The end-to-end manufacturing process can either happen in a single plant or across multiple plants (Figure 1). If the manufacturing process is spread across plants, semi-finished goods are transferred from the plant where they are manufactured (plant CRA1) to the plant where they are consumed (plant IEA2). Manufacturing in the semi-conductor industry is an example of such a business scenario. In the semi-conductor industry, a silicon wafer (used to make an integrated circuit) is manufactured in a fabrication plant but the finished good, such as a CPU chip, is manufactured in an assembly and test plant. In this example, the plant where the semi-finished good is manufactured and is transferred from is called the source plant. The plant where the semi-finished good is received for consumption is called the receiving plant.

Figure 1

Manufacturing process across plants

The manufacturing process in the SAP system is aided by the bill of material (BOM) and routing master data. BOM contains information pertinent to the raw materials consumed in the manufacturing of a material. The routing contains the sequence of operations in the manufacturing process for the same material. BOM and routing are defined in the SAP system at a material and plant level and are together known as the quantity structure. BOM and routing for the semi-finished good only exist in the plant in which it is manufactured (plant CRA1). BOM and routing for the semi-finished good do not exist in the receiving plant. Hence, it is not possible to create a standalone standard cost estimate for the semi-finished good in the receiving plant (plant IEA2). A standard cost estimate of the finished good in plant IEA2 requires a standard cost for the semi-finished good as well. If the finished good doesn’t have a standard cost, then posting a material valuation document for the finished good is not possible, thus affecting the inventory value.

I will discuss the various alternatives that are provided by SAP to create a standard cost estimate with quantity structure for the semi-finished good in a plant in which it is consumed but not manufactured. I’ll consider the complexity that comes with the source and receiving plant belonging to separate company codes. This topic is currently not completely documented elsewhere; I’ll add certain scenarios in this article that are not documented and provide more complete explanation for that which exists in pieces elsewhere.

I’ll break up the article into sections based on the four alternatives the SAP system provides:

• Special procurement type: A field in the material master data used to precisely define in-house production and external procurement
• Mixed costing: Enables weighted average computation of standard cost in receiving plant using standard costs in multiple source plants
• Transfer control: Used to copy a cost estimate within or across plants
• User exit: Provides the flexibility to write your own custom ABAP code

I’ll finish with a look at an alternative that combines elements of one of two other approaches: using an additive cost estimate with the special procurement type or transfer control approach to set the transfer price as a standard cost in receiving plant.

Special Procurement Type

From a costing perspective, a special procurement type facilitates copying of a cost estimate across plants. I will demonstrate the possible definitions for the special procurement type when the cost estimate for the semi-finished good is created in the receiving plant. You can define the special procurement type via transaction code OMD9 (Figure 2). It is possible to define multiple special procurement types in the plant in which you use them, but you can only use one special procurement type for a material. This depends on the special procurement type that is maintained in the material master data. I will define special procurement types in the receiving plant (plant IEA2). This configuration is material independent but plant dependent.

Figure 2

Define the special procurement type

I have defined two special procurement types: Z1 (Figure 3) and Z2 (Figure 4). You can use either one of these to create the cost estimate in the receiving plant (plant IEA2) by copying the cost estimate from the source plant (plant CRA1). SAP provides these two separate special procurement types from a production planning perspective. Use transaction code OMD9 to define the special procurement type for both MRP and costing.

Figure 3

Special procurement type – Stock transfer

Figure 4

Special procurement type – Production in the other plant

The special procurement type aids costing by copying the cost estimate from the source plant (plant CRA1) to the receiving plant. SAP doesn’t use the BOM and routing information from the source plant to build the cost estimate in the receiving plant. However, if the cost estimate has not been created in the source plant, then the SAP system uses the BOM and routing information from the source plant to create the cost estimate in the receiving plant.

You can use special procurement type Z1 to define a stock transfer scenario. SAP provides the special procurement field value U to define this specific scenario. You need to provide the source plant in the configuration to link the source and receiving plant.

Special procurement type Z2 defines a scenario in which the semi-finished good is produced in another plant. SAP provides the special procurement key P for this purpose. You need to provide the production plant in the configuration to link the production and receiving plants. This linkage is used at the time of creation of the cost estimate in the receiving plant. Using this linkage, SAP can copy the cost estimate from the production plant.

You can use the special procurement type for a material by populating the special procurement field in the material master. This field is available in the MRP2 view and Costing1 view of the material master, which you can maintain using transaction code MM02. Maintenance of the SpecProcurem Costing field in the Costing1 view is required for costing purposes (Figure 5). If it has been maintained in both MRP2 and Costing1 views, the value from Costing1 view takes precedence for the creation of the cost estimate. If the special procurement field is left blank in the Costing1 view, then the system uses the value from the MRP2 view for costing purpose.

Figure 5

Costing1 view of the material master

The special procurement type configuration and material master data maintenance are sufficient to copy the cost estimate across plants in the same company code. However, if the source and receiving plants are assigned to different company codes, you need to activate the cross-company costing using transaction OKYV (Figure 6). In this configuration, you need to activate the Cost Across Company Codes indicator in your controlling area for the costing type and valuation variant attached to your costing variant. You use the costing variant to create a cost estimate. You can define the costing variant using transaction code OKKN.

Figure 6

Activate cross-company costing

You can create the cost estimate in the receiving plant by using transaction code CK11N (single material) or CK40N (multiple materials). The special procurement type copies the cost estimate from the source plant to the receiving plant (Figure 7). Note that the fixed cost, variable cost, and total cost for the different cost component views in plants CRA1 and IEA2 are the same. The cost structure in terms of cost component structure is also retained, which is visible in the lower pane in Figure 7. If the cost estimate exists in the source plant, the system doesn’t build the cost estimate by looking at the quantity structure in the source plant. If the costs of the BOM components are changed after creating the cost estimate in the source plant, make sure that the cost estimate in the source plant is rectified before creating it in the receiving plant.

Figure 7

Comparison of cost estimates using the special procurement method Click here for a larger version of this image.

Mixed Costing

Mixed costing is an alternative to the special procurement type to create the cost estimate in the receiving plant. The special procurement type is a rigid approach because it inherently assumes that a receiving plant can only source from one source plant. In the SAP system, you can define different special procurement types with different source plants, but one special procurement type definition can only have one source plant. It is not possible to use more than one special procurement type for a semi-finished good in the receiving plant — hence the limitation of one source plant. In comparison, mixed costing is a flexible approach. You can use mixed costing to model a business scenario wherein a receiving plant may source a semi-finished good from multiple source plants.

Mixed costing requires a quantity structure type that you can define using transaction code OMXA (Figure 8). The Perc.valid (percentage valid) indicator ensures that the total percentage procured from source plants cumulates to 100%. This acts as a validity check if the procurement percentages exceed or fall short of 100%. The procurement percentages are set up as mixing ratio master data in the SAP system using transaction code CK94.

Figure 8

Quantity structure for mixed costing

You use a costing version with the costing variant to create a cost estimate. SAP provides pre-defined costing version 1. You can use costing version 1 with mixed costing, but it is better to define a new costing version for use with mixed costing. This ensures that you can selectively use mixed costing for semi-finished goods. You create the costing version against the valuation variant and associate it to the quantity structure type by transaction code OKYD (Figure 9). The system requires the costing version to create a cost estimate. SAP allows you to define up to 99 costing versions and by default uses costing version 1. You can create a cost estimate for the same material against each of the costing versions that you defined. However, you can use transaction code CK22 to activate only one costing version for a company code for a given period for creating a standard cost estimate. It is imperative to understand how you can create a mixed cost estimate against a new costing version. I will show you later how this can be linked and used to create a standard cost estimate.

Figure 9

Define a costing version

To use mixed costing for a semi-finished material, define the relationship between receiving and source plants. This relationship is established using transaction code CK91N. If there are multiple source plants, you need to define multiple procurement alternatives to establish the assignment (Figure 10). Use the process category Stock transfer to be able to use mixed costing for the creation of a cost estimate in the receiving plant.

Figure 10

Define procurement alternatives

The procurement alternatives for the material need to be assigned to a mixing ratio using transaction code CK94 (Figure 11). The mixing ratio represents the percentage distribution among the source plants from which procurement takes place. Mixing ratios should always add up to 100%. All the procurement alternatives defined in transaction CK91N appear by default in transaction CK94. If at any point in time you decide not to use a procurement alternative, you can either assign a mixing ratio of zero or delete it from the list of procurement alternatives in transaction CK91N.

Figure 11

Master data for mixed costing

As with the first method, activate cross-company code costing if the source and receiving plants are assigned to different company codes (Figure 6).

By use of mixed costing, the cost estimate in the receiving plant is built with reference to the quantity structure in the source plant(s). The quantity structure in the source plant is determined in the following sequence:

• BOM and routing information in the costing run (transaction code CK11N)
• BOM and routing information in the material master
• BOM and routing information in the quantity structure control as defined in the costing variant (transaction code OKKN)

This method is beneficial because any changes to the subcomponent costs in the source plant are directly taken care of in the receiving plant. In the special procurement type, you are required to correct the cost estimate in the source plant and then re-create it in the receiving plant to be able to include the changes. The comparison between the cost estimates in the source and receiving plants illustrates that the cost estimate in the receiving plant created using mixed costing incorporates any changes in subcomponent cost (Figure 12). I changed one of the subcomponent costs after creating the cost estimate in plant CRA1. This change has been included in the cost estimate in plant IEA2 and explains the difference in total costs in Figure 12.

Figure 12

Comparison of cost estimates using mixed costing Click here for a larger version of this image.

Transfer Control

You use transfer control to transfer cost estimates within the same plant or across plants. You can use transaction code OKKM to define the transfer control in the SAP system (Figure 13). Transfer control requires use of special procurement type for cross-plant transfer. Transfer control also requires cross-company costing to be activated (transaction OKYV) if the plants are in different company codes.

Figure 13

Define transfer control

You can define transfer control in two ways, depending on whether the cost estimate is to be transferred from within the same plant or from a different plant:

• Copy the cost estimate within the receiving plant: You can decide to use an existing cost estimate within the receiving plant to create the cost estimates. Define the strategy sequence in the Single-Plant tab of transfer control definition.
• Copy the cost estimate from the source plant: To copy the cost estimate from the source plant, define the strategy sequence in the Cross-Plant tab. This approach is much more versatile compared to using only the special procurement type because it provides the flexibility to use future, current, previous, and other cost estimates. I have used Other Cost Estimates and linked it to mixed costing by assigning the costing variant and the costing version. In this manner, I can create the standard cost estimate using mixed costing in costing version 1. This is not possible if I use the mixed costing functionality using a new costing version without transfer control.

You can associate the transfer control in the costing variant definition (in transaction OKKN) so that it gets defaulted during cost estimate creation. Alternatively, you can provide it as an input parameter at the time of cost estimate creation (in transaction CK11N or CK40N). Activate Transfr Ctrl Can Be Changed in the costing variant definition to be able to use transfer control as an input parameter during cost estimate creation (Figure 14).

Figure 14

Activate the Transfr Ctrl Can Be Changed setting

Enabling the Transfr Ctrl Can Be Changed option provides the flexibility to input it during the cost estimate creation (Figure 15). If you have assigned the transfer control in the costing variant definition, the transfer control is defaulted during cost estimate creation. However, with Transfr Ctrl Can Be Changed enabled, you can remove or change the transfer control directly in transaction CK11N or CK40N.

Figure 15

Create a cost estimate using transfer control

User Exit

You can use enhancement COPCP001 to create a cross-company cost estimate using a user exit. Use transaction code SMOD to access and use the enhancement. The enhancement contains EXIT_SAPLCK21_001as the component. This is a function module that includes the user exit program ZXCKAU05. You can write custom ABAP code if your material valuation requirements are not met by any of the above methods to create the cost estimate in the receiving plant. A prerequisite to using this user exit is that cross-company costing has not been activated using transaction code OKYV.

By using this user exit, you can define your own method of selecting the material prices instead of using the material prices maintained in the material master. This method is useful when you have a transfer price for the semi-finished good transferred across plants. You can’t replicate this transfer price by using any of the above methods. This method is also useful if you want to use complex calculation logic to determine the standard price of the semi-finished good in the receiving plant.

For example, say you want to determine the standard price in the receiving plant by using mixed costing, but you want the mixing ratio to be determined on the basis of stock transfer data from the previous period. You can write custom ABAP code in the user exit to calculate the mixing ratio to create the cost estimate.

SAP provides a sample ABAP code in program LXCKAF00 to illustrate the use of user exits. However, you cannot directly copy and use this illustrative code in program LXCKAF00 because it doesn’t contain the code for a different material valuation price.

Transfer Price for Standard Cost

Now that I’ve shown you the four options, I’ll show you a process that you can follow that combines one of two methods (special procurement type or transfer control) with an additive cost estimate.

The business requirement for a semi-finished standard price in the receiving plant is often not as simple as setting it to the same standard price as the source plant. Most organizations use transfer price, which may include shipping cost, processing cost, mark-up, and so on. SAP provides a standard configurable method that you can use in conjunction with the special procurement type approach or transfer control approach to address transfer price requirement. For example, the transfer price equals cost plus the shipment cost from the source plant to the receiving plant. This may provide a much more realistic cost estimate in the receiving plant in terms of setting up standard cost.

SAP provides the functionality to create an additive cost estimate for a material in a plant. You can then use the additive cost estimate as an input while creating the standard cost estimate. To enable the use of additive cost estimate in a standard cost estimate, activate Include Additive Costs with Stock Transfers in the costing variant definition (Figure 16). Activating this check box enables the inclusion of additive costs when special procurement types Z1 and Z2 (as defined earlier in this article) are used in the material master.

Figure 16

Settings to include additive cost estimate

You define the additive cost estimate using transaction code CK74N (Figure 17). As the additive cost in this illustration is arising out of the shipping cost, I have used category V to include any cost not attributable to a subcomponent. You can only use those cost elements in an additive cost estimate that has been assigned in the cost component structure definition (Figure 18). You can configure the cost component structure by using transaction code OKTZ.

Figure 17

Define an additive cost estimate

Figure 18

Cost elements in cost component structure definition

The use of a cost element determines the cost component under which this additive cost appears in the standard cost estimate. I have used the cost element that is assigned to cost component Division Overhead, so the additive cost appears under the cost component Division Overhead (Figure 19). The cost element is assigned to the cost component in the cost component structure definition. It is not possible to create an additive cost estimate with a cost element that has not been assigned in transaction OKTZ.

Figure 19

Standard cost estimate inclusive of additive cost estimate in the Division Overhead component

SAP provides various categories for use in the creation of an additive cost estimate. If your transfer price is based on cost plus mark-up, then you can also map this scenario by means of an additive cost estimate. The additive cost estimate in this specific scenario will have two rows. The first row in the additive cost estimate would have category M with resource and plant as the Material and the Source Plant, respectively. The second row in the additive cost estimate would have category O with the formula to indicate the percentage mark-up.

You can include additive cost in the standard cost estimate in two ways:

• Creating a standard cost estimate using only the special procurement Z1 or Z2 in the material master of the semi-finished good in the receiving plant
• Additive cost can’t be included in the standard cost estimate by simply using the mixed costing approach. You can include it by using mixed costing in the definition of the transfer control.

The benefit of using a transfer control approach over the special procurement approach is that the quantity structure is still re-built in the transfer control method. This method takes care of any changes to the component costs. The additive cost appears under the Division Overhead cost component as governed by the cost element assignment in transaction OKTZ (Figure 19). Inclusion of the shipment cost explains that the standard cost in the receiving plant is different from the source plant. This is why you see different standard cost values in Figures 12 and 19.

Akhilesh Mittal

Akhilesh Mittal is a lead SAP consultant at Infosys Technologies Ltd. with eight years of consulting and industry experience. He has experience in FI and CO along with exposure to SD. Akhilesh is currently a consultant in the SAP space for a leading organization in the high technology domain. He has a degree in electronics and communication engineering from IIT Guwahati and an MBA in finance and systems from IIM Lucknow.

You may contact the author at akhileshmittal@yahoo.com.

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