Product Manufacturing Management and Cost Optimization

One of the constraints with non-valuated project stock is that actual costs on any given order in the as-built BOM (Bill of Materials) is not directly available. In case of non-valuated project stock, each material is managed on a quantity basis only and not on value basis. During goods issue, there are no financial accounting documents posted with non-valuated project stock and therefore, the actual costs at each level in the BOM do not include the costs of the issued project stock components. The S/4HANA PMMO solution enhances project manufacturing efficiency in an Engineer to Order (ETO) setting, facilitating the production of intricate end-products like military aircraft, ships, submarines, and complex industrial machinery. This solution manages complex engineering and production processes, while also providing detailed actual cost reporting and progress analysis for non-valuated grouped project stock to ensure transparency and visibility. The input to the cost rollup Fiori app is an order. This can be a production order or purchase order (standard purchase order, stock transport order or subcontracting purchase order) account assigned to either a grouping WBS element or an operative WBS element.

Order Cost Rollup Calculation Now, let’s take a look at the calculation of the cost rollup. I have an example below that will be used to illustrate the calculation of the order cost rollup.

The calculation involves first determining the order hierarchy, which is the logistics part. Starting with the order entered, all issued materials in the as-built BOM along with the corresponding replenishment objects (i.e., production order, purchase order etc.) and issued quantity are derived and depicted as levels in the result. Level 0 is the order which is entered on the selection, and Level 1 indicates the material components that are issued to the Level 0 order and Level 2 indicates the material components that are issued to the Level 1 order and so on. In principle, you can visualize as an order tree starting from the top and traversing multiple levels below until you reach the bottom. At each level, there can be multiple material components and multiple orders supporting the next higher assembly (NHA). The logistical order tree is determined based on the PMMO_CONSUMPTION table, which tracks all issued grouped project stock components along with the sending and receiving replenishment object and the issued quantity. Once the logistical order tree is determined, the actual costs for each order in the order tree is calculated. The actual costs (value type = 4) are read from ACDOCA table. Note that it is not needed to run PMMO pegging or cost distribution batch job for the cost rollup calculation, because the cost rollup calculation reads actual cost postings (for example COIN, RKL) on the account assignment WBS element in the order hierarchy for the calculation. Therefore, any costs or activity hours that are posted on the purchase order or production order in the order tree hierarchy are immediately visible in the cost rollup report. There are two kinds of proration that applies here when allocating costs to each order in the order hierarchy. At hierarchy level 0, no proration is needed. At every level below hierarchy level 0, the issued quantity may not be the same as the total order quantity. For example, the production order for sub-assembly material could be for 20 EA, however 10 EA are issued to the order for which we are determining actual costs and the other 10 EA might have been issued to a different order (and therefore belongs to a different order tree). In this case, we allocate only 10/20th of the actual cost of the sub-assembly order. The second kind of proration is necessary due to inheritance. In the same example, if we had 2 purchase orders PO1 for 10 EA and PO2 for 10 EA that are issued to the sub-assembly production order. In this case, we can only allocate 10/20th (inheriting from NHA) cost from PO1 and 10/20th (inheriting from NHA) cost from PO2. You can see these proration ratios in the output of the API function module. The order cost rollup provides a simple yet powerful reporting app to get the true actual cost for any given order. This can help with estimating the unit cost of manufacturing a similar material in a project-based Engineer to Order scenario. I encourage you to try this Fiori app and hope you find this blog post useful. Comments and questions are welcome.