In the current competitive business environment, customer service (CS) is no longer a simple overhead function. As customers become increasingly service focused, organizations have to spend a significant amount of money and resources on this business function. Therefore, managers face an increasing requirement to analyze its profitability and to have a drill-down view of costs booked at each service order level. In this context I provide you with a practical insight and detailed solution on how the SAP CS module integrates with the managerial accounting (CO) module to meet this management objective. I explain the basic process flow associated with service order functionality in an SAP system, starting from the creation of a service order based on notification to the generation of debit memos to bill customers. I also discuss some of the unique process scenarios associated with service orders and controlling approaches. For readers who are not familiar with the CS business function, I explained some common terms associated with the CS business function in "An Introduction to Customer Service Functionality." I begin by discussing some of the configuration elements in the CS/CO module that are relevant to my discussion on integration of customer service business function with the CO module. I then explain a very important aspect related to the service billing process — the dynamic item processor (DIP) profile.

Service Order Type

You create and manage a service order document in an SAP system against a particular order type that is quite similar to a conventional manufacturing order or an internal order created in the CO module. You configure a service order type in transaction OIOA or by following menu path Plant Maintenance and Customer Service > Maintenance and Service processing > Maintenance and Service orders > Functions and Settings for Order types > Configure Order types. Key parameters in configuration of an order type definition are determining whether it is a revenue-bearing order and defining a settlement profile for settlement of cost. Broadly, there are two types of service orders:

• An order that carries revenues. In this type of service order, after processing the services requested by the customer, you perform resource-related billing upon completion and post revenues to the service order.
• An order that cannot carry revenues. If the service order is created with reference to a sales contract item or sales order item, it does not carry revenues. After the service is completed, you generate a debit memo for billing and then post revenues to the contract or sales order item and not against the service order.

Figure 1 provides a view of an order type (SM02) definition. This order type is a revenue-bearing service order and has settlement profile 80E. I discuss settlement profile definition and other related settings in the CO module later.   You can also have another order type defined for orders that cannot carry revenue. The only difference is the Revenue postings (allowed) indicator is unchecked.

Controlling Settings Relevant for a Service Order

I now identify the key configuration objects relevant for service orders to be done in the CO module.

Activate Order Management in the Controlling Area

A key prerequisite to enable integration of a service order with the CO module is activation of the Order Management component in the controlling area. You activate this component in configuration OKKP. Follow menu path Controlling > General controlling > Maintain controlling area. In this configuration, double-click Controlling Area and navigate to dialog structure Activate components/control indicators. In the Activate Components section, choose Component active in the Order Management field (Figure 2).  

Costing-Related Settings for a Service Order

In this configuration, you assign the costing variant (plan as well as actual) for the service orders, which helps you determine the plan as well as the actual costs. The costing variant assigned in this configuration determines which price is used for valuation of material, internal labor, or activities performed against the service order. The standard SAP system provides two default costing variants for assignment in this configuration with predefined valuation variants: PM01 and SM01. You can directly adopt these standard variants or copy and customize them in accordance with your requirements. You assign costing variants in the configuration OIOF. Follow IMG menu path Plant Maintenance and Customer Service > Maintenance and Service processing > Maintenance and Service orders > Functions and settings for order types > Costing data for Maintenance and Service orders > Assign costing parameters and Result analysis keys, as shown in Figure 3.  

Settlement Profile for a Service Order

The third important configuration is to define the settlement profile and assign it as a part of the order type configuration. The settlement profile determines the cost object to which the cost and revenues are settled from a service order. You define the settlement profile in the conventional CO module following IMG menu path Internal Orders > Actual postings > Settlement > Maintain Settlement profiles. In this configuration, you enter or choose valid receivers from the list of available cost objects. In Figure 4, the ZCS1 settlement profile has the following cost objects as optional: Cost center, WBS (work breakdown structure) element, Profit. Segment (profitability segment), or Sales order. However, the Default object type is PSG, which refers to profitability segment.   As a part of the settlement profile configuration, you also define two values:

• Allocation structure (the structure that identifies which primary and secondary costs are settled to which receiver type)
• PA transfer str. (profitability analysis transfer structure), the structure that determines which sender cost elements are assigned to which value fields in the profitability analysis (CO-PA) module. PA transfer structure is relevant only when the receiver object in settlement rule for service order is defined as profitability segment.

Display of Costs and Revenue as Value Categories

In a service order, you record actual costs at the time of booking operation confirmation or when you record material use as goods movements against the order. You link hours registered on service cost center to activity type in the CO module and post actual hours based on the valuation per hour to the service order. You post actual revenue against the corresponding revenue account (which is set up as cost element with category 11). Similarly, you calculate planned costs dynamically through the plan cost variant using planned operations or based on the planned component use entered in the service order. You determine cost elements for each of these cost bookings based on the mapping of activity type to secondary cost element or by account determination mapping of consumption account for material. However, when these costs or revenues are displayed in the service order, they are not displayed in terms of cost element, but in terms of value categories. Value categories group cost elements and provide you with a very concise view of cost or revenue bookings in a service order (quite similar to the cost components in product costing). You define value categories and assign cost elements against value categories in configuration transaction OIK1 or OIK2, respectively. Follow IMG configuration menu path Plant Maintenance and Customer Service > Maintenance and Service processing > Basic settings > Settings for display of costs > Maintain Value categories > assign cost elements to value categories. Figure 5 shows the list of value categories defined for CO area 1000 and classifies each value category as costs or revenues. Figure 6 explains the assignment of cost element range or cost element group for each value category.     Once you have defined those configurations, you can display the overview of costs in accordance with the value categories in the service order by selecting the Costs tab (Figure 7).  

Resource-Related Billing for a Service Order

Once you create the service order and book costs against the service order, the final step in the CS process is to create a billing request and generate a billing document for the service rendered to the customer. You cannot always define the price to be billed for a service rendered to the customer in a contract as a fixed price. You also cannot always determine the price using standard sales pricing applicable for sale of finished goods. In the case of service functions, you carry out resource-related billing in the CS module. Resource-related billing is based on resources consumed for rendering the service and the number of hours. In this section, I discuss some key configuration objects to implement this type of billing process.

The DIP Profile

Dynamic item processor is a profile created and assigned to a service order line item so that billing of a service order can be carried out. In service orders, you book actual cost line items as a result of posting of goods movements and use of internal activities in carrying out the service. You book these costs against various characteristics (e.g., activity type, cost center, or cost element) in the service order. While you are carrying out resource-related billing in customer service, actual cost data is summarized into dynamic items based on settings carried out in the DIP profile. Multiple settings carried out in the configuration of a DIP profile govern how data summarization happens from source characteristics, and then how this data is grouped into dynamic items and assigned to items in a billing document. To configure the DIP profile follow IMG menu path Plant Maintenance and Customer Service > Maintenance and Service processing > Basic settings > Quotation Creation and Billing for Service Orders  > Profiles for Quotation Creation, Billing, Results Analysis. Figure 8 diagrams this summarization structure of a DIP profile. As a first step in creating a DIP profile, you identify the characteristics that are relevant for creating dynamic items. The indicator Characteristic relevant (the CharactRelevant column in Figure 9) controls whether the characteristic should be read by the source. Further, to define source values for these characteristics, the SAP system allows various possibilities, but the most commonly used value for a source value is 0001 (actual cost line items).   You then identify against certain characteristics, whether a characteristic is relevant for material determination. This step enables the first level of summarization of data records from stipulated sources against material dynamic items. The indicator Material Determination (the Mat. Determination column in Figure 9) controls the criteria based on which actual line items from a source are summarized into material dynamic items. Next, you identify whether a characteristic is also relevant for the second level of summarization of dynamic items (i.e., from dynamic items to items of the billing request). The NoSummarization (the NoSummarization column in Figure 9) field controls whether the characteristic is taken into consideration during second-level summarization of the items. If you do not set the indicator during billing creation, the system summarizes all dynamic items for which the same dynamic material was found into one single line item in the billing request. If the indicator NoSummarization is checked for the Activity Type, then the system does not perform summarization in the item of the billing request, but instead lists the items separately by activity type. In the example in Figure 8, the following are defined as characteristics relevant for source determination: activity type, cost center, cost element, and unit. Out of these characteristics, the activity type has been set as relevant for material determination, and the indicator NoSummarization is not set for this characteristic in configuration. Figure 9 depicts the SAP configuration settings required in transaction ODP1 for the summarization process shown in Figure 8. In addition to the settings shown in Figure 9, some other settings for source characteristics and material determination have to be carried out by navigating to relevant dialog tabs.   In Figure 9, under Sources in the dialog tab named Selection criteria, you define values from where data should be read from the sources. For example, if in an organization all service costs are booked in a specific cost element range, you can define a set for characteristic cost element and update set values with a specific cost element range. This step ensures that only the values from those cost elements are picked up for dynamic item creation. The same process is applicable for other characteristics defined as sources (e.g., activity type and cost center). As a result, this is one of the very important integration points between the CO and CS modules to ensure accurate service billing for the customer. In the dialog tab Criteria, under Material determination, you define the mapping of dynamic material item to certain characteristic values. For example, if you want to assign the material Mat 1 to the dynamic items with the Activity Type Activity1, and the material Mat 2 to the dynamic items with the Activity Type Activity 2, then in the criteria for Mat 1, you must assign a set or individual value for Activity Type Activity 1 to the characteristic Activity Type. Similar mapping has to be done for the Activity Type value Activity 2 to dynamic material Mat 2. Now you are ready to learn some of the CS process scenarios that many organizations face. I’ll discuss the controlling approach that is used for the CS process.

Scenario 1: Standard Service Delivery without Reference to Customer Contract

In this specific scenario, a customer requests a service based on which service order is first created in the system (service notification creation is an optional step). You book against the service order any costs associated to providing a service (namely, materials goods issue, internal activities, and any additional costs), based on work completion and confirmation bookings against order. You then bill these costs against the customer by carrying out resource-related billing. The billing process can be performed once the service has been completed or periodically in the case of extensive services that are performed over a long time. No contractual agreements exist in this scenario. A schematic representation of this process is shown in Figure 10.   In this process scenario, when you book order confirmations originally, you book a service order with costs or expenses. When you carry out the billing, the system also books revenue against the service order. Therefore, from a cost-controlling perspective, you have both costs as well as revenues collected against the service order. When an order is complete, controllers and cost accountants can get a complete picture of the total service costs incurred against the order and the revenues booked. These are settled to a cost center or to a CO-PA segment depending on the settlement receiver maintained in the service order. For example, in service order 200011985 (Figure 11), the cost of 150 CHF (Swiss francs) was incurred, and the revenue from resource-related billing is 450 CHF. In the service order, the settlement rule is maintained as the profitability segment, and 100 percent of the order value will be settled when the order is completed. Based on the configuration in the settlement rule defined for the order type, in this example, there were three possibilities for settlement receivers — Order (ORD), Profitability segment (PSG), and WBS element (WBS), shown in Figure 12.     When you carry out an order settlement using transaction K088 (Settle individually) or KO8G (Settle collectively), controlling postings for a settlement are booked to the settlement receiver (Figure 13). Thus, after the settlement run is executed, the service order balance becomes zero and the value flow is booked to the CO-PA segment. Characteristics associated with this data flow from an order settlement are determined automatically from the service order. This step enables further reporting and analysis of values across various profitability dimensions in the CO-PA module. Furthermore, depending on the configuration settings in the profitability analysis transfer structure, you may also receive costs and revenues in different value fields and report out costs and revenues separately.  

Scenario 2: Service Order with Reference to Customer Contract or Sales Document

In this scenario, a service contract is already drawn up with the customer, or a standard service is sold to the customer when the original product was shipped. As a first step in this process, you have a service order with reference to a contract or sales document item. Similar to scenario 1, costs associated with providing a service (e.g., materials goods issue, internal activities, and any additional costs) are booked against the service order. Because the order type associated to this example is nonrevenue holding, revenue from resource-related billing is posted only against a sales contract or a sales order and not against the service order. As discussed earlier, these kinds of orders belong to a second category and do not hold revenue. In this case the overall process flow remains the same as scenario 1, but it varies quite significantly from a cost-controlling perspective. You book costs or expenses incurred associated with a service against the service order, but revenue is booked against the sales document (a sales order or a contract) as a cost object (Figure 14).   According to standard SAP functionality, to book revenue from billing with a sales document as a cost object, it is mandatory to have sales order controlling functionality activated in the controlling area in the CO module. If you do not have sales order controlling activated in the controlling area, when a debit memo request to generate billing is created in this scenario, the system issues the following error message: KI 162 - No account assignment to customer order (not active in CO Area XXXX, year YYYY). One question that arises in such cases is how this scenario can be handled when sales order controlling functionality is not activated. If your manufacturing business process requirements do not necessitate activating sales order controlling, SAP offers a workaround solution to create a billing request in this CS scenario. The error message can be overcome by deactivating message KI 162 in the OBA5 transaction. To deactivate this error message go to transaction OBA5, enter Message Class KI, and click the New Entries button. Enter message number 162. In the fields Online and Batch1, enter the value – (Figure 15).  This step switches off the message. Save your entries.   Once the message is deactivated, you create the debit memo request with reference to a sales contract or a sales order. In this scenario, instead of a sales order or a contract being a cost object, you have to enable some other CO object as cost receiver. If CO-PA is activated for your enterprise, you can enable billing values from a debit memo request to be made to flow to the profitability segment directly. To complete this step, carry out the relevant configurations in CO-PA for transfer of billing values based on condition types. The configuration setting to enable billing condition value flow to CO-PA is carried out in IMG menu path Controlling > Profitability Analysis > flows of actual values > Transfer of billing documents > Assign value fields > Maintain Assignment of SD Conditions to CO-PA Value Fields. Service costs booked against the service order are settled from an order using KO8G or KO88 to the profitability segment or to any other cost object (e.g., cost center or WBS) as explained in scenario 1. As illustrated in both the process scenarios, an integrated solution for customer service provides a good opportunity to monitor and track efficiency in execution and also report profitability in a detailed manner. The SAP system offers the design flexibility to choose the reporting object. Depending on business requirements, you can define settlement receivers for service orders, but a more common option is settling the values to a profitability segment.