Material Ledger Scope and Coverage

Case Study: Cooper Tires SAP Material Ledger Implementation Lessons Learned

Chris Crim, Cooper Tire

Johannes Le Roux, Jari Consulting

Topics

Cooper Tire Strategy and Vision

Implementation Options

Lessons Learned at Cooper Tire

Springboard to SAP Profitability and Cost Management

Summary


Cooper Tire weighed the pros and cons of activating SAP Material Ledger as part of their initial SAP implementation or during a future rollout phase. In this session well cover:

Why Cooper Tire implemented SAP Material Ledger as part of their initial SAP implementation

Leveraging Material Ledger as a springboard to SAP Profitability and Cost Management software

Proper master data setup lessons learned

Best practices for configuring Material Ledger for long term requirements

Find out what Cooper Tire would advise companies embarking on this process including importance of understanding the impact on finance and non-finance process teams

Cooper Tire Implementation Timeline

2009: Cooper Tire made the decision to implement an ERP system

Feb. 2010: SAP selected

Aug. Oct. 2010: Blueprint/requirement gathering

Requirements gathering process led to decision to implement SAP Material Ledger

Oct. 2011: 1st Go Live was in the Mickey Thompson division (Sales & Dist.)

Feb. Nov. 2013: 2nd Go Live in Cooper US (Mfg, Sales, Dist)

2014 2015: 3rd 5th go lives in Cooper Mexico, Europe, & Asia (Mfg, Sales, Dist)

Weighing the Pros and Cons of the SAP Material Ledger

SAP Material LedgerTraceability of Actual Material Cost by product

Purchase Price Variance

BOM Usage Variance

Production Usage Variance

COGS at actual cost

Traceability of production efficiency by product

Report Standard & Actual Value of Inventory by product

Product level Profitability/Gross Margin Reporting without Intercompany Markup

SAP Without ML /LEGACY NO Traceability of Actual Material Cost by product


BOM Usage Variance


COGS at actual cost

NO traceability of production efficiency by product

NO Report Standard & Actual Value of Inventory by product

NO Product level Profitability/Gross Margin Reporting without Intercompany Markup

Material Ledger Implementation Basics

Support externally calculated Double Extension LIFO

Value Inventory in Multiple Currencies

Support Different Global Statutory Reporting requirement by Company Code (FIFO/LIFO)

Actual Cost by Cost Component by product

Actual Cost of Material by Product

Actual Cost of Labor by Product

Actual Cost of Depreciation by Product

Actual Cost of Sales

Actual Cost Component

Material Ledger Implementation Basics (cont.)

During the accounting period all material movements are valued at a standard cost and recorded by material in the material ledger

Price Differences (Variances) for each material movement are recorded

At the end of the period an actual cost (periodic unit price) is calculated for each material though out multiple levels of product produced

Revaluation of Inventory and Cost of Goods Sold

Distribution of usage variance is allocated to product

Revolution of COGS

Cost PlanningProductionActual CostingProfitability AnalysisEvaluating master dataBill of materials

Routing

Planned prices

Planned activities

Planned yield

Recording logistical information for controlling:Consumptions

Yield & scrap

Purchasing & supplier invoices

Activities & time recording

Recalculating the value flow usingActual quantity structure

Actual activity recording

Multi-level value flow

Actual raw material prices

Consumption Revaluation

Distribution of Usage variances

Reporting Costs and Contribution MarginsProduction costs

Sales Revenues

Actual cost Component

DimensionsRegions

Channels

Customers

Product Hierarchy

Streamlining the Cost Process

SAP Material Ledger streamlined their cost process into a fully integrated process as seen below:

Semifin.material

Distributioncenter

Salesorder

Finishedproduct

RawmaterialProductionorderCost center

Production order

1) Sale of Raw Material to the Production Profit Center within a Legal Entity2) Sale of Semi-Finished Good to Affiliated Company3) Use Semi-Finished Good in a production order and add value from activity in a cost center4) Transfer finished product to distribution center including actual cost2341

Streamlining the Cost Process (cont.)

Integrate and align cost structure to reduce cost

Provides global unit cost information across plants and legal entities providing an global transparent view of costs and variances

Analytical information by scorecards, statutory reports, and performance analysis

Provide accurate profitability information

Maximizes corporate profitability to grow market capitalization and shareholder value

Integrate planning with a single model across the enterprise to improve organizational alignment and financial performance

Provide real-time information quickly

Material Ledger Benefits

Cooper Tire Value Strategy

Cooper Value Strategy Proposal If we had to do it again, we would use the following strategy

Currency / VisionalCompany code Currency

Legal 10

Group / legal30

Profit Center32

Cooper Value Strategy Legal valuation

Legal group valuation

Group valuation without markup

Currency / VisionalCompany code Currency

Legal 10

Group / legal30

Group 31

Why we would propose a different strategy:

Less maintenance Only two cost roles

Profit center valuation not needed not using profit center transfer price

Define Individual Characterisitcs

You cannot change the currencies, currency types and material ledger types after production startup

Currency and Valuation Profile

SAP Material Ledger Without Revaluation

Cooper Implement Material ledger without revaluation

What Cooper did was used the accrual method but report the accrual as part of there inventory value in there balance sheet using an inventory direct posting account

SAP Material Ledger Without Revaluation

Cooper implement SAP Material ledger without revaluation

Used the accrual method, but reported the accrual as part of their inventory value in their balance sheet using an inventory direct posting account

www.sap.com AC530 - Training actual costing/Material ledger

SAP Material Ledger Without Revaluation (cont.)

If you decide not to revaluate your materials with the actual price, the amount which would have been posted to the material stock account is posted to another price difference account using posting key LKW

It is up to you which account you choose for this posting

Topics





Summary

Two methods to implement the Material ledger

Activate Material Ledger to track material postings

Ability to do multi-currency inventory valuation

Recording business transaction

Structuring value chain direct product only

Activate Actual CostingRevaluation of inventory based on actual cost

Multi level variance value chain

Gross margin analysis using both standard and actual cost


Pro sCons

No migration needed activation of all plant for company at onceHigh level of Discipline needed when using material ledger

Tracks variances across multiple product levels / plant and company codes Organization not ready for complicity and discipline needed

Tracks purchase material price variances to finished products on the basis of consumption

Additional training required

Provides historical information on actual cost to facilitate the estimation of new standard costs from initial go-live

Ability to track multiple valuations and/or currencies at the material level

Ability to revaluate inventory on the basis of real cost calculation visibility of variances

Implementation as Part of Initial Phase

Pro sCons

Low level of complexity after initial go-live Migration requirements Closing of all open production order

Closing of all open purchase order

Conversion and activation by plant

No discipline and restrictions to change cost after initial go-live

Go-love migration long and slow process

Faster closing process after initial go-live No historical information on actual cost to facilitate the estimation of new standard costs after initial go-live

Organization do not have to deal with complicity and discipline after initial go-live

No ability to track multiple valuations and/or currencies at the material level after initial go-live

No ability to tracks purchase material price variances to finished products on the basis of consumption after initial go-live

Implementation After Go live

Cooper Tires Decision to implement Material Ledger

SAP Material LedgerTraceability of Actual Material Cost by product


BOM Usage Variance


COGS at Actual cost

Traceability of Production efficiency by product

Report Standard & Actual Value of Inventory by product

Product level Profitability/Gross Margin Reporting without Intercompany Markup

SAP Without ML /LEGACY NO Traceability of Actual Material Cost by product


BOM Usage Variance


COGS at Actual cost
NO Traceability of Production efficiency by product

NO Report Standard & Actual Value of Inventory by product

NO Product level Profitability/Gross Margin Reporting without Intercompany Markup

Keep all companies with same valuation strategy

Standard vs. moving average in Sales & Distribution companies

Visibility Needed better visibility of variance analysis across production processes

Better product cost

Global product cost

1 time change managementBig Bang (kind of)

Clean SystemNo open production order to delete and recreate

No open purchase order to delete and recreate

Cooper Tires Decision to implement Material Ledger

Topics





Summary


Avoid those who only believe Material Ledger is difficult

SAP trainers

Sapphire sessions

Consultants

Cooper Tire Accounting Managers Overkill

Activity revaluation

Distribution of usage variances

Trusting the results

Complexity

Focus on benefits and future capabilities

Look at complexity/timeline/cost implementing ML in future

Results/Gains from Implementing Material Ledger

Impact of PPV on specific tire line

Actual cost to support LIFO calculation

Consolidated location to see In/Out transaction by material

See actual cost of inventory by cost component

Inventory valuation visibility without inter-company markup

Ability to see actual product line profitability without intercompany mark ups

Results/Negatives from Implementing Material Ledger

Massive volume of data

Increased time-to-close by at least 1 day maybe more as more plants go live

Distribution of usage variances extremely time consuming

Difficult to validate the accuracy of the posting at a high level

Difficult for casual/non-users to comprehend

Material Ledger Worth the Expense?

Yes

Love the level of detail, tons of information!

NoTakes too long, not worth the effort

Maybe See the potential, cant wait for full rollout to be complete

Cooper Tire Lessons Learned

Make the final decision early

Quality consultant/implementer

Configure for all potential long term requirements

Make decision what material will be included

Actual costing

Cost component structure

Understand all ML component

Integration: The impact that Material Ledger has on other processes/teams

Proper master data setup/conversion

Cutover/client setups

Ongoing validation/maintenance

Make The Final Decision Early

Impacts Currency Profiles

Based on setup will impact costing process

Material Master Defaults

Costing Variants

ResourcesMake sure you have dedicated resources

SMEs & Testing ValidatorsMake sure test cycles fit material ledger test requirements

Quality Consultant/Implementer

Closely review experience

Check references

Check results of prior ML implementations

Contract through life of implementation and beyondMost issue happen 3-4 month after go-live

Training cycle 3-4 months

Process and discipline related

Poor master data

Poor closing processes

Poor monitoring processes

Configure For All Potential Long Term Requirements

Configure for Long Term Needs

Currency profiles

Actual cost component split

LIFO / FIFO

The impact that Material Ledger has on other processes teamsOperations

Inventory Management

Sales & Distribution

Basis

Cutover/Client Set Up

Cutover/Client Set Up

Demand quite system during client start ups

Open/close clients to change default setting on price determination during material load/extensions

Ensure cutover team understands impact of improper ML start up

Master Data SetupSolid process established prior to go live

Importance of status controls

Product costing prior to material movements

Ongoing Validation/Maintenance

Daily/weekly distribution of usage variances

Set up detailed validation template

Pick a raw material and follow it through a sale

Set up high level validation template

Resources

Do not underestimate the effort

Cooper staffing

One lead business analyst

Included plant accountant in each implementation

Learn the process

Understand data flow and conversion

One lead consultant Make that sure that he/she knows Material Ledger

Due to conversion, support time ( 3 plus months) and training required it could require additional business analyst

Topics





Summary

Springboard to SAP PCM

Integrated transaction and analytics solutions

Totally integrated into transactional processing to PCM

Cooper Tire phase II to integrate with PCM

Profitability AnalysisCost PlanningProductionActual CostingEvaluating master dataBill of materials

Routing

Planned prices

Planned activities

Planned yield


Yield & scrap









Reporting PROFIT Production costs

Sales Revenues


DimensionsRegions

Channels

Customers

Product Hierarchy

Profitability&CostManagementReporting Costs and Contribution MarginsBeing totally integrated into transactional processing

materials ledger makes ideal place for Calculating the direct cost of product

Transferred to the profitability segment component and uploaded into SAP BOBJ & PCM

Combining the strengths of the controlling components of SAP ERP with SAP BOBJ & PCM

Profitability Analysis Ideal Staging Area

Profitability Analysis is an ideal staging area for:

Capturing revenue and sales data at the customer and product level

Furthermore, having functionality such as the materials ledger makes the controlling component the ideal place for calculating the actual direct cost of products

Transferred to the profitability analysis component and then loaded into SAP BusinessObjects Profitability and Cost Management

Combining the strengths of costing and profitability reporting functionality provided a makes it easier to use the two solutions in tandem, enabling organizations to tailor a cost and profitability reporting solution to match their needs

SAP Best Practice

Integrate ECC, business intelligence and enterprise performance management

SAP BusinessObjects Profitability and Cost Management is the selected solution on the SAP product road map for delivering cost and profitability management

These tools can also be used for detailed scenario modeling, such as assessing how changing the price of an individual product or the discount given to an individual customer impacts profitability

SAP uses integration with enterprise performance management delivers true business performance optimization

Topics





Summary

Tracks purchase material price variances to finished products on the basis of consumptionProvides historical information on Actual Cost to facilitate the estimation of new Standard CostsAbility to track multiple valuations and/or currencies at the material level.Ability to revaluate inventory on the basis of real cost calculationEnables faster and more effective decision making to managementTracks variances Across Multiple product levels / plant and Company codes
Material Ledger Benefits

CO-CCAMFG Cost CenterCO-CCAMFG Overead Cost CenterActivitytypeBusiness ProcessProduction Orders Actual CC AllocationsActivity Price revaluationABC Template AllocationWIPVariancesDUV usage variance Actual Cost Calculation

CO-PADocumentsActual CostComponentSplitFI-GLDocumentsRevaluationInventory COGSDuring the monthMonth end

Month end closing activity

Material Ledger Actual Costing

MMMovements Scrap/Cycle/Transfer

Material LedgerReceipts/Consumption

Price Differences

Single Level Price Determination

Multi level Price Determination

Closing Entries

PP-PO ProductionVariancesMM-PO Price VarianceVariances

Actual Cost Flow Integration

Actual Cost Flow Integration

Springboard to SAP PCM

Integrated transaction and analytics solutions

Totally integrated into transactional processing to PCM

Cooper Tire phase II to integrate with PCM

Profitability AnalysisCost PlanningProductionActual CostingEvaluating master dataBill of materials

Routing

Planned prices

Planned activities

Planned yield


Yield & scrap









Reporting PROFIT Production costs

Sales Revenues


DimensionsRegions

Channels

Customers

Product Hierarchy

Profitability&CostManagementReporting Costs and Contribution MarginsBeing totally integrated into transactional processing

materials ledger makes ideal place for Calculating the direct cost of product

Transferred to the profitability segment component and uploaded into SAP BOBJ & PCM

Combining the strengths of the controlling components of SAP ERP with SAP BOBJ & PCM

Resources

SAP Finance

www.sap.com/solutions/business-suite/erp/financials/featuresfunctions/index.epx

SCNwww.scn.com

AC530 - Training actual costing/Material ledger

Actuhttp://www.sap-press.com/

al Costing with the SAP Material Ledger - Vanda Reis

2011 Edition

Key Ideas

Avoid those who only believe ML is difficult

Keep all companies with same valuation strategy

Material ledger visibility

Integrated across multiple level and company codes

Variances included in all reporting

One time change management

Value quantities of inventories with three different valuationsLegal valuation, group valuation and profit center valuation

Questions

Now:

Ask questions now for immediate answers

Later:Johannes Le Roux - [email protected]

Chris Crim - [email protected]

Q&A

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Material Ledger Scope and Coverage

Documents

Transcript of Material Ledger Scope and Coverage