Case Study_SAP Material Ledger

2. © 2013 ERP Corp. All rights reserved.
Case Study: Cooper Tire’s
SAP Material Ledger
Implementation Lessons
Learned
Chris Crim, Cooper Tire
Johannes Le Roux, Jari Consulting

3. Topics
3
• Cooper Tire Strategy and Vision
• Implementation Options
• Lessons Learned at Cooper Tire
• Springboard to SAP Profitability and Cost Management
• Summary

4. Cooper Tire Strategy and Vision
4
• Cooper Tire weighed the pros and cons of activating SAP
Material Ledger as part of their initial SAP implementation or
during a future rollout phase. In this session we’ll cover:
• Why Cooper Tire implemented SAP Material Ledger as part of
their initial SAP implementation
• Leveraging Material Ledger as a springboard to SAP
Profitability and Cost Management software
• Proper master data setup lessons learned
• Best practices for configuring Material Ledger for long term
requirements
• Find out what Cooper Tire would advise companies
embarking on this process including importance of
understanding the impact on finance and non-finance
process teams

5. Cooper Tire Implementation Timeline
5
• 2009: Cooper Tire made the decision to implement an ERP
system
• Feb. 2010: SAP selected
• Aug. – Oct. 2010: Blueprint/requirement gathering
• Requirements gathering process led to decision to
implement SAP Material Ledger
• Oct. 2011: 1st Go Live was in the Mickey Thompson division
(Sales & Dist.)
• Feb. – Nov. 2013: 2nd Go Live in Cooper US (Mfg, Sales, Dist)
• 2014 – 2015: 3rd – 5th go lives in Cooper Mexico, Europe, &
Asia (Mfg, Sales, Dist)

6. Weighing the Pros and Cons of the SAP Material Ledger
SAP – Material Ledger
• Traceability of Actual Material Cost
by product
• Purchase Price Variance
• BOM Usage Variance
• Production Usage Variance
• COGS at actual cost
• Traceability of production
efficiency by product
• Report Standard & Actual Value of
Inventory by product
• Product level Profitability/Gross
Margin Reporting without
Intercompany Markup
6
SAP – Without ML /LEGACY
• NO Traceability of Actual Material
Cost by product
• Purchase Price Variance
• BOM Usage Variance
• Production Usage Variance
• COGS at actual cost
• NO traceability of production
efficiency by product
• NO Report Standard & Actual
Value of Inventory by product
• NO Product level
Profitability/Gross Margin
Reporting without Intercompany
Markup

7. Material Ledger Implementation Basics
• Support externally calculated Double Extension LIFO
• Value Inventory in Multiple Currencies
• Support Different Global Statutory Reporting requirement by
Company Code (FIFO/LIFO)
• Actual Cost by Cost Component by product
• Actual Cost of Material by Product
• Actual Cost of Labor by Product
• Actual Cost of Depreciation by Product
• Actual Cost of Sales
• Actual Cost Component
7

8. Material Ledger Implementation Basics (cont.)
• During the accounting period all material movements are valued
at a standard cost and recorded by material in the material
ledger
• Price Differences (Variances) for each material movement are
recorded
• At the end of the period an actual cost (periodic unit price) is
calculated for each material though out multiple levels of
product produced
• Revaluation of Inventory and Cost of Goods Sold
• Distribution of usage variance is allocated to product
• Revolution of COGS
8

9. Cost Planning Production Actual Costing
Profitability
Analysis
Evaluating master
data
 Bill of materials
 Routing
 Planned prices
 Planned activities
 Planned yield
Recording logistical
information for
controlling:
 Consumptions
 Yield & scrap
 Purchasing & supplier
invoices
 Activities & time
recording
Recalculating the
value flow using
 Actual quantity
structure
 Actual activity
recording
 Multi-level value flow
 Actual raw material
prices
 Consumption
Revaluation
 Distribution of Usage
variances
Reporting Costs and
Contribution Margins
 Production costs
 Sales Revenues
 Actual cost
Component
Dimensions
 Regions
 Channels
 Customers
 Product Hierarchy
Streamlining the Cost Process
• SAP Material Ledger streamlined their cost process into a fully
integrated process as seen below:
9

10. Semifin.
material
Distribution
center Sales
order
Finished
product
Raw
material
Production
order
Cost center
Production order
1) Sale of Raw Material to the Production Profit Center within a Legal Entity
2) Sale of Semi-Finished Good to Affiliated Company
3) Use Semi-Finished Good in a production order and add value from activity
in a cost center
4) Transfer finished product to distribution center including actual cost
2 3 41
Streamlining the Cost Process (cont.)
10

11. 11
• Integrate and align cost structure to reduce cost
• Provides global unit cost information across plants and legal
entities providing an global transparent view of costs and
variances
• Analytical information by scorecards, statutory reports, and
performance analysis
• Provide accurate profitability information
• Maximizes corporate profitability to grow market capitalization
and shareholder value
• Integrate planning with a single model across the enterprise to
improve organizational alignment and financial performance
• Provide real-time information quickly
Material Ledger Benefits

12. Cooper Tire Value Strategy
Cooper Value Strategy Proposal
• If we had to do it again, we would use
the following strategy
Currency /
Visional
Company code
Currency
Legal 10
Group / legal 30
Profit Center 32
Cooper Value Strategy
• Legal valuation
• Legal group valuation
• Group valuation without markup
Currency /
Visional
Company code
Currency
Legal 10
Group / legal 30
Group 31
• Why we would propose a different strategy:
• Less maintenance – Only two cost roles
• Profit center valuation not needed – not using profit center transfer price
12

13. Define Individual Characterisitcs
13
• You cannot change the currencies, currency types and
material ledger types after production startup

14. Currency and Valuation Profile
14

15. SAP Material Ledger Without Revaluation
15
Cooper Implement Material ledger without revaluation
What Cooper did was used the
accrual method but report the
accrual as part of there inventory
value in there balance sheet
using an inventory direct posting
account

16. SAP Material Ledger Without Revaluation
16
• Cooper implement SAP Material ledger without revaluation
• Used the accrual method, but reported the accrual as part of
their inventory value in their balance sheet using an
inventory direct posting account
www.sap.com AC530 - Training actual costing/Material ledger

17. SAP Material Ledger Without Revaluation (cont.)
17
• If you decide not to revaluate your materials with the actual
price, the amount which would have been posted to the material
stock account is posted to another price difference account
using posting key LKW
• It is up to you which account you choose for this posting

18. Topics
18
• Cooper Tire Strategy and Vision
• Implementation Options
• Lessons Learned at Cooper Tire
• Springboard to SAP Profitability and Cost Management
• Summary

19. • Two methods to implement the Material ledger
• Activate Material Ledger to track material postings
• Ability to do multi-currency inventory valuation
• Recording business transaction
• Structuring value chain – direct product only
• Activate Actual Costing
• Revaluation of inventory based on actual cost
• Multi level variance value chain
• Gross margin analysis using both standard and
actual cost
Implementation Options
19

20. Pro ‘s Con’s
No migration needed activation of all plant for company at
once
High level of Discipline needed when using material ledger
Tracks variances across multiple product levels / plant and
company codes
Organization not ready for complicity and discipline
needed
Tracks purchase material price variances to finished
products on the basis of consumption
Additional training required
Provides historical information on actual cost to facilitate
the estimation of new standard costs from initial go-live
Ability to track multiple valuations and/or currencies at the
material level
Ability to revaluate inventory on the basis of real cost
calculation visibility of variances
Implementation as Part of Initial Phase
20

21. Pro ‘s Con’s
Low level of complexity after initial go-live Migration requirements
• Closing of all open production order
• Closing of all open purchase order
• Conversion and activation by plant
No discipline and restrictions to change cost after initial
go-live
Go-love migration long and slow process
Faster closing process after initial go-live No historical information on actual cost to facilitate the
estimation of new standard costs after initial go-live
Organization do not have to deal with complicity and
discipline after initial go-live
No ability to track multiple valuations and/or currencies at
the material level after initial go-live
No ability to tracks purchase material price variances to
finished products on the basis of consumption after initial
go-live
Implementation After Go live
21

22. Cooper Tire’s Decision to implement Material Ledger
SAP – Material Ledger
• Traceability of Actual Material Cost by
product
• Purchase Price Variance
• BOM Usage Variance
• Production Usage Variance
• COGS at Actual cost
• Traceability of Production efficiency by
product
• Report Standard & Actual Value of
Inventory by product
• Product level Profitability/Gross Margin
Reporting without Intercompany
Markup
22
SAP – Without ML /LEGACY
• NO Traceability of Actual Material Cost
by product
• Purchase Price Variance
• BOM Usage Variance
• Production Usage Variance
• COGS at Actual cost
NO Traceability of Production
efficiency by product
• NO Report Standard & Actual Value of
Inventory by product
• NO Product level Profitability/Gross
Margin Reporting without
Intercompany Markup

23. • Keep all companies with same valuation strategy
• Standard vs. moving average in Sales & Distribution
companies
• Visibility
• Needed better visibility of variance analysis across
production processes
• Better product cost
• Global product cost
• 1 time change management
• Big Bang (kind of)
• Clean System
• No open production order to delete and recreate
• No open purchase order to delete and recreate23
Cooper Tire’s Decision to implement Material Ledger

24. Topics
24
• Cooper Tire Strategy and Vision
• Implementation Options
• Lessons Learned at Cooper Tire
• Springboard to SAP Profitability and Cost Management
• Summary

25. Lessons Learned at Cooper Tire
25
• Avoid those who only believe Material Ledger is difficult
• SAP trainers
• Sapphire sessions
• Consultants
• Cooper Tire Accounting Managers
• Overkill
• Activity revaluation
• Distribution of usage variances
• Trusting the results
• Complexity
• Focus on benefits and future capabilities
• Look at complexity/timeline/cost implementing ML in future

26. Results/Gains from Implementing Material Ledger
26
• Impact of PPV on specific tire line
• Actual cost to support LIFO calculation
• Consolidated location to see In/Out transaction by material
• See actual cost of inventory by cost component
• Inventory valuation visibility without inter-company markup
• Ability to see actual product line profitability without
intercompany mark up’s

27. Results/Negatives from Implementing Material Ledger
27
• Massive volume of data
• Increased time-to-close by at least 1 day maybe more as more
plants go live
• Distribution of usage variances extremely time consuming
• Difficult to validate the accuracy of the posting at a high level
• Difficult for casual/non-users to comprehend

28. Material Ledger – Worth the Expense?
28
• Yes
• Love the level of detail, tons of information!
• No
• Takes too long, not worth the effort
• Maybe
• See the potential, can’t wait for full rollout to be complete

29. Cooper Tire Lessons Learned
• Make the final decision early
• Quality consultant/implementer
• Configure for all potential long term requirements
• Make decision what material will be included
• Actual costing
• Cost component structure
• Understand all ML component
• Integration: The impact that Material Ledger has on other
processes/teams
• Proper master data setup/conversion
• Cutover/client setups
• Ongoing validation/maintenance
29

30. Make The Final Decision Early
• Impacts Currency Profiles
• Based on setup will impact costing process
• Material Master Defaults
• Costing Variants
• Resources
• Make sure you have dedicated resources
• SME’s & Testing Validators
• Make sure test cycles fit material ledger test requirements
30

31. Quality Consultant/Implementer
• Closely review experience
• Check references
• Check results of prior ML implementations
• Contract through life of implementation and beyond
• Most issue happen 3-4 month after go-live
• Training cycle 3-4 months
• Process and discipline related
• Poor master data
• Poor closing processes
• Poor monitoring processes
31

32. Configure For All Potential Long Term Requirements
• Configure for Long Term Needs
• Currency profiles
• Actual cost component split
• LIFO / FIFO
• The impact that Material Ledger has on other processes teams
• Operations
• Inventory Management
• Sales & Distribution
• Basis
32

33. Cutover/Client Set Up
33
• Cutover/Client Set Up
• Demand quite system during client start ups
• Open/close clients to change default setting on price
determination during material load/extensions
• Ensure cutover team understands impact of improper ML
start up
• Master Data Setup
• Solid process established prior to go live
• Importance of status controls
• Product costing prior to material movements

34. Ongoing Validation/Maintenance
34
• Daily/weekly distribution of usage variances
• Set up detailed validation template
• Pick a raw material and follow it through a sale
• Set up high level validation template

35. Resources
35
• Do not underestimate the effort
• Cooper staffing
• One lead business analyst
• Included plant accountant in each implementation
• Learn the process
• Understand data flow and conversion
• One lead consultant – Make that sure that he/she knows
Material Ledger
• Due to conversion, support time ( 3 plus months) and training
required it could require additional business analyst

36. Topics
36
• Cooper Tire Strategy and Vision
• Implementation Options
• Lessons Learned at Cooper Tire
• Springboard to SAP Profitability and Cost Management
• Summary

37. Springboard to SAP PCM
37
• Integrated transaction and analytics solutions
• Totally integrated into transactional processing to PCM
• Cooper Tire phase II to integrate with PCM
Profitability
Analysis
Cost
Planning
Producti
on
Actual
Costing
Evaluating master
data
 Bill of materials
 Routing
 Planned prices
 Planned
activities
 Planned yield
Recording logistical
information for
controlling:
 Consumptions
 Yield & scrap
 Purchasing &
supplier invoices
 Activities & time
recording
Recalculating the
value flow using
 Actual quantity
structure
 Actual activity
recording
 Multi-level value
flow
 Actual raw
material prices
 Consumption
Revaluation
 Distribution of
Usage variances
Reporting
PROFIT
 Production costs
 Sales Revenues
 Actual cost
Component
Dimensions
 Regions
 Channels
 Customers
 Product
Hierarchy
Profitability&Cost
Management
Reporting Costs and
Contribution Margins
 Being totally integrated into
transactional processing
 materials ledger makes ideal
place for Calculating the direct
cost of product
 Transferred to the profitability
segment component and
uploaded into SAP BOBJ &
PCM
 Combining the strengths of the
controlling components of SAP
ERP with SAP BOBJ & PCM

38. 38
Profitability Analysis Ideal Staging Area
• Profitability Analysis is an ideal staging area for:
• Capturing revenue and sales data at the customer and
product level
• Furthermore, having functionality such as the materials
ledger makes the controlling component the ideal place for
calculating the actual direct cost of products
• Transferred to the profitability analysis component and then
loaded into SAP BusinessObjects Profitability and Cost
Management
• Combining the strengths of costing and profitability reporting
functionality provided a makes it easier to use the two solutions
in tandem, enabling organizations to tailor a cost and
profitability reporting solution to match their needs

39. 39
SAP Best Practice
• Integrate ECC, business intelligence and enterprise
performance management
• SAP BusinessObjects Profitability and Cost Management is the
selected solution on the SAP product road map for delivering
cost and profitability management
• These tools can also be used for detailed scenario modeling,
such as assessing how changing the price of an individual
product or the discount given to an individual customer impacts
profitability
• SAP uses integration with enterprise performance management
delivers true business performance optimization

40. Topics
40
• Cooper Tire Strategy and Vision
• Implementation Options
• Lessons Learned at Cooper Tire
• Springboard to SAP Profitability and Cost Management
• Summary

41. Tracks purchase
material price
variances to
finished products
on the basis of
consumption
Provides historical
information on
Actual Cost to
facilitate the
estimation of new
Standard Costs
Ability to track
multiple valuations
and/or currencies
at the material
level.
Ability to revaluate
inventory on the
basis of real cost
calculation
Enables faster and
more effective
decision making to
management
Tracks variances
Across Multiple
product levels /
plant and Company
codes
Material Ledger Benefits
41

42. CO-CCA
MFG
Cost Center
CO-CCA
MFG Overead
Cost Center
Activity
type
Business
Process
Production
Orders
Actual CC Allocations
Activity Price revaluation
ABC Template Allocation
WIP
Variances
DUV usage variance
Actual Cost Calculation
CO-PA
Documents
Actual Cost
Component
Split
FI-GL
Documents
Revaluation
Inventory
COGS
During the month Month end
Month end closing activity
Material Ledger Actual Costing
MM
Movements
Scrap/Cycle/
Transfer
Material Ledger
• Receipts/Consum
ption
• Price Differences
• Single Level Price
Determination
• Multi level Price
Determination
• Closing Entries
PP-PO
Production
Variances
MM-PO
Price Variance
Variances
Actual Cost Flow Integration
Actual Cost Flow Integration
42

43. Springboard to SAP PCM
43
• Integrated transaction and analytics solutions
• Totally integrated into transactional processing to PCM
• Cooper Tire phase II to integrate with PCM
Profitability
Analysis
Cost
Planning
Producti
on
Actual
Costing
Evaluating master
data
 Bill of materials
 Routing
 Planned prices
 Planned
activities
 Planned yield
Recording logistical
information for
controlling:
 Consumptions
 Yield & scrap
 Purchasing &
supplier invoices
 Activities & time
recording
Recalculating the
value flow using
 Actual quantity
structure
 Actual activity
recording
 Multi-level value
flow
 Actual raw
material prices
 Consumption
Revaluation
 Distribution of
Usage variances
Reporting
PROFIT
 Production costs
 Sales Revenues
 Actual cost
Component
Dimensions
 Regions
 Channels
 Customers
 Product
Hierarchy
Profitability&Cost
Management
Reporting Costs and
Contribution Margins
 Being totally integrated into
transactional processing
 materials ledger makes ideal
place for Calculating the direct
cost of product
 Transferred to the profitability
segment component and
uploaded into SAP BOBJ &
PCM
 Combining the strengths of the
controlling components of SAP
ERP with SAP BOBJ & PCM

44. Resources
44
• SAP Finance
• www.sap.com/solutions/business-
suite/erp/financials/featuresfunctions/index.epx
• SCN
• www.scn.com
• AC530 - Training actual costing/Material ledger
• Actuhttp://www.sap-press.com/
• al Costing with the SAP Material Ledger - Vanda Reis
• 2011 Edition

45. Key Ideas
45
• Avoid those who only believe ML is difficult
• Keep all companies with same valuation strategy
• Material ledger visibility
• Integrated across multiple level and company codes
• Variances included in all reporting
• One time change management
• Value quantities of inventories with three different valuations
• Legal valuation, group valuation and profit center valuation

46. Questions
• Now:
• Ask questions now for immediate answers
• Later:
• Johannes Le Roux - leroux@jari-consulting.com
• Chris Crim - cacrim@coopertire.com
46
Q&A

47. Disclaimer
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services mentioned herein as well as their respective logos are trademarks or registered trademarks of SAP AG in
Germany and in several other countries all over the world. All other product and service names mentioned are the
trademarks of their respective companies. ERP Corp is neither owned nor controlled by SAP.