Make-to-Stock Production – Discrete Industry

1. Make-to-Stock Production – Discrete Industry SAP Best Practices

2. Purpose, Benefits, and Key Process Steps • Purpose • This scenario describes a business process, which is typical for companies with lot-size oriented production. • The production scenario produces a finished good and all dependent components in make-to-stock production (MTS). • Furthermore, the scenario is supported by the main cost object controlling functions required, such as preliminary costing and period-end closing. • Benefits • Production triggered by a production plan • Serial number and batch management included • Optional with: quality management, consigned inventory, external processing • Key Process Steps • Creating Planned Independent Requirements • Material Requirements Planning at Plant Level • In-House Production (subassembly) • In-House final assembly (Finished Good) • Capacity Leveling • Confirming Assembly Activities

3. Required SAP Applications and Company Roles • Required SAP Applications • Enhancement package 5 for SAP ERP 6.0 • Company Roles • Production Planner • Production Supervisor • Shop Floor Specialist • Warehouse Clerk • Strategic Planner • Engineering Specialist

4. Detailed Process Description • Make-to-Stock Production – Discrete Industry • This scenario describes a business process, which is typical for companies with lot size oriented production. The production scenarios consist of both goods movements (goods issues and receipts) and confirmation of completion of the production order. • Furthermore, the scenario is supported by the main cost object controlling functions required, such as preliminary costing and period-end closing. • The typical planning process starts with sales quantity planning. The previous period’s actual sales figures can be used as a basis for future planning. • In Sales and Operations Planning, you ensure that production stays in line with sales so that you may create the production plan synchronously to sales. The planning data is transferred from Sales and Operations Planning to Demand Management. Demand Management generates independent requirements, which are used in the subsequent Material Requirements Planning (MRP) run. • In material requirements planning, the bill of materials (BOM) for the top-level material demand gets exploded and production is planned right down to procured component level. MRP results in planned orders being generated for the material to be produced. • If insufficient warehouse stock is available, purchase requisitions are created for the raw materials required. When the order is created, target costs are calculated for the order lot size (preliminary costing). • During the production process, costs incurred are updated on the order, which enables you to keep track of and compare target costs and actual costs at any time. • Period-end-closing activities are applied to the order. This includes Work In Progress calculation and variance calculation. • After this, Work in Progress is settled to financial accounting and production variances are settled to management and financial accounting.

5. No Yes Yes No Process Flow Diagram Make-to-Stock Production – Discrete Industry Event Periodic Plan Revision Beginning of Planning Cycle StrategicPlanner Creating Planned Independent Requirements Logistics Planning (144) Production Planner Capacity Leveling O.k.? Material Requirements Planning at Plant Level & Evaluation of Stock / Requirement List Update Capacity 1 MRP List Order Print Release Production Order Material Available? Capacity Leveling Convert Planned Order to Production Order Purchase Requisition Planned Orders Manufacturing Confirming Assembly Activities / Final Confirmation Semi-Finished Goods Receipt Inventory @ Standard. Cost Pick List Material Staging for Planned Orders Inventory Consumption @ Standard. Cost Goods Issue/ Back flush Goods Receipt Slip Ware-house Clerk Finished Goods Receipt Goods Receipt Slip Period End Closing “General” Plant (181) Plant Controller Procurement & Consumption of Cosigned Inventory (139) Buyer Procurement w/o QM (130) Procurement of Stock Material with QM (127) MM Subcontracting (138) PP-Subcontracting (External Processing) (150)

6. Process Flow Diagram Make-to-Stock Production – Discrete Industry Event Production Supervisor Review Operation List 1

7. Diagram Connection Legend <Function> Hardcopy / Document External to SAP Financial Actuals Business Activity / Event Budget Planning Unit Process Manual Process Process Reference Existing Version / Data Sub-Process Reference Process Decision System Pass/Fail Decision

8. Materials Requirement Planning - MRP Planned Ind. Requirements Material Reqmts Planning DependentReqmts Reservations Planned Order Convert Production Order Warehouse

9. Alternative Planning Strategies for Finished Product

10. Work Center Work Center: Assembly Default values Routings Costing Data Sched. Data Capacity Data Routings Scheduling & Capacity Costing 1010,- 2150,- 3160,-

11. Work center Control key Standard values Activity types Description .... Routing Work Center / Operation Routing Header Operation 10: Final Assembly Material Components

12. Production order Planned Order Conversion Planned orders IndividualConversion Individual Conversion Planned Production orders orders Collective Conversion Collective Conversion

13. FridayJanuary28 2011 TuesdayJuly 12 2011 Production Order Creation Manually Requirements planning Automatically Specify order type Define order item Copy routing Lead time scheduling Copy bill of material Availability check Optional changes Save production order Optional (Customizing)

14. Order header 20 100 50 Production Order Processing Order proposal (planned order) Order settlement Production Order Operations Order creation Goods receipt Components Availability check Confirmations Costs Order release and batch determination for components Material withdrawal

15. Accounting document Goods Movement Prod.order Warehouse Operation Mat. comp. Material Costs Goods movement Material document • Update of stock quantities • Update of stock values • materials can be batch controlled

16. Updating stock quantities Updating stock values Reducing reservations Calculating actual costs and up-dating the order Goods Issue Goods issue posting Materialdocument Acctg.document

17. Production order Production Order Confirmations Manual entry Operation 0010 Operation 0020 Operation 0030 Order confirmation ... Operation . . . .

18. Production Order - Preliminary Costing Planned costs Planned costs Material components Phases Material components Phases Cost elements : Cost elements : Ind . " Rel . to costing " Gen. operation values l l Material costs Price Standard values l l l Control key “costing indicator” Costs for external procurement Order type / Plant Production costs Order type / Plant Resources Resources Costing variant l Formula key for l Material overhead costing costs Cost center l Display planned/actual costs Activity type l Production overhead Formula constants l costs Cost calculation log Costs for external Cost elements l processing Cost itemization l Cost component split l

19. Cost of Production Order Material components Work center Cost center Operation - Work center - Standard value - Quantities - Cost center - Activity types - Formulas - Activity types - Quantities - Prices Activity cost - Periods Material costs Internal activities costs Overhead calculations Production order cost

20. WIP and Variance Calculation in Lot-Based Cost Object Controlling Actual Costs Actual Costs - - Actual Costs Delivery Value Delivery Value = = = WIP at Actual Costs WIP at Actual Costs Variances Order Status DLV TECO PREL REL PDLV Finally Delivered or Technically Completed Pre-Released or Released Partially Delivered

21. CO-PC CO-PA FI Financial Accounting Settlement of Order (Example) Production Order Mat. F126 Product cost planning Lotsize 1 PC 800 1.200 400 2.400 -2.000 400 CO- PC Actual Cost Target Version 0 Price 150 Qty 150 Structure 100 Scrap 0 Lotsize 0 Material 600 Material Production Surcharge GR Variances Surcharge 300 Production 1100 Material Master Standard Price = 2000 Settlement Warehouse Price difference 2000 400