Repetitive manufacturing control and order manufacturing control are very distinct and they are at the opposite ends of the control and details spectrum. Repetitive manufacturing typically is an ongoing production process that does not require batch number or serial number tracking of the items being produced. The product design may have variations, but it is considered stable and not subject to change during each production run. Manufacturing activity typically is repeated throughout the month. Costs are collected, activities are reported, and inventory transactions are processed at the aggregate level for the month. Repetitive manufacturing is considered to provide the least amount of details for specific individual production runs during the month and it requires the least amount of control because you are producing to a scheduled quantity and not to individual orders.

With order control manufacturing, the execution of each individual order is scheduled and controlled. Each production run can differ in the materials used and processes performed due to the availability of resources. Batch numbers and serial numbers can be assigned to the output of each production run. Transactions, such as material consumption and activity confirmations, are performed and captured at the order level. Costs are collected and analyzed at the order level. Order manufacturing has the highest level of control and details for each individual production run.

You can use both repetitive and order control simultaneously to control manufacturing and collect costs. For example, you have two very different product lines. One is high volume and mass produced. The other is a customizable or standard product that is required to be serial number or batch number controlled. The high volume production typically would be controlled with repetitive manufacturing and the reporting of production activity, including costs would be collected and analyzed on an aggregate basis. Manufacturing of serial number or batch number controlled customizable or standard products is typically controlled by the use of orders. Production activity and costs are collected and analyzed at the individual order level.

You can use both order and repetitive manufacturing simultaneously to control and analyze their respective types of production activity. You cannot use repetitive manufacturing for production and control of products that are serial number or batch number controlled. Only orders support this process. You cannot record production activity and costs on an aggregate level when you use orders to control manufacturing. Production activity and costs are collected on cost objects. For repetitive manufacturing, the cost object is a product cost collector, which is created for a specific material and not an individual production run. For order-controlled manufacturing, the cost object and collector of production activity is the order for each individual production run.

This was true before the inclusion of functionality that facilitates the use of orders to control manufacturing and product cost collectors (repetitive) to record and control costs.

Why is this important and relevant to you? A major challenge when implementing and maintaining a software package is matching the business model with the singular design paths, such as using repetitive controls for only repetitive type manufacturing and orders for order type manufacturing.

Some manufacturing processes appear at first sight to be repetitive manufacturing, but require a lot number or serial number for tracking and control. Others have external operations (tolling). Both of these requirements are normally addressed in order manufacturing and not in repetitive manufacturing because the functionality only exists in order control manufacturing.

Also, many manufacturers have a stable production process and very few variances. The analysis of cost center spending is considered to be of a higher value than looking at individual orders. In fact, the detail collected at the order level is considered to be of little value. Order processing generates significantly more data to process during the period close process.

For many organizations with these requirements, the available solutions included the use of order manufacturing, a creative process design, or some type of modification.

The requirement for a simple, efficient method to collect production costs at a high level was recognized and a solution was introduced in version 4.5A. The core of this solution moves the Cost Object from the production or process order to the recently introduced product cost collector. This effectively joins the best of both types of manufacturing.

Central to the solution is the use of a properly configured hybrid order type. Basically, with the check of a single box on the order type (and a lot of code behind the scene) the use of orders for control of manufacturing and the recording of production costs on a product cost collector is enabled. Most important is that the functionality is delivered and supported. This functionality eliminates the need for complex creative solutions or the acceptance of the burden or rigors of shop floor accounting for orders.

Requirements and Constraints

Additional configuration of Cost Object Controlling is not required if you are currently using repetitive manufacturing with reporting points and work in process (WIP). If not, the scope of configuration ranges from adding configuration for WIP and variances if you are currently using repetitive manufacturing to completely installing Cost Object Controlling  product cost by period if you are using orders.

The good news is that in most cases you can start this process and transition from your old process with minor to no interference. You simply finish the old orders and use the new hybrid order type going forward. The period close process for orders would continue until all orders are complete and you would introduce the period close for product cost collectors going forward. This may not be true if your current solution includes a customer modification.

Process requirements include the creation of a product cost collector prior to the first time you are creating an order for the production version and executing period-end close for product cost by period. You may also have additional steps related to order status, such as setting the deletion flag on completed orders.

This solution cannot be used with co-products or joint production, with collective orders, or with production directly tied to sales orders.

Also, you cannot see the costs for an individual order via menu path CO03 > GOTO > Costs > Analysis or via KKBC_ORD (or in fact for any other reporting). The order is not the cost object. Instead, you use transaction code KKBC_PKO for cost analysis for product cost collectors.

Finally, you cannot analyze variances for an individual order.

Configuration

Order Type Configuration

If you have production or process orders configured, then the best approach is to make a copy of the order type that you want to use going forward. Then you can adjust the settings for production and managerial accounting (CO).

Configuring the order type starts from the Production Planning (PP) configuration path because basic order configuration starts there.

Figure 1

Select an order type to copy

Now validate that you have the correct settlement profile entered for this new solution. It should match the settlement profile that you are currently using, which should be in your current order type or configured to go forward. If it differs or you have not yet configured a new settlement profile, then make a note to correct it later.

Step 2. Create the plant level records. This step involves assigning the new order type to the appropriate location. To complete this step, execute transaction code OPL8 or follow menu path IMG > Production > Shop Floor Control > Master Data > Order > Define order-type dependent parameters. Click the execute icon beside Define order type-dependent parameters.

From the list of currently configured plant order types (Figure 2), select the plant order combination of using plant and copied order type. Click the copy icon, and in the next screen (not shown), enter the new order type name (from step 1). Click the save icon when finished. You make the necessary changes when completing the configuration for Cost Object Controlling.

Figure 2

The list of order types

Step 3. Create plant level availability check settings. This step involves copying additional order type-related initial settings for an availability check. To complete this step, follow menu path IMG > Production > Shop Floor Control > Operations > Availability Check > Define Checking Control. Click the execute icon beside Define Checking Control.

From the list of currently configured plant and order type control combinations (Figure 3), select the plant and order combination of using plant and copied order type. Click the copy icon, and in the next screen (not shown), enter the new order type name (from step 1). Click the save icon to save your entries. There should be two lines for each plant and order type combination. Each line is unique because of the value in the Busi… column. Copy the PP01 orders for both create (1) and release (2).

Figure 3

List of plant and order type control combinations

Step 4. Create plant level scheduling control. This step involves copying additional order type-related settings for scheduling control. To complete this step, follow menu path IMG > Production > Shop Floor Control > Operations > Scheduling > Define Scheduling Parameters for Production Orders. Click the execute icon beside Define Scheduling Parameters for Production Orders.

Cost Object Controlling – Product Cost by Period Configuration

The assumption is that the installer has knowledge of configuration of Cost Object Controlling [for product cost by period (repetitive manufacturing). In-depth examples of the basic configuration steps are not provided. Also, my assumption is that you are installing in a system that already has period-end close for Cost Object Controlling for orders configured. The assumption is that current configuration for orders can be reused for repetitive as needed.

Configuration of Cost Object Controlling has four key areas: work in process (WIP), variances, settlement, and order settings. The normal sequence is to configure in this order.

Step 1. Configure WIP. To complete this step, follow menu path IMG > Controlling > Product Cost Controlling > Cost Object Controlling > Product Cost by Period > Period-End Closing > Work in Process.

For WIP configuration, you can complete the following activities:

For variance calculation configuration, you can complete the following activities:

•    Define Number Ranges for Variance Documents: This is not required, as it is already configured

Step 3. Configure settlement. No further actions are required if the current settlement profile can be used. However, if you need to configure a new settlement profile, follow menu path IMG > Controlling > Product Cost Controlling > Cost Object Controlling > Product Cost by Period > Period-End Closing > Settlement.

Step 4. Configure order types settings. Configuration is required for both the product cost collector order type and the new hybrid order type for manufacturing.

To configure a product cost collector order type, follow menu path IMG > Controlling > Product Cost Controlling > Cost Object Controlling > Product Cost by Period > Product Cost Collectors.

Click the execute icon beside Check Order Types. In the screen that appears, make sure that the order type used for the product cost collector (delivered is RM01) has the correct settlement profile (Figure 4).

Figure 4

Check order types – product cost collector

Now click the execute icon beside Define Cost-Accounting-Relevant Default Values for Order Types and Plants. For each plant or order type (for product cost collectors) combination, review and correct as needed for the following settings (Figure 5):

Figure 5

Location values – product cost collector

Production or Process Order Configuration

To configure a production or process order, follow menu path IMG > Controlling > Product Cost Controlling > Cost Object Controlling > Product Cost by Order > Manufacturing Orders.

Click the execute icon beside Check Order Types. In the screen that appears, make sure that the order type used for a hybrid order has the correct settlement profile (Figure 6). Under normal circumstances the settlement profile should not be required. You should enter one as a safety net.

Figure 6

Location values – manufacturing orders

Click the execute icon beside Define Cost-Accounting-Relevant Default Values for Order Types and Plants. For each plant or order type (new order type) combination, review and correct as needed for the following settings (Figure 7):

Figure 7

Location values – manufacturing orders

Additional Configuration Notes

If you are currently using repetitive manufacturing to control production and also for cost management and if you have Cost Object Controlling - Product Cost by Period - Period-End Closing fully configured, then you should be able to easily adjust configuration. The current settings can be reused as required.

Ongoing Activities

Although it is typical to use production versions, it is not required in this solution. The steps required for use of this solution do not vary too much from that of an order-based manufacturing process. You create all the product master data, mark and release a cost estimate (the assumption is standard price controlled), create a product cost collector and finally create a production or process order. For existing products and production versions, it really is straightforward: Create a new order with the proper order type. Period closing activities are still executed and the status of the orders is still very important.

For a more detailed view of the business processes:

1.    Create the necessary master data and, if used, the production version – this solution does not change the process.

3.    Create a new product cost collector for the material and production version (if used) combination. To do this, execute transaction code KK6FN (standard repetitive functionality).

To complete step three, enter the Material Number and Plant Number on the initial screen and click the create icon. This action opens a pop-up window in which you enter the order type and production version. The order type can be manually entered or selected from an additional pop-up window by right-clicking the Order Type field. In the pop-up window for order type selection, click the order type (e.g., RM01) and then click the enter icon (the green check mark). This action populates the order type field (Figure 8).

Figure 8

Creating a product cost collector – selecting the order type

The production version, if used, can be manually entered or selected from an additional pop-up window by right-clicking the Production Version field. This action opens the pop-up window for production version selection. Click the production version and then click the enter icon (the green check mark). This action populates the Production Version field. If you are not using a production version, then select the BOM/routing radio button in the Controlling level for material section of the pop-up screen to create a product cost collector (Figure 9).

Figure 9

Creating a product cost collector – selecting the production version

To change your entries or confirm them as displayed in Figure 10, click the Confirm button.

Figure 10

Creating a product cost collector – confirming your initial entries

After confirmation, the screen shown in Figure 11 opens.

Figure 11

Creating a product cost collector – result after confirmation of the production version

Review your information and all tabs, and then revise the data as necessary. Click the save icon to save your data (Figure 12).

Figure 12

Creating a product cost collector – reviewing the data and saving

After you click the save icon, a pop-up screen appears asking if you want to create the preliminary cost estimate. Click the Yes button (Figure 13).

Figure 13

Creating a product cost collector – creating the preliminary cost estimate

Review the results of the creation of the preliminary cost estimate. Navigate back to the original data screen by clicking the back (green arrow) icon (Figure 14).

Figure 14

Creating a product cost collector – result after the creation of the estimate

Now create and release a production order using the new order type. Follow menu path: Logistics > Production > Shop Floor Control > Order > Create > With Material or execute transaction CO01.

The initial creation of the production order is similar to creating non-hybrid orders in that you enter the material number and plant number. The exception is that you enter the new hybrid Order Type (Figure 15).

Figure 15

Creating a production order – use the new order type

Press the Enter key to advance to the next screen (Figure 16). In this screen, enter the quantity, date, and production version information.

Figure 16

Creating a production order – remember to enter the production version, if applicable, by using the production version button

To enter the production version, press the Production Version button and you receive a pop-up window for selection (Figure 17).

Figure 17

Creating a production order – selection of the production version

Select the desired version by clicking the line and then clicking the Choose button. This action returns you to the main order screen (Figure 18).

Figure 18

Creating a production order – view after selection

Press Enter to transfer data and complete scheduling. When complete, press the save icon to save the order. The assigned order number will be displayed at the bottom of the screen.

Confirm the linkage of the new production order to a product cost collector. Display the order by following menu path Logistics > Production > Shop Floor Control > Order > Display or execute transaction CO03. Enter the new order number and press the Enter key. When the order is displayed, navigate to the Control tab. Notice a hot link button, Product Cost Collector. Clicking this button displays the assigned product cost collector (Figure 19). You can use this link anytime you are displaying the order or conversely you may go from the product cost collector to the order.

Figure 19

Creating a production order – view of the Control tab after saving your entries (Note the Product Cost Collector button.)

4.    Display the product cost collectors that have hybrid production orders assigned to them. A product cost collector is master data in CO. Displaying product cost collectors that have hybrid production orders assigned is the same as for displaying product cost collectors in standard period-based (repetitive) controlling. To display a product cost collector from the CO perspective, follow menu path Controlling > Product Cost Controlling > Cost Object Controlling > Product Cost by Period > Master Data > Product Cost Collector > Edit or execute transaction code KK6FN. The only exception is that on the Header tab you can navigate to assigned orders via the Orders/PV button. If there are multiple orders assigned, you receive a pop-up list of orders that you can display (Figure 20).

Figure 20

Product cost collector – displaying linked production orders

Period Close

Calculation Notes for the Hybrid Model

The following information is an in-depth look at the pre-defined types and sequences of calculations that are performed by the WIP, variances, and settlement programs.

For WIP calculation, the net confirmed operation quantities on each status-eligible production or process order assigned to a product cost collector are individually valued by multiplying the quantities by the operation values from the associated preliminary cost estimate or standard cost estimate. (Net quantity for the period * [CE operation value / costing lot size] = WIP for the period.) The current period value for WIP is compared with the previous period’s value for WIP and the difference represents the adjustment posting to the WIP inventory account. To calculate WIP, execute transaction code KKAS for single material or KKAO for collective material. The job output of the WIP calculation (Figure 21) is standard format.

Figure 21

Results of the WIP calculation

Variance calculation is the normal variance calculation for period-based (repetitive) accounting that has WIP. There are a few nuances associated with the use of the hybrid solution, but basically no change. Execute transaction code KKS6 to calculate variance for single material or KKS5 for collective material. The variance calculation job output (Figure 22) is standard format.

Figure 22

Results of the variance calculation

The sequence of the variance calculation process includes these stages:

4.    Calculate variance categories: Control costs are compared with the target costs at a cost element or resource level. If a cost estimate or delivered-to-stock quantity is not available, the variance is categorized as remaining.

The sequence of the variance categories calculation process includes these stages: 1.    Input: Price. Price is the difference between the planned prices of resources (used in the cost estimate) and the actual prices (used for valuing postings). Differences may be a result of Activity Price changes/revaluations, direct material standard price changes or the use of moving average price control for direct materials.

8.    Output: Remaining. Any amount that cannot be categorized due to missing cost estimates or rounding.

For settlement, the calculation output (Figures 23 and 24) is standard format. WIP is posted as a net number, which is the difference between the current month’s value of WIP and the previous month’s value of WIP. Variances are settled as a summary of the scrap variance and the manufacturing variance.

Figure 23

Results of settlement – variance posting (The order number is the product cost collector.)

Figure 24

Results of settlement – WIP posting (The order number is the product cost collector.)

Notes and Observations

Cyril Johannes

Cyril Johannes, CMA, is an SAP Certified Application Professional, Management Accounting, with SAP ERP 6.0 enhancement pack 4. He has more than 16 years of consulting experience working for SAP America, Alta Via, IBM, and Dickinson & Associates. He has two years of support experience and 15 years of manufacturing accounting experience. Practices in Controlling, specializes in Product Costing and Material Ledger Actual Costing. His experience includes installations, footprint extensions, upgrades, design assistance, and problem resolution.

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