Recalling the Cost Objects used in Lot-based Production Processes (Make-to-Stock scenario)

You now have a clear picture of the different production scenarios and their specificities (see the course, Introducing Scenarios in Production Accounting for more details), as well as the different production accounting methods that SAP S/4HANA covers.

Let’s focus on the lot-based MTS production scenario, using the Product Cost by Order accounting method. More specifically, this lesson aims to recapitulate the main elements constituting and distinguishing the different kinds of manufacturing orders (production orders and process orders).

In manufacturing, understanding the differences between production orders and process orders is crucial for efficient production management.

Production orders are primarily used in discrete manufacturing (not exclusive), where products are produced in distinct, countable units, such as bike framesets.

• Master Data Required:
  • Bill of Materials (BOM): a comprehensive list of parts required to produce a product
  • Routing: in discrete manufacturing, a sequence of operations or steps that are needed to complete the production of a specific product
  • Work Centers: a specific location or station where a set of related tasks or operations are performed
  • Material Master Record
• Cost Object: The production order acts as the cost object, collecting costs related to material, activity, and overhead allocations for a specific production lot.
• Settlement Rule: Requires a full settlement (FUL), which can be set using the default distribution rule PP1 in the configuration activity.

Process orders are utilized in process manufacturing, where products are produced in continuous processes, such as paint production, but need to be tracked per order.

• Master Data Required:
  • Master Recipe: a list of detailed instructions and formulae for producing a specific product on a resource
  • Resources: analogous to a work center in discrete manufacturing
  • Material Master Record
• Cost Object: The process order serves as the cost object, capturing costs associated with resources, operations, and phases withinthe production process.
• Settlement Rule: Like production orders, process orders also require a full settlement (FUL), configured using the default distribution rule PP1.

Both production orders and process orders play major roles in their respective manufacturing scenarios. Their main differences lie in terminology and some production features, not much in the costing approach. Production orders are integral to discrete manufacturing, where the focus is on producing specific quantities of products. In contrast, process orders are essential for process manufacturing, emphasizing operations divided into phases and using appropriate resources. Understanding these differences helps streamline production processes and ensures accurate cost tracking in both manufacturing types.

The figure above highlights the distinct usage of production orders and process orders in different production scenarios. Throughout this course, you will analyze the production of frame sets and paint for a bike as examples. The choice between a production order and a process order impacts the required master data, which will be elaborated upon in the upcoming units. Furthermore, you will explore the differences between these two order types in terms of how their incurred costs are collected and analyzed.