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Discovering Project-Related Production (Engineer-To-Order Scenario)

Objectives

After completing this lesson, you will be able to:

understand which cost object is used in project-related production (engineer-to-order scenario).
learn which master data needs to be set up for the scenario.

Cost Object Used

In project-related production (ETO scenario) the controlling focus is lot-based on the ordered product quantity. Costs are collected and analyzed for the particular quantity the customer ordered. For that, the production accounting method product cost by order is used. The costs to produce the particular quantity of a product in a sales order item for a project are collected in an event-based manner and analyzed on a production order which is the cost object.

Note

Before the sales order item is created, a project is set up (with valuated project stock). In the sales order item, the project is assigned. Then, a production order is created with reference to the sales order item and therefore the project.

A process order can’t be used as a cost object in this scenario. The costs from a production order are additionally reflected in the assigned project in real time.

When the ordered quantity is produced, the production order is completed. The produced quantity is then transferred to the valuated project stock. A project stock is assigned exclusively to a particular project. If material is externally procured for the sales order item, the materials are assigned to the project stock of the assigned project at the time of the goods receipt. Materials in the project stock cannot be used for other projects or anonymous stocks. When the ordered production lot, or parts of it, are delivered to the customer, they are withdrawn from the project stock. In ETO, as in the MTO scenario, the sales order is no cost object and only used due to logistical reasons.

The figure shows that in a sales order the customer ordered a new bike that needs to be redesigned in accordance with specific customer requirements. In this sales order item, a project with project stock is assigned. For the production of this new bike a production order is created with reference to the respective sales order item and the assigned project to produce the new bike. On the production order the costs for the production of the new bike are collected. The costs include costs for material, internal activities as well as costs from overhead allocation. When the new bike is produced, it is transferred to the project stock. The project stock is derived from the project.

Master Data in Project-Related Production

In the following, the necessary master data for product cost by period in project-related production is presented.

The following master data needs to be set up:

bill of material (BOM)
routing
work centers
material master record
project and
production order

Once more, only specific settings that are relevant for the master data mentioned and for the present scenario are discussed. These refer to the material master record, the project, and the production order.

Several prerequisites must be met to use the valuated project stock. In the material master record, the Individual/Coll. Req. indicator on the MRP 4 tab must be set to Individual requirements only or Individual and collective requirements. Moreover, on the MRP 3 tab a strategy group is assigned to the product, in which a requirement class is assigned, for which M (Separate valuation with ref. to sales document/project) is selected in the Valuation field. This is, for example, the requirement class E21. In this way, the special stock valuation carries both quantity and value of the project stock that is independent of make-to-stock (MTS) inventory. In addition, an accounting view must have been created. In this view a valuation class for project stock must be entered. If you do not maintain a specific valuation class for them, the system uses the valuation class from plant stock.

In addition, a project must be created. For ETO it is important that the project carries revenue, and that the inventory is managed as project stock. For the project a settlement rule containing the correct market segment for margin analysis must be specified.

Note

There is no period-end settlement process in ETO, but this step is needed to ensure that the correct market segments for margin analysis are updated if multiple sales order items are linked with the project. Instead of settlement, event-based revenue recognition ensures that the correct accruals are posted in real time. The settlement rule provides the link between the project and the market segments in the sales order. If there is only one sales order item, there is no need to assign a separate settlement rule.

A production order for a material is created with reference to the respective sales order item and the assigned project and also the quantity that shall be produced. In the production order, the settlement rule must specify settlement type FUL (Full settlement).

The mentioned master data is required if, for instance, a new bike for very tall persons is produced according to individual customer specification in project-related production.

The image shows the required master data to produce such a new bike for very tall persons. This is bill of material (BOM), routing, work centers, material master record and production order.

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