Exploring Make-to-Order with Configurable Product

Various scenarios lead to a customer order. In the make-to-order environment, customers usually make inquiries that lead to an offer from the manufacturer. The sales order can then be created with reference to the offer. Another option is to import the sales order from a customer relationship management system (CRM). In this course, the sales order is created directly in the corresponding app in SAP S/4HANA Cloud Public Edition..

The figure above shows a customer order with the product CM-FL-V00. The product ID stands for "Configured at Material level Fork-Lift Version V00." The forklift in this sales order item has been configured, which will be explained in the following section. The item category of the sales order item is CBTC, which means "Configuration at Material Level."

The product in this sales order item (CM-FL-V00) has been configured by selecting several alternative assemblies. In the following lesson, variant configuration is explained as a central component of the make-to-order process.

You use variant configuration to manufacture complex products. Manufacturers are increasingly required to offer new variants of their products. New variants are often created by modifying existing product concepts during order processing. The motto is: react quickly to customer requirements!

The customer specifies how the product should look. For example, when buying a forklift, they can state their preferences and customize it according to their specifications.

The product configurator improves the exchange of information between sales, design, and production departments. With variant configuration, customers or sales employees can specify the product and ensure it can be manufactured as desired. It also ensures that production costs do not exceed the planned budget.

You don't need to create a separate material for each product variant in your company; instead, you can represent all variants using a configurable material. A maximum parts list and a maximum work plan are created for this material, containing all components and processes required to manufacture all variants.

The properties of a configurable material are represented by characteristics. By assigning the material to a class of class type '300', the characteristics become available when configuring the material. For a forklift, possible characteristics include model, country, color, and engine type. The customer can choose between different values for each characteristic.

The only limitations to customer customization occur when the desired combination of characteristics is not possible for technical or sales reasons.

In this section, we will explain the positioning of the sales order cycle within SAP's Order-to-Cash Applications environment.

"Any customer can have a car painted any color that he wants so long as it is black," said Henry Ford in 1909, introducing mass production to the market. Even before two decades had passed, General Motors brought colors back into the automotive industry.

It is now almost a century since then - technology has brought individualization much closer to the consumer than ever before. Customer-individualized products are the main differentiator in a global competitive market to expand market position, more than ever and far beyond just color choices. Individualized products are becoming the standard. As such, efficient and transparent application support throughout the business process (end-to-end) will be key for companies.

With SAP S/4HANA, we deliver advanced variant configuration capabilities that precisely address the need to enable individualization from the store through the supply chain until the product is delivered to the consumer.

Shorten time to market by connecting product development with the extended enterprise and supply chain. Realize the digital thread by maintaining information flow throughout the product lifecycle and eliminating costly silos. Continuously evolve products by gaining insights from sensors and customer feedback loops. Coordinate with manufacturing using interactive product models and share assembly and service instructions.

CPQ is the process salespeople follow when configuring products, determining prices, and producing quotes. The CPQ process simplifies the quoting process for configurable products and is an integral part of the quote-to-cash process.

Sales is the starting point in this learning. A customer order is created directly and relates to a configurable forklift.

While Engineer to Order in plant engineering involves explicitly designing, developing, and manufacturing a system for the customer, this learning involves the standard product of a forklift truck with alternative variants. For example, the drive can have an electric motor or combustion engine.

The customer order created in this learning leads to a customer requirement, which is included in the requirements and inventory list. The requirements planning run selects the customer requirements and plans the procurement or production, including all required assemblies according to the configuration. This process is covered in this learning, as the deviations calculated during production are also settled and evaluated according to margin analysis.

Quality management (QM) in SAP S/4HANA helps companies implement and execute quality control processes. It is designed to prevent errors, enable continuous process improvements, and establish sustainable quality control programs. Potential benefits include compliance with quality regulations for manufacturing, lower operating costs, and increased customer satisfaction.

Quality management parameters can be maintained in the material master data, ensuring automatic creation of a QM order to document product quality. This function is not used in this learning.

Supply Chain as a Service (SCaaS) is an innovative approach enabling companies to achieve higher return on investment by working with service partners to support all or part of their supply chain needs, including procurement, production control, manufacturing, quality, warehousing, and logistics.

Optimize asset condition and performance with SAP Intelligent Asset Management solutions.

The variant configuration is a cross-sectional function in the SAP system. It relates to manufactured products and systems sold to customers or used by the company itself. The program solution for variant configuration is classification, which is not explained in detail in this lesson.

In this course, variant configuration serves as a basic function:

a) To use an appropriate make-to-order scenario

b) To show the impact on calculated costs and revenue

c) To understand the production process taking the configuration into account

d) To show what influence it has on the evaluations in the margin analysis.

The configuration of product variants refers to the components of the forklift.

The following figure demonstrates the variant configuration of the forklift in the sales order item used in this learning. The configuration includes:

• Lifter Model: Heavy
• Fork Size: Normal
• Power Source: Combustion
• Wheel Type: Pneumatic tires
• Counterweight: 5000 kg

In the variant configuration covered in this course, you can choose from different options for the forklift components. For example, you can select between standard or heavy models, and the drive can be either electric or combustion-powered.

This configuration system serves two purposes. First, it allows the forklift to be assembled according to customer requirements. Second, it differs from engineered-to-order products, as the forklift is not explicitly designed, developed, and manufactured for each order (unlike building a house, for example). This make-to-order scenario can therefore be characterized as customer-specific series production.

This lesson explains the requirements for variant configuration in the SAP system.

The sales price and manufacturing costs are calculated based on the variant configuration. The following figure shows the calculated sales price based on the variant configuration regarding the counterweight. A 1000 kg counterweight costs approximately 200 EUR; therefore, the selected counterweight of 5000 kg is calculated at 1000 EUR.

The variant configured in this learning example has the selected counterweight. The price for the counterweight is added to the base price. This makes it possible to understand, from the perspective of margin analysis, how the sales price for the configured product was calculated.

The navigation to COSTING shows the calculated production costs based on the variant configuration.

The figure above shows the result of the product calculation in the customer order. The configured assemblies are shown in the calculation structure. The total of 13,804.89 EUR comprises the calculations for the configured assemblies. You can access the calculation for each assembly through the calculation structure.

The counterweight example demonstrates how the component is made up of individual plates of 1,000 kg each, with each plate costing 1,100 EUR. Since a counterweight of 5,000 kg was configured for the forklift, five counterweight plates at 1,100 EUR each result in a cost estimate of 5,500 EUR plus additional overhead costs.

The figure above shows the standard price of 110 EUR for a 1,000 kg counter plate.

For detailed cost analysis, you can select the itemization. The figure below shows the header and itemization, including material costs and manufacturing costs of the sales order item cost estimate.

To enable variant configuration in the sales order item, the corresponding requirement type must be set. The following figure shows that the requirement type "KEK – Make-to-Order (MTO) Configuration Material Valuated" has been set. To enable the system to assign the needed requirement type, the corresponding parameter must be set in the material master of the product. In this case, strategy group "25" is required.

The requirement type KEK corresponds with the production strategy group assigned in the material master of the forklift CM-FL-V00. The strategy group consolidates all planning strategies that can be used for a particular material. The planning strategy represents the procedure used for material planning and is technically controlled by the MRP types.

A strategy group can contain several production planning strategies. The first production planning strategy entered in the strategy group is designated as the main strategy and is automatically selected for the sales order item in the make-to-order scenario.

From the perspective of margin analysis, the settings for product costing are as important as the production planning settings. The product in the customer order item must be calculated based on the compiled configuration. The resulting customer order cost estimate serves multiple purposes:

1. It provides the basis for valuing the customer's individual inventory
2. It serves as the foundation for calculating the cost of goods sold in margin analysis
3. It establishes the basis for calculating target costs as part of the production order's variance calculation, which are settled to margin analysis