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Distributing Freight Costs

Objectives

After completing this lesson, you will be able to:

Distribute freight costs to relevant sales order items and other transportation relevant process items
Include freight costs into the SD billing document

Cost Distribution

Freight costs incurred by the organization must be allocated to individual cost or profit centers so that profitability can be properly assessed. In this lesson, you examine the steps performed by the system in assisting the allocation of freight costs.

To compute true profitability for any manufacturing organization, all operational costs must be computed correctly. Most organizations would like the freight costs for material procurement to be included in the material cost. Similarly, for customer deliveries, the freight cost for the delivery must be considered for margin and profitability computation. TM can distribute each of the charges used in the freight cost calculation to the item level of the delivery. The item level cost can then be processed when the accrual is posted for the supplier freight invoices.

Various scenarios are supported, including the following:

Transfer freight costs for inbound deliveries and stock transfers into material valuation.
Post distributed costs to CO so that material-relevant costs can be tracked at the profit center level. (In such cases, material valuation is not impacted.)
Post freight costs back to CO-PA for the customer outbound delivery to be accounted during profitability analysis.

Cost Distribution Concept

The image depicts a process flow related to freight settlement and invoice management. The process involves creating and managing freight-related documents and invoices and distributing costs across different stages of the freight management workflow. Details are explained in the following paragraphs.

The figure, Cost Distribution Concept, shows the data flow. Deliveries are the starting point for this process. These create freight units, which are later planned to create freight orders or freight bookings. In addition to the charges in the freight order/booking, the calculated charges are distributed to the delivery items contained in the freight order/booking. Afterwards, freight settlement documents are created. When the FSD and distributed costs are posted, a purchase order and service entry sheet are created in MM for a subsequent invoice verification process. Also, a settlement document is created to post the entries to CO-PA, CO, or material valuation.

Cost Distribution Configuration

Cost distribution must be enabled in the document type Customizing. Further settings for cost distribution include distribution profiles, methods, rules, and levels. The distribution profile is assigned to the organizational unit for charge calculation via the charges profile.

Cost distribution profiles are used to identify the rules for distributing freight costs. A profile consists of distribution methods, distribution rules (basis for distribution), and distribution levels.

TM provides two methods for cost distribution, as follows:

Direct:
This method is normally used when all charges incurred can be distributed to individual line items of a delivery based on gross weight or volume. Normally, the charge elements may be calculated at the header or individual item level.
Hierarchical:
This method may be used when the resolution base may include other levels, such as containers or rail cars. In such cases, there may be charges for the individual container or rail car, in addition to other charges. So, other charges must be distributed to the container level first and then the final distribution should take place to allocate the cost to the line item level.

If necessary, you can add your own distribution methods.

TM supports the following rule basis to be used for cost distribution:

Gross Weight
Gross Volume
Net Weight
Distance times Weight

The distribution level specifies the target level to which the system allocates transportation charges for a freight order or freight settlement document.

Posted data can be viewed using the transaction code WLFLTM2 or via Display Cost Distribution Documents. Distribution data can be searched using the FSD number as the reference document number.

Billing Freight Costs

When you sell your products to a customer, you may also take responsibility for delivering these products to that customer. You incur costs for transportation, for example, through a carrier. You can pass on these costs to your customers.

You integrate sales orders and deliveries to facilitate transportation planning and execution in TM. TM creates or updates freight units directly for sales orders or deliveries. You plan transportation for these freight units by creating orders that you subcontract to the carrier. The freight order determines the freight costs to be paid to the carrier. You configure TM to distribute the freight costs in the freight order according to delivery items. Next, you can add the distributed costs for each delivery item to the final amount in the billing document to be sent to your customer.

This involves the integration of the following processes:

Freight orders in TM
Pricing in SD
Billing in SD

The image depicts a process of billing freight costs from a Transportation Management (TM) system to customers in a Sales and Distribution (SD) system. It includes two sales orders, each with multiple items. The freight units associated with these sales orders are also shown. Billing documents, including each item's net prices and transport costs, are generated based on the freight order. The freight settlement document consolidates the freight costs, which are then distributed to the customers. The key elements include Sales Orders, Freight Units, Freight Orders, Billing Documents, Transport Costs, and Freight Settlement.

Note

You must integrate SD with an internal TM component to include the freight cost in the billing document for all product deliveries.

You can only include the freight cost in a billing document when you have one freight order document for the delivery and the freight order has only one currency in which you calculate the cost.

Watch the simulation Distribute Freight Costs and Bill Transportation Charges to Customers to learn how to check the result of cost distribution and bill corresponding charges to customers.

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