Refurbishment Order

Refurbishment of Repair Parts at Procter & Gamble Pam Hendrickson Procter & Gamble

Mark W Scott Vesta Partners LLC Premier Sponsor

Platinum Sponsor

Produced by:

billion

P&G’s Billion-Dollar Brands

Procter & Gamble Crest® Duracell®

• • • Downy® • • Dawn®

Approximately 300 brands globally Market in over 140 countries $79 billion in worldwide sales 140,000 employees in 80 countries 140 manufacturing plants in 40 countries

Bounty®

Head & Shoulders®

Iams®

Pampers®

Gillette M3Power®

Olay® Always® Pantene®

Charmin® Pringles® Tide®

Wella®

Braun®

Agenda • • • • • •

Business situation Refurbishment work process Refurbishment costs Internal refurbishment External refurbishment Summary

Business Problem • Refurbishing parts can be less expensive than

• •

always buying new Refurbishment of repair parts can be done internally in a shop or externally at a vendor Need to properly account for the cost of the refurbishment, inventory, and status of the refurbishment

Presentation Objectives • How refurbishment orders can be used for the

• •

internal refurbishment of repair parts How subcontract purchase orders can be used for the external refurbishment of repair parts How costs flow when refurbishment orders and subcontract purchase orders are used to refurbish repair parts

Refurbishment versus Buy New

Considerations 1)

Cost benefit vs. buying new

- as a guideline, repair cost should be no more than 50% of new cost 2) 3)

Skill level in-house for repairs or external vendor availability for repairs Vendor recommendation

4)

Engineering recommendation

Material Master If part is considered repairable, then it is set up as “split-valued” in SAP Split-Valued categories: 1) NEW – reflects quantity of the part in inventory that are new 2) REPAIRABLE – reflects quantity of the part in inventory that are waiting for repair/not fit for use 3) REFURBISHD – reflects quantity of the part in inventory that have been repaired/fit for use

How do you know?

 User sees an indicator on SAP shop paper that a part is “R” (Repairable) Valuation category

 User returns the broken part to the storeroom

Storeroom Role o Analyze feasibility of repair o Throw away if not repairable o Create:  purchase requisition for external repair; or,  refurbishment order for internal repair o Send material to the vendor or deliver to repair area o Receive repaired material back into inventory

Maintenance Role – Internal Repair o Insure general task lists exist in SAP for repetitive repairs o Plan and schedule the refurbishment order o Refurbish the part o Return the part to the storeroom o Technically complete the refurbishment order

Refurbishment Costs -Did not properly value inventory -Complex PurReq/PO’s -Cost flow and reports complex

SAP directly supports this method

12

Refurbishment Process Costing  Costs to repair expense materials settle to the material master, and become part of the moving average price for a refurbished part  Costs to repair capital materials are charged directly to a Cost Center or WBS element

How should refurbished materials be valued? Value of Refurbished Material Capital Part

• • • •

How can(V)this NEW – cost of new CAPITAL - $0 (S) REFURBISHD - $0 (S) REPAIRABLE - $0 (S) S – Standard Cost

Expense Part

be accomplished? • NEW – cost of new (V) • REFURBISHD – cost of repair (V) • REPAIRABLE - $0 (S)

V – Moving Average Price

Refurbishment Process

Refurbishment Order Basic Configuration • Refurbishment order types: o o

PM95 PM96

– refurbishment of expense repair part – refurbishment of capital repair part

• Settlement profiles and allocation structures: o o

PM95 PM96

– to settle costs to the material in inventory – to settle capital repairs to WBS element – to settle expense repairs to a Cost Center

• Default batch into refurbishment order to reduce errors

Refurbishment Order settlement Internal Repair (using Refurbishment Order)

Use PM95 order type Use PM96 order type

Expense Part

Capital Part

Capital Repair • Settle to WBS element  Some refurbishments of capital parts are “capital”

Expense Repair • Settle to Cost Center (that returned part to Storeroom)  Most refurbishments of capital parts are “expense”

• Settle to material NA

General task list Facilitate the planning of refurbishment work Group 1000025

Rebuild Shop

Group Counter 1

Gearboxes

Operations 0010 Rebuild gearbox model ABC 0020 Rebuild gearbox model XYZ (major) 0030 Rebuild gearbox model XYZ (minor)

2

Clutches 0010 0020

3

Rebuild clutch model 123 Rebuild clutch model 456

Cylinders 0010 0020

Rebuild A1B cylinder Rebuild 1A2 cylinder

Creating Refurbishment Order

Goods Receipt to return Refurbished part to Storeroom • Transaction: IW8W

• Sets DLV system status o o

Can handle serial numbered materials Can handle partial deliveries

Refurbishment Order cost flow

PM95 settles to a Material

PM95

PM96 settles to a Cost Center or WBS element

PM96

Refurbishment Order Cost Flow - Situation Valuation Type

Total Stock

Price Control

Moving Avg Price

NEW

0

V

750.00

REFURBISHD

0

V

200.00

REPAIRABLE

1

S

Standard Price

0.00

150.00 0.00 30.00 10.00 40.00

Refurbishment Order Cost Flow “Goods Issue to Order”

Cost Center “abc”

Confirm TEST Credit 80004700 ($150.00) 3 hours @$50/Hr

80004700 $150.00

Refurbishment Order Debit (charge) 80004700 $150.00 58070100 $40.00

58070100 $40.00

Storeroom Inventory

REPAIRABLE $0.00 Material 1 $30.00 Material 2 $10.00

13701000 ($40.00) Delivery 58099500 ($200.00)

Settlement 58099500 $10.00

Refurbishment Order Cost Flow “Goods Receipt from Order”


Confirm TEST Credit 80004700 ($150.00) 3 hours @$50/Hr Storeroom Inventory

80004700 $150.00


58070100 $40.00 REPAIRABLE $0.00 Material 1 $30.00 Material 2 $10.00

13701000 ($40.00) Delivery REFURBISHD Material $200.00

58099500 $200.00 REFURBISHD Order status: DLV

58099500 ($200.00)

Settlement 58099500 $10.00

Refurbishment Order Cost Flow “Order Settlement”


Confirm TEST Credit 80004700 ($150.00) 3 hours @$50/Hr Storeroom Inventory

80004700 $150.00



13701000 ($40.00) Delivery

Total: $190

REFURBISHD Material $200.00 REFURBISHD Material ($10.00) 58099500 ($10.00) REFURBISHD


58099500 ($200.00)

Settlement Settlement

58099500 $10.00

Capital material Expense Cost Flow-Situation Valuation Type

Total Stock

Price Control

Moving Avg Price

Standard Price

NEW

0

V

7000.00

REFURBISHD

0

S

0.00

REPAIRABLE

1

S

0.00

150.00

0.00 30.00 10.00 40.00

Capital material Expense Cost Flow “Goods Issue to Order”


Confirm MECH Credit 80004700 ($150.00) 3 hours @$50/Hr Storeroom Inventory

80004700 $150.00

PM96 Order Debit (charge) 80004700 $150.00 58070100 $40.00


13701000 ($40.00) Delivery 58099500 ($200.00)

Settlement 58099500 $10.00

Capital material Expense Cost Flow “Goods Receipt from Order”


Confirm MECH Credit 80004700 ($150.00) 3 hours @$50/Hr Storeroom Inventory

80004700 $150.00



13701000 ($40.00) Delivery

REFURBISHD Material $0.00


58099500 ($0.00)

Settlement 58099500 $10.00

Capital material Expense Cost Flow “Order Settlement (expense repair)”


Confirm MECH Credit 80004700 ($150.00) 3 hours @$50/Hr

80004700 $150.00



Storeroom Inventory 13701000 ($40.00)

Inventory: +1

Value: $0.00

Delivery

REFURBISHD Material $0.00


58099500 ($0.00)

Settlement Cost Center “xyz”

80022100 $40.00 80022200 $150.00

Settlement

$190 Note: For a capital repair the settlement rule would be a WBS element.

80022100 ($40.00) 80022200 ($150.00)

Summary of Cost Flow • Expense refurbishment: o o

Goods receipt at current moving average price Settlement posts difference between moving average price and cost of refurbishment

• Capital refurbishment: o o o

Refurbished part brought into inventory at zero value Expense refurbishment settles to Cost Center Capital refurbishment settles to WBS element

Results Analysis Key • As minimum, maintenance orders settled at end of month • All costs accumulated in order during the month must settle • What happens if costs have been posted to a refurbishment order but the part has not yet been received by Storeroom? o o

• • • •

Refurbishment order cannot settle! Unless a Results Analysis Key is being used

A “RA Key” should be defined by Finance A default “RA Key” can be assigned to an order type Will settle posted costs to a WIP account When refurbished part received by Storeroom the order can be settled which will clear the WIP account

External refurbishment • Subcontract PurReq/PO o o

Designed for sending material(s) to vendor who then adds value (labor, materials) and returning another material Refurbishment: 

Send REPAIRABLE material  Vendor adds labor and other materials  Returns REFURBISHD material

• Goods issue to vendor o o

o

Transfers REPAIRABLE material to vendor REPAIRABLE material still owned by and on company books Able to track REPAIRABLE materials at vendors

Create Subcontract PurReq Receiving

Sending

• Define material to be sent for Refurbishment. • Define material to be received back after being Refurbished. • Custom screen (ABAP, GuiXT, etc.) can simplify creation and reduce chance of error.

Goods Issue to Vendor • Transfer posting (MB1B) – movement type 541 • Using “Subcontracting Stock Monitoring List” (ME2O)

• Transfers material to vendor, however, still on company books • Available reports show what materials at which vendors.

“SC Stocks per Vendor” report • Transaction: ME2O

To be sent to Vendor

Still at Vendor

• Materials returned from Vendor do not show on report.

Goods Receipt • Note goods receipt of Refurbished material (mvt type 101) and simultaneous “consumption” of REPAIRABLE material sent to vendor (mvt type 543).

Subcontract PO Cost Flow Situation Valuation Type

Total Stock

Price Control

Moving Avg Price

NEW

0

V

750.00

REFURBISHD

0

S

200.00

REPAIRABLE

1

S

Standard Price

0.00 0.00

PO net price

Vendor labor added 130.00 Vendor supplied parts 40.00 REPAIRABLE part 0.00 170.00

Subcontract PO Cost Flow “Goods Issue to Vendor”

Storeroom Inventory GI to Vendor REPAIRABLE $0.00

GI to Vendor (PO)

Vendor “1234”

REPAIRABLE $0.00

Subcontract PO GI to vendor REPAIRABLE $0.00

GR from Vendor REFURBISHD $200.00

Invoice Adjustment ($30.00)

Net price REFURBISHD $200.00

Invoice REPAIRABLE $170.00

Refurbishment REPAIRABLE $0.00 Labor $130.00 Parts $40.00

Subcontract PO Cost Flow “Goods Receipt from Vendor”


GI to Vendor (PO)

Vendor “1234”

REPAIRABLE $0.00

Subcontract PO GI to vendor REPAIRABLE $0.00






Refurbishment REPAIRABLE $0.00 Labor $130.00 Parts $40.00

Subcontract PO Cost Flow “Invoice posting”


GI to Vendor (PO)

Vendor “1234”

REPAIRABLE $0.00

Subcontract PO Refurbishment REPAIRABLE $0.00 Labor $130.00 Parts $40.00

GI to vendor REPAIRABLE $0.00 GR from Vendor REFURBISHD $200.00




Invoice adjustment ($30.00)

Net cost: $170


Invoice $170.00

Invoice $170.00

External Refurbishment of Capital materials • Similar to Internal refurbishment of Capital material except: o o

Account assignment of Expense repair is Cost Center Account assignment of Capital repair is WBS element

Learnings • Thinking about refurbishment of repair parts • How refurbishment orders can be used for the internal

• •

refurbishment of repair parts How subcontract purchase orders can be used for the external refurbishment of repair parts How costs flow when refurbishment orders and subcontract purchase orders are used to refurbish repair parts

Pam Hendrickson Procter & Gamble [email protected]

Mark W Scott Vesta Partners LLC [email protected]

Premier Sponsor

Platinum Sponsor

Produced by:

March 27 – 30, 2011 Hyatt Regency Huntington Beach Resort and Spa Huntington Beach, California

Premier Sponsor

Platinum Sponsor

Produced by:

Refurbishment Order

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