case study in implementing sap material ledger
TRANSCRIPT
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Case Study: Cooper Tire’s SAP Material Ledger Implementation Lessons Learned
Chris Crim, Cooper TireJohannes Le Roux, Jari Consulting
Topics
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• Cooper Tire Strategy and Vision • Implementation Options • Lessons Learned at Cooper Tire• Springboard to SAP Profitability and Cost Management• Summary
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Cooper Tire Strategy and Vision
• 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 we’ll 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
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• 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 Ledger• Traceability 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
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SAP – Without ML /LEGACY • NO Traceability of Actual Material
Cost by product• Purchase Price Variance• BOM Usage Variance• Production 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
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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
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Cost Planning Production Actual Costing Profitability Analysis
Evaluating master data Bill 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 using Actual quantity
structure Actual activity
recording Multi-level value flow Actual raw material
prices Consumption
Revaluation Distribution of Usage
variances
Reporting Costs and Contribution Margins Production costs Sales Revenues Actual cost
Component
Dimensions Regions Channels Customers Product Hierarchy
Streamlining the Cost Process
• SAP Material Ledger streamlined their cost process into a fully integrated process as seen below:
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Semifin.material
Distributioncenter Sales
order
Finishedproduct
Rawmaterial
Productionorder
Cost center
Production order
1) Sale of Raw Material to the Production Profit Center within a Legal Entity
2) Sale of Semi-Finished Good to Affiliated Company
3) Use Semi-Finished Good in a production order and add value from activity in a cost center
4) Transfer finished product to distribution center including actual cost
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Streamlining the Cost Process (cont.)
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• 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 / Visional
Company code Currency
Legal 10 Group / legal 30Profit Center 32
Cooper Value Strategy • Legal valuation • Legal group valuation• Group valuation without markup
Currency / Visional
Company code Currency
Legal 10 Group / legal 30Group 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
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Define Individual Characterisitcs
• You cannot change the currencies, currency types and material ledger types after production startup
Currency and Valuation Profile
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SAP Material Ledger Without Revaluation
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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
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• 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
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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
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• Cooper Tire Strategy and Vision • Implementation Options • Lessons Learned at Cooper Tire• Springboard to SAP Profitability and Cost Management• 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 Costing• Revaluation of inventory based on actual cost• Multi level variance value chain• Gross margin analysis using both standard and
actual cost
Implementation Options
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Pro ‘s Con’s No migration needed activation of all plant for company at once
High 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
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Pro ‘s Con’s
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
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Cooper Tire’s Decision to implement Material Ledger
SAP – Material Ledger• Traceability 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
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SAP – Without ML /LEGACY • NO Traceability of Actual Material Cost
by product• Purchase Price Variance• BOM Usage Variance• Production 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 management• Big Bang (kind of)
• Clean System• No open production order to delete and recreate• No open purchase order to delete and recreate
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Cooper Tire’s Decision to implement Material Ledger
Topics
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• Cooper Tire Strategy and Vision • Implementation Options • Lessons Learned at Cooper Tire• Springboard to SAP Profitability and Cost Management• Summary
Lessons Learned at Cooper Tire
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• 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
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• 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 up’s
Results/Negatives from Implementing Material Ledger
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• 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?
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• Yes • Love the level of detail, tons of information!
• No• Takes too long, not worth the effort
• Maybe • See the potential, can’t 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
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Make The Final Decision Early
• Impacts Currency Profiles• Based on setup will impact costing process
• Material Master Defaults• Costing Variants• Resources
• Make sure you have dedicated resources • SME’s & Testing Validators
• Make sure test cycles fit material ledger test requirements
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Quality Consultant/Implementer
• Closely review experience • Check references• Check results of prior ML implementations
• Contract through life of implementation and beyond• Most 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
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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 teams• Operations• Inventory Management• Sales & Distribution• Basis
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Cutover/Client Set Up
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• 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 Setup
• Solid process established prior to go live• Importance of status controls• Product costing prior to material movements
Ongoing Validation/Maintenance
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• 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
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• 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
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• Cooper Tire Strategy and Vision • Implementation Options • Lessons Learned at Cooper Tire• Springboard to SAP Profitability and Cost Management• Summary
Springboard to SAP PCM
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• Integrated transaction and analytics solutions• Totally integrated into transactional processing to PCM• Cooper Tire phase II to integrate with PCM
Profitability Analysis
Cost Planning
Production
Actual Costing
Evaluating master data Bill 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 using Actual quantity
structure Actual activity
recording Multi-level value
flow Actual raw
material prices Consumption
Revaluation Distribution of
Usage variances
Reporting PROFIT Production costs Sales Revenues Actual cost
Component
Dimensions Regions Channels Customers Product
Hierarchy
Profitability&CostManagement
Reporting Costs and Contribution Margins Being 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
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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
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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
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• Cooper Tire Strategy and Vision • Implementation Options • Lessons Learned at Cooper Tire• Springboard to SAP Profitability and Cost Management• Summary
Tracks purchase material price variances to
finished products on the basis of consumption
Provides historical information on Actual Cost to facilitate the
estimation of new Standard Costs
Ability to track multiple valuations and/or currencies
at the material level.
Ability to revaluate inventory on the basis of real cost
calculation
Enables faster and more effective
decision making to management
Tracks variances Across Multiple product levels /
plant and Company codes
Material Ledger Benefits
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CO-CCAMFG
Cost Center
CO-CCAMFG Overead
Cost Center
Activity type
Business Process
Production Orders
Actual CC Allocations
Activity Price revaluation
ABC Template Allocation
WIP
Variances
DUV usage variance
Actual Cost Calculation
CO-PADocumentsActual CostComponent
Split
FI-GLDocumentsRevaluationInventory
COGS
During the month Month end
Month end closing activity
Material Ledger Actual Costing
MMMovements Scrap/Cycle/
Transfer
Material Ledger• Receipts/
Consumption
• Price Differences
• Single Level Price Determination
• Multi level Price Determination
• Closing Entries
PP-PO Production Variances
MM-PO Price Variance
Variances
Actual Cost Flow Integration
Actual Cost Flow Integration
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Springboard to SAP PCM
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• Integrated transaction and analytics solutions• Totally integrated into transactional processing to PCM• Cooper Tire phase II to integrate with PCM
Profitability Analysis
Cost Planning
Production
Actual Costing
Evaluating master data Bill 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 using Actual quantity
structure Actual activity
recording Multi-level value
flow Actual raw
material prices Consumption
Revaluation Distribution of
Usage variances
Reporting PROFIT Production costs Sales Revenues Actual cost
Component
Dimensions Regions Channels Customers Product
Hierarchy
Profitability&CostManagement
Reporting Costs and Contribution Margins Being 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
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• SAP Finance• www.sap.com/solutions/business-suite/erp/financials/
featuresfunctions/index.epx• SCN
• www.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
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• 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 valuations
• Legal 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]
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Q&A
Disclaimer
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