Controlling Scenarios in Make-to-Order

The features of Make-to-Order (MTO) production are as follows:

• You can manufacture a product and its sub-assemblies individually for a particular customer.

• You can manage stocks in individual customer segments using sales order stock.

• You cannot directly use quantities produced for a particular sales order to cover another sales order requirement.

• You can procure components specially for an individual sales order.

For make-to-order production (sales-order-related production, engineer-to-order production), the requirement for a make-to-order material is planned using the sales order item number and so a separate segment is created in the planning run of requirement planning. In this planning segment, the requirements and stocks of the sales order items are managed separately. Therefore, various customer-specific variants of a product can be managed using only one material number.

You can carry out single-item planning for any level of the Bill of Materials (BOM) structure, starting from the sales order. Therefore, it is also possible to procure assemblies and components specifically for the sales order and manage this stock individually for the sales order. It is also important to configure the components for the production of the individual customer product.

The following are the important decisions to be made in MTO controlling scenarios:

• MTO production with or without product cost by sales order?

• Sales order stock valuated or unvaluated?

The functions for Make to Order without product cost by sales order mean that the system handles MTO production in a way similar to make-to-stock production. If the sales order is only important to you logistically, you can also use the sales order without the cost object property.

The sales order can have a purely logistical significance in the following cases:

• The sales order creates the independent requirement for you.

• The sales order is required for a variant configuration.

A sales order cost estimate is possible in the following cases:

• Sales order item is not a cost object

• Sales order item is a cost object.

The results of sales order costing are used for:

• Sales and pricing decisions

• Planned costs (only for cost objects)

• Methods of Results Analysis based on the Percentage of Completion (POC) (only for cost objects)

Sales order costing with a quantity structure supports the cost component split and provides a costing structure, a cost element itemization, and an itemization.

If you use a project in addition to the sales order (customer project production), use the project as the cost object. In this case, the system creates the sales order without the cost object property.

The sales order item functions as cost objects are as follows:

• Collect cost by sales order item irrespective of the manufacturing scenario

• Assign costs and revenue to a sales order item

• Show funds commitments on a sales order item

• Calculate goods in transit and reserves

Product cost by sales order is recommended if the following information is important for your business:

• How high is my profit margin for this particular sales order?

• How can I map special sales costs?

• How high is my funds commitment? Is this sales order performing well from a costing point of view?

• Where did late customer changes affect my production costs?

You can also use Results Analysis to perform the following tasks:

• Create reserves for expected losses, automatically

• Add reserves for foreseen risk, manually

• Calculate revenue for goods in transit (goods that have been shipped but not yet invoiced)

Product cost by sales order is necessary if you want to work with an unvaluated sales order stock (not recommended).

You can choose whether you manage this stock valuated sales order stock or not valuated stock.

The features of valuated sales order stock are as follows:

• Combined quantity and value flow

• Simplified inventory determination

• Assembly costs shown with multilevel MTO production

• Variances can be determined for these production orders

• Similar to make-to-stock production

• Enables more controlling scenarios and logical decoupling of Product Cost Controlling (CO-PC) and Production Planning (PP)

The SAP ERP functions for valuated sales order stock (or project stock), mean that the system handles MTO production in a way similar to make-to-stock production. All deliveries to sales order or project stock credit the delivering object and form an accounting stock. All the consumption from the sales order and project stock debit the consumer and reduce the accounting stock.

Valuated sales order stock enables you to perform the following tasks:

• Calculate production variances of related production orders

• Settle the variances to CO-PA

• Provide a cost component split for the cost of goods sold

It is possible to use sales order costing as the basis for stock valuation.

The first goods receipt prompts a valuation on the basis of one of the subsequent strategies and serves as the valuation basis from this point onwards:

• The system calculates the standard price on the basis of exit COPCP002 material valuation for valuated sales order stock.

• The system calculates the standard price using a pre-designated sales order costing. This sales order costing can be based on a unit costing or on a product cost estimate.

• The system determines the standard price using the costing for the production order or the planned costs for the WBS element. If there are multiple production orders for the same sales order item, the system uses the standard price that results from the production order that delivers first.

The inventories assigned to sales orders and projects carry costs as well as quantities, goods movements for these inventories generate postings Financial Accounting (FI). The costs of the materials can be determined by costing the sales order or production order. The stock value can therefore be shown immediately in FI – a material cost estimate in the Controlling module is not necessary. The valuated goods movements result in debits and credits to the affected objects.

The goods receipt, including the stock value, is valuated using a predefined valuation strategy sequence.

The first goods receipt prompts a valuation based on the strategies and serves as the valuation basis.

Unvaluated sales order stock has the following elements:

• Costs are not posted to the sales order item until order settlement or until you receive the invoice for purchased goods.

• There is no variance calculation on assigned production orders.

• The quantity flow (goods receipts and goods issues) is made using individual customer stock.

• The value flow is made directly with the sales order item and all assigned orders.

Cost Object Controlling by Sales Order is necessary for the following reasons:

• As individual requirements materials are withdrawn from sales order or project stock without being valuated, these costs are missing in the production orders of a multilevel production process.

• The value of the goods that are in sales order or project stock on a quantity basis is activated for delivery to the customer as Work in Process (WIP).

As the actual costs on production orders for individual requirements materials are incomplete, all the production orders created for the sales order stock are settled to the sales order item during period-end closing. Therefore, the sales order item always shows the actual costs belonging to the item, and the quantity flow is made using individual customer stock.

With the two values of the "Valuation of Sales Order Stock" and "Product Cost by Sales Order" criteria, there are theoretically, four possible combinations.

The combination of an unvaluated sales order stock without a product cost by sales order is technically not possible. Both the values with valuated sales order stock are to be favored from the accounting perspective due to the mentioned advantages.