Overview of Make-to-Order Production Scenarios Supported by SAP Make-to-order manufacturing is used where the products being manufactured are customized according to customer requirements.
Customer Order Management Process The customer order management process begins with pre-sales processing and ends with customer payments for goods and services.
Pre-Sales Activities The customer order management process begins with a sales inquiry or request for a quotation. Certain important information can be entered and stored for order processing steps. Pre-costing may be necessary for the inquiry or quotations activities, depending on the complexities of the sales order.
Sales Order Processing In this step, the sales order from the customer is processed and entered in the system. The existing customer master data or product master data, if available, is used for processing the order. Pricing conditions are entered for each item ordered. In complex make-to-order processing, each individual item may be required to be costed to track the planned cost and actual cost.
Inventory Sourcing Once the sales order is entered in the system, the next step is to source the materials required. Inventory sourcing can be from either: Stock on hand Replenishment activities either using make-to-stock order or through purchase order Make-to-order production, with materials being tracked at either the sales order level or the production order level Several inventory sourcing options, described below, are available depending on the value of the order and the complexities. Customer-Specific External Procurement Any raw materials procured to directly fulfill the sales order requirements can either be: Ordered to be received into stock as inventory specifically earmarked for the particular sales order Externally procured material assigned directly to the sales order items Customer-Specific External Activities If the customer order requires external activities (processing by outside vendors), the purchase order can be assigned directly to the sales order item. Production with Materials Requirement Planning In-house production of finished goods can be managed as sales-order related production (individual requirement materials) or as make-to-stock production (collective requirements planning). Assembly Processing The in-house manufacturing of materials can also be managed as assembly processing (or assemble-to-order process). The finished product in this case is not carried into inventory but is only assembled based on customer order. The assembly can be managed as manufacturing order or a cost collector. Variant Processing The product being ordered can be a variant of an existing product with some changes in the product characteristics such as color, upgrades, and so on. From the large number of possible variants of a product, the preferred components are selected in the sales order items. The combination of product characteristics (or configured materials) is then manufactured in-house either using manufacturing order or cost collector as the cost object (mass production scenario)
or using sales order items as the cost object (complex make-to-order production), depending on whether order-specific changes to the variant are required.
Sales-Order-Related Production with Planned Orders (Repetitive Manufacturing) The inventory sourcing can also be done using sales-order-related production with planned orders instead of production orders. This is the case if tracking individual order variances is not required
Delivery A delivery document is created from the sales order to pick products; pack, plan, and monitor shipments; prepare shipping papers; and post goods issue. A transfer order is required if the Warehouse Management component is used. Posting goods issues results in a Financial Accounting entry, debiting the cost of goods sold, and crediting inventory.
Billing Once the delivery is shipped, an invoice is generated with the relevant pricing agreed on. The billing document is posted to Financial Accounting, a sales account is credited, and an accounts receivable account is debited.
Payment Payments made by the customers are accounted for as per the payment terms with cash discount. The payment can be an individual payment or multiple payments through a lockbox.
Make-to-Order Manufacturing Scenarios Supported by SAP The make-to-order scenarios offered by SAP are a combination of controlling by sales order and sales order stock
The three broad make-to-order manufacturing scenarios are:
Make-to-order without sales order controlling, using valuated stock Make-to-order with sales order controlling, using valuated stock Make-to-order with sales order controlling, without valuated stock
Sales order controlling means that the sales order item is the controlling object for product costing. When sales order controlling is used, month-end processing takes place on the sales order item instead of on the production order. Using the valuated sales order stock allows quantities and financial values to be posted consistently during inventory transactions in a make-to-order environment. This allows the flow of materials to be tracked both in finance and inventory management at the same time. Using unevaluated sales order stock tracks the inventory management flow, but all costs related to the manufacturing process are controlled and posted separately during month-end, through the sales order settlement.
Make-to-Order Without Sales Order Controlling, Using Valuated Stock In this scenario, the sales order drives the production process from a logistics point of view. The sales order automatically creates a production order, using manufacturing resource planning (MRP) processing, which manages the direct resources used to produce a product. With the use of valuated stock, the focus of the direct, controllable costs incurred during the production process is the production order, not the sales order. Because the sales order item is not a controlling object, no month-end processing takes place on the sales order, but only against the production order. The sales orders are processed as in make-to-stock environment. Another term for this scenario is sales-order-related mass production. Configurable products with individual variants are defined using a characteristics value in the sales order and a super bill of materials and super task list. No customer-specific changes are expected, and the configuration in the sales order completely describes the variant. Because of the use of valuated stock, the cost of sales entries is made in a manner consistent with the make-to-stock process. The finished products being manufactured are valued using a cost estimate created specifically for the unique options chosen for the product in the sales order. Sales-order-related mass production is used in advanced technology industries and in the automotive industry.
Make-to-Order with Sales Order Controlling, Using Valuated Stock This scenario uses sales order controlling with valuated stock. The sales order item is the controlling object, so month-end processes are carried out on the sales order item level. The sales order is the focus of the direct, controllable cost incurred during the make-to-order production process. The sales order is used to manage the external costs and resources, and the production order is used to manage the internal costs and resources. The sales order combines all product costing resources and costs. Another term for this scenario is sales-order-related complex production. The products offered to the customer are modified or completely redesigned in response to particular orders. Because valuated stock is used, financial entries are made at the same time as the inventory movements of the finished product. In such a scenario, you have to make sure that values calculated using the month-end processes for a sales order item are consistent with the financial postings that are made during the inventory movements. In the configuration for product cost by sales order, you can specify that you want to do one of the following options:
Carry only the quantity of the sales order stock separately from the make-to-stock inventory (the value of both make-to-order inventory and make-to-stock inventory being the same, the system uses the standard price in the material master to valuate both inventories).
Carry both the quantity and value of the sales order stock separately from the make-to-stock inventory (the value of both make-to-order inventory and make-to-stock inventory being different, the system uses the standard price for make-to-stock inventory and price according to the valuation strategy in the configuration).
Make-to-Order with Sales Order Controlling Without Valuated Stock In this scenario, the sales order item is a controlling object, so month-end processes are carried on the sales order item level. the sales order is the focus of the direct, controllable cost incurred during the make-to-order production process. The sales order is used to manage the external costs and resources, and the production order is used to manage the internal costs and resources. The sales order combines all product costing resources and costs. In this scenario, variant configuration is mostly used. Each of the sales order items can be minor variants of the finished product. Because the finished product may have multiple options (or variants), each of which can result in a different standard cost of the product, no standard cost can be maintained on these configured materials. A planned cost is available for each sales order item instead of a standard cost estimate. The total actual costs incurred in the manufacturing process for the finished goods are considered to be the cost of sales. Because this scenario uses non-valuated stock, during the inventory movements that are posted for the finished products, no financial entries are made. All financial entries are calculated by the sales order, and are posted as part of the month-end process of the sales order
Business Transactions, Process Flow, and Value Flow Without Sales Order Controlling Using Valuated Stock
In this make-to-order scenario (also known as the mass production make-to-order scenario), the sales order drives the production process from a logistics point of view but is not a cost object from a controlling standpoint . Sales orders are processed separately, and planned production orders are created with direct reference to sales orders. The quantities produced with reference to a production order cannot be swapped between individual sales orders; the finished goods are stocked specially for individual sales orders (sales order stock).
Business Transactions, Process Flow, and Value Flow with Sales Order Controlling Using Valuated Stock In this make-to-order scenario (also known as complex make-to-order scenario using valuated stock), the sales order is the focus of the direct, controllable costs incurred during the production process . Using sales order controlling therefore enables us to:
Calculate and analyze planned costs and actual costs by sales order item Allocate additional sales overhead costs to the sales order item Track variances by sales order item Assign special direct costs of sales to the sales order item Allocate process costs to the sales order item Track funds commitments, purchase requisition commitments, and purchase order commitments by sales order item
Month-End Processing: Apply Overhead from Manufacturing Cost Centers to the Production Order and Overhead from Sales and Marketing Cost Centers to the Sales Order In the make-to-order with sales order controlling scenario, overhead can be applied on production orders as well as on sales order. Overhead on Production Orders
Business Transactions, Process Flow, and Value Flow in Make-to-Order Production with Sales Order Controlling Using Non-Valuated Stock
SAP does not recommend make-to-order production with sale order controlling using non-valuated stock. It should be used only if there is a sufficient business reason for it. This option uses nonvaluated stock for finished goods received from production, and that is where the differences arise between make-to-order production with valuated stock and make-to-order production without valuated stock. In this section, we will review the differences starting from the receipt of finished products from production. The prior steps remain the same as make-to-order production using valuated stock. Figure 8.20 illustrates the process.
Other Business Transactions in Make-to-Order Manufacturing
1. Mass Costing of Sales Documents-CK55 Instead of creating a sales order cost estimate immediately when the sales order is created, it may be good idea to create cost estimates for several sales orders as a background job. This improves system performance at the time of sales order creation.
2. Carry Forward of Open Sales Order Commitments VACF If the business requirement is to track the commitment on sales orders, then the open commitments values from the current year have to be carried forward to the new fiscal year.
Important Reports in Make-to-Order Manufacturing Sales Order Selection The sales order selection report lists all of the sales orders that carry costs and revenue (cost object). The system displays all of the sales orders, and you can branch into the master data of individual orders. You can select several sales order characteristics and key figures for display. You can execute the sales order selection report using Transaction code S_ALR_87013104; the menu path is SAP User Menu • Accounting • Controlling • Product Cost Controlling • Cost Object Controlling • Product Cost by Sales Order • Information System • Object List • Sales Order Selection
Display Sales Order Item to be Costed If valuated stock is being used in sales order controlling, it is important to have a sales order item cost estimate. Sales order stocks are valuated using this cost estimate. This report provides a list of sales order items to be costed. The report displays sales orders that have the status “cost” or sales order items for which no marked costs exist in the system. You can display sales order items to be costed using Transaction code CKAPP03; the menu path is SAP User Menu • Accounting • Controlling • Product Cost Controlling • Cost Object Controlling • Product Cost by Sales Order • Cost Estimate • Display Sales Order Item to be Costed
Sales Order Summarized Analysis
Summarized analysis reports use a summarization hierarchy to aggregate order data. The summarization hierarchy contains customized criteria for aggregation and drill-down of order information. The aggregated data is then used to run various reports such as target and actual comparison, results analysis summary, variance summary and categories, and so on. Using a summarization hierarchy, you can summarize sales orders without dependent orders and sales orders with dependent orders.
You can create a summarization hierarchy using Transaction code KKR0; the menu path is SAP IMG Menu • Controlling • Product Cost Controlling • Information System • Cost Object Controlling Settings for Summarized Analysis/Order Selection • Maintain Summarization Hierarchies.
Make-to-Order–Related SAP Configuration
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