This target is achieved by using various materials planning methods which each cover different procedures. Consumption-based planning is based on past consumption values and uses the forecast or other statistical procedures to determine future requirements. The procedures in consumption-based planning do not refer to the master production schedule. That is, the net requirements calculation is not triggered either by planned independent requirements or dependent requirement. Instead, it is triggered when stock levels fall below a predefined reorder point or by forecast requirements calculated using past consumption values.

Demand-Independent vs. Dependent
Independent Demand – Original source of the demand. Dependent Demand – Source of demand resides at another level. Indep Single-Level Multi-Level MPS Bike Set Planned Order Dep Dep MPS FG MRP Helmet Planned Order Purchase Order Dep MRP Brake Kit Purchase Order

Material Requirement Planning (MRP)
MRP is used to ensure the availability of materials based on the need generated by MPS or the Demand Program 5 Logical Steps Net Requirements Calculation Lot Size Calculation Procurement Type Scheduling BOM Explosion

Net Requirements Procurement Proposal Requirements –
Planned Ind. Req., Reservations Sales Orders, Etc. Shortage Firmed Receipts Firmed Orders or Purchase Requisitions Stock Safety Stock

Lot sizing Static Periodic Optimum
Based on fixed values in the Material Master Periodic Groups net requirements together from multiple periods Optimum Calculates the optimum lot size for a several periods of net requirements The lot-size calculation is carried out in MRP. In the net requirements calculation, the system determines material shortages for each requirement date. These shortage quantities must be covered by receipt elements. The system then calculates the quantities required for the receipts in the planning run in the procurement quantity calculation. In static lot-sizing procedures, the procurement quantity is calculated exclusively by means of the quantity specifications entered in the material master. Features The following static lot-sizing procedures are available: Lot-for-lot order quantity Fixed lot size Fixed lot size with splitting and overlapping Replenishment up to maximum stock level In period lot-sizing procedures, the system groups several requirements within a time interval together to form a lot. You can define the following periods: days weeks months periods of flexible length equal to posting periods freely definable periods according to a planning calendar The system can interpret the period start of the planning calendar as the availability date or as the delivery date. In static and period lot-sizing procedures, the costs resulting from stock keeping, from the setup procedures or from purchasing are not taken into consideration. The aim of optimum lot-sizing procedures, on the other hand, is to group shortages together in such a way that costs are minimized. These costs include lot size independent costs (setup or order costs) and storage costs.

Procurement Type External Procurement Internal Procurement
Purchase Requisition Purchase Order Schedule Line Internal Procurement Planned Order Production Order Process Order

Multi-Level Scheduling
Requirements Date Planned Order Purchase Requisition Finished Product Assembly 1 Semi-Finished Good Raw Material Component Time

MRP vs. Consumption-Based
Whether or not a material is planned using MRP or Consumption Based is determined by the MRP Type on the MRP1 screen of the Material Master MRP VB – Reorder-Point Consumption Based VV – Forecast Based RP – Replenishment PD – MRP VSD – Seasonal MRP

Replenishment Lead Time
Consumption-Based Lot Size Replenishment Lead Time Safety Stock Reorder Point

MRP Output of MRP In-House Production External Procurement
Planned Order Convert to Production Orders Purchase Requisitions Process Orders Purchase Orders Schedule Lines

Planned Order (planning)
Orders, orders, orders Planned Order (planning) A request created in the planning run for a material in the future (converts to either a production or purchase order) Production Order (execution) A request or instruction internally to produce a specific product at a specific time Purchase Order (execution) A request or instruction to a vendor for a material or service at a specific time A request or instruction from a purchasing organization to a vendor (external supplier) or a plant to deliver a quantity of material or to perform services at a certain point in time.

Manufacturing Execution Process
Capacity Planning Schedule and Release Production Proposal (Planning/Other) Shop Floor Documents Order Settlement Goods Issue Goods Receipt Completion Confirmation

Production Order Production orders are used to control production operations and associated costs Production Orders define the following Material produced Quantity Location Time line Work involved Resources used How to costs are settled

Production Order BOM How What Quantity Time Line

Schedule Calculates the production dates and capacity requirements for all operations within an order Determines a Routing Operation specific time lines Material Consumption Points Material Master Scheduling Margin Key (Floats) Work Center Formulas Standard Inter-operation Times

Release Two release processes Automatic vs. Manual Header Level
Entire order and all operations are released for processing, order is given a REL status Operation Level Individual operations within an order are released, not until the last operation is released does the order obtains a REL status until then it is in a PREL status Automatic vs. Manual

Generates an availability log
Availability Check Automatic check to determine whether the component, production resource tools, or capacities in an order are available Can be automatic or manually executed Determines availability on the required date Generates an availability log Displays results of the check Missing parts list Reservations that could not be verified

Schedule & Release The time between scheduling and releasing an order is used for company checks and any preparation needed for the processing of the order Once an order has been released it is ready for execution, we can at this time Print shop floor documents Execute goods movements Accept confirmations against the order

Shop Floor Documents Shop Floor Documents are printed upon release of the Production Order, examples would be: Operation-based Lists Time Tickets, Confirmation Slips Component-based Lists Material Withdrawal Slips, Pull List (consumption list) PRT Lists Overview of PRT’s used and in which operations Multi-Purpose Lists Operation Control Ticket, Object Overview List Types The SAP system differentiates between the following types of lists: Operation-based lists, for example, time tickets, confirmation slips Component-based lists, for example Pull List, material withdrawal slips PRT lists, for example, PRT overview Multi-purpose lists, for example, object overview, operation control ticket This type of list can contain information about operations or production resources and tools, for example. The lists that the system generates and prints refer to all operations, suboperations, components, and production tool and resources contained in a production order.

Material Withdrawal When a production order is created it references a BOM to determine the necessary components to produce the material, it then places a reservation on each of the components Upon release of the order (or operation) you can withdraw the reserved materials from inventory Reservation is updated Inventory is updated Costs are assigned to the order as actual costs You can withdraw materials for an order that are not listed as components in the order. These "unplanned withdrawals" cause the actual costs of the production order to be updated.

Data that needs confirmation include
Confirmations Confirmations are used to monitor and track the progression of an order through its production cycle Confirmation can be done at the operation or order level Exact confirmation shortly after completion of an operation is essential for realistic production planning and control Data that needs confirmation include Quantities – yield, scrap, rework Activity data – setup time, machine time Dates – setup, processing, teardown started or finished Personnel data – employee who carried out the operation, number of employee involved in the operation Work center Goods movements – planned and unplanned Variance reasons PRT usage

Confirmations

Goods Receipt Acceptance of the confirmed quantity of output from the production order into stock Effects of the Goods Receipt Updates stock quantity Updates stock value Price stored for future valuation changes Production order is updated Three documents are created Material document Accounting document Controlling document

Parameters for Order Settlement
Consists of settling the actual costs incurred in the order to one or more receiver cost objects Receivers could include: a material, a cost center, an internal order, a sales order, a project, a network, a fixed asset Parameters for Order Settlement Settlement Profile Specifics the receivers, distributions rules and method Settlement Structure Determines how the debit cost elements are assigned to the settlement cost elements Settlement Rule Automatically assigned on creation of order, the parameters are used to define this rule Has one or more distribution rules assigned to it Distribution rules defines: cost receiver, settlement share, settlement type

Settling a Production Order to Stock
Order Settlement Settling a Production Order to Stock Debt posting is made to the Production Order with the value of the material Difference between the debt posting and credit posting is posted to a price difference account Material Prod. Order Price Diff. 80 100 20 Since production costs were higher than planned, the additional expenditure negatively affects the operating profit. This means that the profit decreases by the amount by which the actual costs charged to the production order exceed the standard price. The actual costs charged to the production order affect net income just as the posting of the inventory change at the time of the goods receipt. Since the actual expense was 20 higher than expected, the operating profit is 200 lower than it would have been if production had been at standard cost. **Material Price determine by the quantity produced times the Standard Price in the Material Master.

Cost Analysis Reporting
Order Settlement Costs analyzed Primary Materials External Processing Secondary Production, Material, and Administrative Overhead Labor Cost Analysis Reporting Calculate and analyze planned costs, target costs, and actual costs of the production order. Calculate and analyze variances Calculate and analyze planned costs, target costs, and actual costs of production orders and process orders Calculate or update the work-in-process inventory and the finished goods inventory Calculate and analyze variances Transfer data to Financial Accounting (FI) Transfer data to Profitability Analysis (CO-PA) Transfer data to Profit Center Accounting (EC-PCA) Transfer data to Actual Costing / Material Ledger (CO-PC-ACT)

Order Settlement – = 83.00 83.00 is the difference between what it cost to make the product and what we value it at in the Material Master. Accounting 1 Screen Material Master = So we make it cheaper then we value the product.

Order Status

Financial Accounting (FI)
SAP University Alliances Version 1.0 Authors Bret Wagner Stefan Weidner Stephen Tracy Product SAP ERP 6.0 Global Bike Inc. Level Beginner Focus Cross-functional integration Financial Accounting

Standard reports include:
Goal of FI Financial accounting is designed to collect the transactional data that provides a foundation for preparing the standard portfolio of reports In general, these reports are primarily, but not exclusively, directed at external parties Standard reports include: Balance Sheet Income Statement Statement of Cash Flows

Target Audience Internal External Executives Senior Management
Administrative Staff Employees External Legal Authorities Banks Auditors Shareholders Insurance Taxing Authorities Media Financial Analysts

Organizational Objects
These represent the legal and/or organizational views of an enterprise They form a framework that supports the activities of a business in the manner desired by management Permit the accurate and organized collection of business information Support the development and presentation of relevant information in order to enable and support business decisions Organizational Objects: Company Code Chart of Accounts

Represents an independent legal accounting unit
Company Code Represents an independent legal accounting unit Balanced set of books, as required by law, are prepared at this level A client may have more than one company code United States United Kingdom South America Canada Germany Liabilities & Owners Equity Assets

Chart of Accounts A classification scheme consisting of a group of general ledger (G/L) accounts. A chart of accounts provides a framework for the recording of values to ensure an orderly rendering of accounting data. The G/L accounts it contains are used by one or more company codes.

General Ledger (G/L) Accounts
The unique combination of Company Code and Chart of Account creates a data storage area called a General Ledger The General Ledger contains a listing of the transactions effecting each account in the Chart of Accounts and the respective account balance It is utilized in the preparation of financial accounting statements

Posting a G/L Entry

G/L Account Summary Account number 100100 Bank Account
Company code A1 Period Debit Credit DC bal. Balance C/f bal ,000.00 Period 1 5, , , ,710.00 Period 2 25, , , ,710.00

Balance Sheet Presentation of an organization’s Assets, Liabilities, and Equity at a point in time Assets: What the company owns Liabilities: What the company owes Equity: The difference between Assets and Liabilities Assets = Liabilities + Equity

Balance Sheet – Sample Assets Cash 1,000 Accounts Receivable 3,000
Equipment Total Assets 4,500 Liabilities Accounts Payable Taxes Payable Total Liabilities 1,250 Equity Common Stock 2,000 Retained Earnings Total Equity 2,250 Total Liabilities and Equity 4,500

Income Statement Presentation of an organization’s Revenues and Expenses for a given period of time (e.g., monthly, quarterly, or yearly) Revenues, in a simple sense, are inflows of cash as a result of selling activities or the disposal of company assets Expenses, in a simple sense, are outflows of cash or the creation of liabilities to support company operations Revenues - Expenses = Net Income

Income Statement – Sample
Revenue Sales 11,000 Deductions Total Revenue 10,250 Operating Expenses Cost of Goods Sold 4,500 Operating Expenses 3,750 Total Expenses 8,250 Net Income Before Taxes 2,000 Taxes Net Income 1,250

Statement of Cash Flows
Considers the associated changes, both inflows and outflows, that have occurred in cash – arguably the most important of all assets – over a given period of time (e.g., monthly, quarterly, or annually)

Customer and Vendor Accounts
Customer and Vendor account balances are maintained in FI through fully integrated accounts receivable and accounts payable sub-modules Financial postings for Customers and Vendors are made directly to their respective individual accounts and accompanied by a concurrent automatic posting to the General Ledger

Customer Accounts Accounts Receivable 950 300 150 400 100
Accounts Receivable Sub-Module Information with respect to Customers who purchase the enterprise’s goods and services such as sales and payments made Substantive and important integration between Sales and Distribution (SD) and FI Billings in SD generate FI journal entries for sales activity Accounts Receivable (General Ledger) 950 300 Customer 142 150 Customer 123 400 Customer 135 100 Customer 189

Accounts Payable (General Ledger) 850 250 200 100 300
Vendor Accounts Accounts Payable Sub-Module Information with respect to Vendors from whom the enterprise purchases goods and services such as purchases and payments made Substantive and important integration between Materials Management (MM) and FI Purchase and goods receipt activities in MM generate FI journal entries Accounts Payable (General Ledger) 850 250 Vendor 200 Vendor 100 Vendor 300 Vendor

Accountants and Audit Trails
Audit trails allow an auditor to begin with an account balance on a financial statement and trace through the accounting records to the transactions that support the account balance Audit trails enable an auditor to trace individual transactions to the effected account balance(s) on a financial statement

SAP Document Principle
Each business transaction impacting FI writes data to the SAP database creating a uniquely numbered electronic document The document number can be used to recall the transaction at a later date It contains, for example, such critical and necessary information as: Responsible person Date and time of the transaction Commercial content Once written to the SAP database, a financial document (one impacting the financial position of the company) can not be deleted from the database It can be changed to some degree The SAP document principle provides a solid and important framework for a strong internal control system – a requirement of law for companies that operate in the United States

SAP Document Principle
Period 1 Doc. no. DT Doc.date Currency Amount KZ 01/05/04 USD 1, KZ 01/06/04 USD SA 01/08/04 USD DZ 01/14/ USD 5,

SAP FI Module Fully integrated with other SAP modules including, but not limited to: Sales and Distribution (SD) Materials Management (MM) Production Planning and Execution (PP) Managerial Accounting (CO)

Summary Purpose SAP FI Organizational Objects Financial Statements
Customer/Vendor Accounts Audit Trails Document Principle Integration

Controlling (CO) SAP University Alliances Version 1.0
Authors Bret Wagner Stefan Weidner Stephen Tracy Product SAP ERP 6.0 Global Bike Inc. Level Beginner Focus Cross-functional integration Controlling

Goal of CO Managerial accounting – termed controlling – is designed to collect the transactional data that provides a foundation for preparing internal reports that support decision-making within the enterprise These reports are exclusively for use within the enterprise and include: Cost center performance Profit center performance Budgets analyses

Target Audience Executives Senior Management Department Managers Controllers Cost Accountants

Organizational Objects
These represent the legal and/or organizational views of an enterprise They form a framework that supports the activities of a business in the manner desired by management Permit the accurate and organized collection of business information Support the development and presentation of relevant information in order to enable and support business decisions Organizational Objects: Company Code Cost Center Chart of Accounts - Internal Order Controlling Area - Profit Center

Represents an independent legal accounting unit
Company Code Represents an independent legal accounting unit Balanced set of books, as required by law, are prepared at this level A client may have more than one company code United States United Kingdom South America Canada Germany Liabilities & Owners Equity Assets

Chart of Accounts & Controlling Area
A complete listing of the accounts that exist in the General Ledger for a company Since a given enterprise (e.g., General Motors) can consist of several separate legal entities (e.g., Cadillac, Chevrolet), separate company codes can be created for each entity while each uses the same chart of accounts so that consolidated statements can be prepared. Controlling Area A self-contained, organizational element for which the management of revenues and expenses can be performed A controlling area may include one or more company codes; therefore, an enterprise can perform management accounting analyses and reports across several companies A way to identify and track where revenues and costs are incurred for evaluation purposes

Profit Center & Cost Center
Responsible for revenue generation and cost containment Evaluated on profit or return on investment Enterprises are commonly divided into profit centers based on Region Function Product Cost Center Responsible for cost containment, not responsible for revenue generation One or more value-added activities are performed within each cost center Unit that is distinguished, for example, by area of responsibility, location, or type of activity Copy center Security department Maintenance department

Internal Order Temporary cost center responsible for cost containment, not responsible for revenue generation It is used to plan, collect, and monitor the costs associated with a distinct short-term event, activity, or project Company picnic Trade show Recruiting campaign

Revenue Elements A one-to-one linkage (mapping) between General Ledger revenue accounts and CO revenue elements is established to permit the transfer of FI revenue information to CO Posting in FI that impact revenue accounts lead to an posting in CO to a revenue element In other words, revenue account = revenue element – just different words depending on whether FI object or CO object

Cost Elements A one-to-one linkage (mapping) between General Ledger expense accounts and CO cost elements is established to permit the transfer of FI expense information to CO Postings in FI that impact cost accounts lead to an posting in CO to a cost element In other words, expense account = cost element – just different words depending on whether FI object or CO object Primary Cost Element Originate in the General Ledger within FI and are automatically transferred to CO when an FI transaction is recorded in the General Ledger Secondary Cost Element Used exclusively in CO for allocations and settlements between and amongst cost centers

Primary and Secondary Cost Elements
Managerial Accounting (CO) Financial Accounting (FI) Aggregate Cost Elements General Ledger Accounts Income Statement Balance Sheet Secondary Cost Elements Primary Cost Elements Expense Accounts This diagram shows the integration between finance and controlling: The expense accounts are managed in both the P&L expense account and the primary cost element in controlling. Revenue Accounts

Posting Primary Cost Element
Financial Accounting (FI) Supplies Expense Cash Debit Credit 1,500 Debit Credit 1,500 Managerial Accounting (CO) Primary Cost Element Cost Center A This diagram show a purchase order. In this case the cost of the purchase order is assigned to Cost Center C0001.

Posting Primary Cost Element
(FI) Transaction Document Amount G/L Account # Cost Center (CO) Transaction Cost Element Financial Accounting (FI) Supplies Expense Debit Credit Cash Debit Credit 1,500 1,500 Managerial Accounting (CO) Cost Center Transactions can have an effect on both FI and CO. The transaction will create a debit and a credit for FI (FI transaction) If CO is turned on a cost center or cost element bucket will be updated. (CO transactions) 1,500

Posting Secondary Cost Element
Financial Accounting (FI) Supplies Expense Cash Debit Credit 1,500 Debit Credit 1,500 Managerial Accounting (CO) Secondary Cost Element Cost Center A CC 2 This diagram show a purchase order. In this case the cost of the purchase order is assigned to Cost Center C0001. CC 3

Statistical Key Figures
Provide the foundation for accurate and effective cost allocations between cost objects Utilized to support internal cost allocations involving allocations, assessments, and distributions Examples: number of employees, square footage, minutes of computer usage Copy Center Activity (20 Hours) 10 Hours 6 Hours 4 Hours Executive Offices Maintenance Department Information Services This figure shows an example of statistical key figures. A project cost center has 12 hours worth the activity. The statistical key figure is hours and is split at: 30% to the Work Center 50% to maintenance 20% to IS All costs for the labor will be allocated in this fashion

Posting Secondary Cost Element
Executive Offices Debit Credit 1,500 Rent Expense 1,800 Copy Center Sec. Cost Element Maintenance Department Primary Cost Element 1,500 2,500 2,000 Supplies Expense 3,000 Debit Credit Sec. Cost Element 2,500 Primary Cost Element Information Services Labor Expense Sec. Cost Element 1,200 Primary Cost Element Debit Credit 2,000

Types of Allocation Distributions – primary cost elements
Assessments – combination of primary and/or secondary cost elements Distribution Method for periodically allocating primary cost elements Primary cost elements maintain their identities in both the sending and receiving objects Sender and receiver cost centers are fully documented in a unique Controlling (CO) document Assessment A method of allocating both primary and secondary cost elements Primary and/or secondary cost elements are grouped together and transferred to receiver cost centers through use of a secondary cost element In Distribution and Assessment, you further allocate costs (or quantities for Indirect Activity Allocations) collected on a cost center during the accounting period to receivers, according to user-defined keys. These are therefore indirect allocation methods, because the exchange of activity is not the basis for allocating costs/quantities. Instead, user-defined keys such as percentage rates, amounts, statistical key figures, or posted amounts provide the cost/quantity assignment basis. The advantage of these methods is that they are easy to use. You usually define the keys and the sender/receiver relationships only once. Distribution and assessment are used primarily for cost centers. This is because direct cost allocation is not possible here due to the variety of transactions, the lack of clearly defined individual activity types and the fact that the entry of the activity is too time-consuming. For example, the costs of the company cafeteria may be assigned based on the number of employees in each cost center. Telephone costs are seldom allocated directly to the individual cost centers, but are collected on a clearing cost center for each period. They are then reposted or distributed at the end of the period according to the number of telephone units or telephone installations in each cost center. Assessment is a method of allocating primary and secondary costs in Cost Center Accounting and Activity-Based Costing. The following information is passed on to the receivers: The original cost elements are assigned cumulatively, or in groups, to assessment (secondary) cost elements. The original cost elements are not recorded on the receivers. Sender and receiver information (sender cost center, receiver cost center, or business process) appears in the Controlling (CO) document.

Distributions Receiving cost centers Sending Primary cost cost center
element maintains its identity A010 – Administration Rent Expense $1,500 Distribution In this example the distribution of the rent expense is by square footage occupied by each of the cost centers. By the pie chart we see that distribution and administration have the most square footage.

Distributions Receiving cost centers Sending cost center Primary cost
element maintains its identity A010 – Administration Rent Expense $1,500 Distribution Distribution and administration having most of the square footage thus have the majority of the distribution costs.

secondary cost elements
Assessments Receiving cost center Sending cost center Primary and secondary cost elements A020 – IT Software Expense $4,200 Supplies Expense $500 Assessment In this example IT expenses are accumulated. Periodically, the costs are reallocated to the primary and secondary cost elements based upon the budgeting and expense policy of the company. Notice how Sales now has a much larger portion than the other departments.

secondary cost elements
Assessments Receiving cost center Sending cost center Primary and secondary cost elements A020 – IT Software Expense $4,200 Supplies Expense $500 Assessment The reallocation in Dollars

SAP CO Module Fully integrated with other SAP modules including, but not limited to: Financial Accounting (FI) Materials Management (MM) Sales and Distribution (SD) Production Planning and Execution (PP)

Summary Purpose SAP CO Organizational Objects Revenue Elements
Cost Elements Statistical Key Figures Allocations Integration

The End

Introduction to SAP ERP

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