Summary:
This article describes an analytical extension of the SAP ERP Product Costing. Based on freely-definable drivers such as commodities or exchange rates (FX), Product Costing results are forecasted. Ad-hoc what-if simulations are supported to provide deeper insight into your cost structure and the impact of the drivers on your P&L and margin.
This solution is available as part of the SAP HANA optimized BI Content.
Starting Point: standard product costs
Starting point of the solution are the results of the SAP ERP Product Costing (CO-PC). Product Costing is one controlling modules in SAP ERP. It is used to calculate the cost of goods manufactured (COGM) and cost of goods sold (COGS) for products, materials and services.
The calculation results can be extracted from the ERP system to an SAP BW with standard data sources. For the forecasting and simulation, the Full Itemization (“BOM”) and the Cost Component Split data sources are necessary. No changes to the ERP system are required.
Data is mapped to and stored in InfoProviders that can be installed from the latest BI Content. Non-SAP data sources may also be used using standard SAP BW ETL capabilities.
New BI Content “Product Cost Forecast & Simulation (SAP HANA-Optimized)” – a 3 step process
Once the Product Costing results and the relevant master data (e.g. material master) are available, the forecasting and simulation process runs in the following 3 steps:
- Step 1: Cost Drivers forecast and new Purchase Prices calculation:
In the first step, freely-definable cost drivers are used to determine future purchase prices for materials. Examples for possible cost drivers are commodities, energy costs or foreign exchange rates (FX).
Materials are grouped into similar subsets and these groups are correlated to one or more drivers. Thus, a predicted future price change of the driver changes the price of all correlated materials by the same percentage and new prices can easily be forecasted.
A cost driver may change all, some or one cost component. It can be correlated to more than one subset of materials.
Example: One subset consists of plastic bottles. This subset is correlated to crude oil by 50%. Then a future increase in crude oil by 20% will result in a price increase for all plastic bottles by 10%. In this case, only the cost component “packaging” should be changed.
- Step 2: Roll-Up changed purchase prices to new COGS:
In the second step, the full itemization (“bill-of-material”) information is used to roll up the new material prices into the future product costs of finished goods.
Of course, conversion costs or other non-material related cost components may also be changed.
For instance, all products using plastic bottles will become more expensive because the prices for plastic bottles will increase by 10%. The change will be visible in the packaging cost component of the finished goods.
Thus, the impact of the crude oil price change can be evaluated for a given product, product group or even the complete company.
- Step 3: Analyze future procurement spend and margin impact:
Finally, planned sales volumes as well as gross revenues and sales deductions may be taken into account to forecast the future margin and procurement spend.
The BI Content offers a basic contribution margin schema that can easily be enhanced. So ultimately, the impact of a crude oil change of 20% on your company’s margin can be analyzed.
The solution runs on a SAP BW-on-HANA system only. The calculation logic has been pushed down to the in-memory database and the processing speed allows you to evaluate your full set of materials and their complex itemization relationships on-the-fly.
Therefore it is feasible to ad-hoc simulate changes of the drivers in what-if scenarios. One might, for example, run the 3-step process explained above for various changes of crude oil and evaluate several scenarios and their impact on the company P&L in online transaction times.
The following architecture slide illustrates the building blocks of the solution:
For more details see the attached presentation and the available online documentation: http://help.sap.com/saphelp_nw74/helpdata/en/ac/3b1e52a9e3bc64e10000000a423f68/content.htm?frameset=/en/75/042561caed4732b18eea0350b18747/frameset.htm
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Contacts:
Guido Eichmann - mailto:guido.eichmann@sap.com
Rolf Sieberg - mailto:rolf.sieberg@sap.com