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Case Study: Cooper Tires

SAP Material Ledger


Implementation Lessons
Learned
Chris Crim, Cooper Tire
Johannes Le Roux, Jari Consulting

2013 ERP Corp. All rights reserved.

Topics

Cooper Tire Strategy and Vision


Implementation Options
Lessons Learned at Cooper Tire
Springboard to SAP Profitability and Cost Management
Summary

Cooper Tire Strategy and Vision

Cooper Tire weighed the pros and cons of activating SAP


Material Ledger as part of their initial SAP implementation or
during a future rollout phase. In this session well cover:
Why Cooper Tire implemented SAP Material Ledger as part of
their initial SAP implementation
Leveraging Material Ledger as a springboard to SAP
Profitability and Cost Management software
Proper master data setup lessons learned
Best practices for configuring Material Ledger for long term
requirements
Find out what Cooper Tire would advise companies
embarking on this process including importance of
understanding the impact on finance and non-finance
process teams

Cooper Tire Implementation Timeline

2009: Cooper Tire made the decision to implement an ERP


system
Feb. 2010: SAP selected
Aug. Oct. 2010: Blueprint/requirement gathering
Requirements gathering process led to decision to
implement SAP Material Ledger
Oct. 2011: 1st Go Live was in the Mickey Thompson division
(Sales & Dist.)
Feb. Nov. 2013: 2nd Go Live in Cooper US (Mfg, Sales, Dist)
2014 2015: 3rd 5th go lives in Cooper Mexico, Europe, & Asia
(Mfg, Sales, Dist)

Weighing the Pros and Cons of the SAP Material Ledger


SAP Without ML /LEGACY

SAP Material Ledger

NO Traceability of Actual Material


Cost by product
Purchase Price Variance
BOM Usage Variance
Production Usage Variance
COGS at actual cost

Traceability of Actual Material


Cost by product
Purchase Price Variance
BOM Usage Variance
Production Usage Variance
COGS at actual cost

NO traceability of production
efficiency by product

Traceability of production
efficiency by product

NO Report Standard & Actual


Value of Inventory by product

Report Standard & Actual Value of


Inventory by product

NO Product level
Profitability/Gross Margin
Reporting without Intercompany
Markup

Product level Profitability/Gross


Margin Reporting without
Intercompany Markup

Material Ledger Implementation Basics

Support externally calculated Double Extension LIFO


Value Inventory in Multiple Currencies
Support Different Global Statutory Reporting requirement by
Company Code (FIFO/LIFO)
Actual Cost by Cost Component by product
Actual Cost of Material by Product
Actual Cost of Labor by Product
Actual Cost of Depreciation by Product
Actual Cost of Sales
Actual Cost Component

Material Ledger Implementation Basics (cont.)

During the accounting period all material movements are valued


at a standard cost and recorded by material in the material
ledger
Price Differences (Variances) for each material movement are
recorded
At the end of the period an actual cost (periodic unit price) is
calculated for each material though out multiple levels of
product produced
Revaluation of Inventory and Cost of Goods Sold
Distribution of usage variance is allocated to product
Revolution of COGS

Streamlining the Cost Process

SAP Material Ledger streamlined their cost process into a fully


integrated process as seen below:

Cost Planning
Evaluating master
data

Bill of materials
Routing
Planned prices
Planned activities
Planned yield

Production
Recording logistical
information for
controlling:
Consumptions
Yield & scrap
Purchasing &
supplier invoices
Activities & time
recording

Profitability
Analysis

Actual Costing
Recalculating the
value flow using
Actual quantity
structure
Actual activity
recording
Multi-level value flow
Actual raw material
prices
Consumption
Revaluation
Distribution of Usage
variances

Reporting Costs and


Contribution
Margins
Production costs
Sales Revenues
Actual cost
Component

Dimensions

Regions
Channels
Customers
Product Hierarchy

Streamlining the Cost Process (cont.)


Cost center

Raw
material

Finished
product

Semifin.
material

Production
order

Distribution
center

Sales
order

Production order
2

1) Sale of Raw Material to the Production Profit Center within a Legal Entity
2) Sale of Semi-Finished Good to Affiliated Company
3) Use Semi-Finished Good in a production order and add value from activity
in a cost center
4) Transfer finished product to distribution center including actual cost
10

Material Ledger Benefits

11

Integrate and align cost structure to reduce cost


Provides global unit cost information across plants and legal
entities providing an global transparent view of costs and
variances
Analytical information by scorecards, statutory reports, and
performance analysis
Provide accurate profitability information
Maximizes corporate profitability to grow market capitalization
and shareholder value
Integrate planning with a single model across the enterprise to
improve organizational alignment and financial performance
Provide real-time information quickly

Cooper Tire Value Strategy


Cooper Value Strategy

Legal valuation

Legal group valuation

Group valuation without markup

Currency /
Visional

Company code
Currency

Cooper Value Strategy Proposal

If we had to do it again, we would use


the following strategy

Currency /
Visional

Company code
Currency

Legal
Group / legal

10
30

Legal
Group / legal

10
30

Profit Center

32

Group

31

12

Why we would propose a different strategy:

Less maintenance Only two cost roles

Profit center valuation not needed not using profit center transfer price

Define Individual Characterisitcs

13

You cannot change the currencies, currency types and


material ledger types after production startup

Currency and Valuation Profile

14

SAP Material Ledger Without Revaluation


Cooper Implement Material ledger without revaluation
What Cooper did was used the
accrual method but report the
accrual as part of there inventory
value in there balance sheet
using an inventory direct posting
account

15

SAP Material Ledger Without Revaluation

16

Cooper implement SAP Material ledger without revaluation


Used the accrual method, but reported the accrual as part of
their inventory value in their balance sheet using an
inventory direct posting account

SAP Material Ledger Without Revaluation (cont.)

17

If you decide not to revaluate your materials with the actual


price, the amount which would have been posted to the material
stock account is posted to another price difference account
using posting key LKW
It is up to you which account you choose for this posting

Topics

18

Cooper Tire Strategy and Vision


Implementation Options
Lessons Learned at Cooper Tire
Springboard to SAP Profitability and Cost Management
Summary

Implementation Options

19

Two methods to implement the Material ledger


Activate Material Ledger to track material postings
Ability to do multi-currency inventory valuation
Recording business transaction
Structuring value chain direct product only
Activate Actual Costing
Revaluation of inventory based on actual cost
Multi level variance value chain
Gross margin analysis using both standard and
actual cost

Implementation as Part of Initial Phase


Pro s

Cons

No migration needed activation of all plant for company at


once

High level of Discipline needed when using material ledger

Tracks variances across multiple product levels / plant and


company codes

Organization not ready for complicity and discipline


needed

Tracks purchase material price variances to finished


products on the basis of consumption

Additional training required

Provides historical information on actual cost to facilitate


the estimation of new standard costs from initial go-live
Ability to track multiple valuations and/or currencies at the
material level
Ability to revaluate inventory on the basis of real cost
calculation visibility of variances

20

Implementation After Go live

Pro s

Cons

Low level of complexity after initial go-live

Migration requirements
Closing of all open production order
Closing of all open purchase order
Conversion and activation by plant

No discipline and restrictions to change cost after initial


go-live

Go-love migration long and slow process

Faster closing process after initial go-live

No historical information on actual cost to facilitate the


estimation of new standard costs after initial go-live

Organization do not have to deal with complicity and


discipline after initial go-live

No ability to track multiple valuations and/or currencies at


the material level after initial go-live
No ability to tracks purchase material price variances to
finished products on the basis of consumption after initial
go-live

21

Cooper Tires Decision to implement Material Ledger

SAP Material Ledger

Traceability of Actual Material Cost by


product

SAP Without ML /LEGACY

NO Traceability of Actual Material Cost


by product

Purchase Price Variance

Purchase Price Variance

BOM Usage Variance

BOM Usage Variance

Production Usage Variance

Production Usage Variance

COGS at Actual cost

COGS at Actual cost


NO Traceability of Production
efficiency by product

Traceability of Production efficiency by


product

Report Standard & Actual Value of


Inventory by product

NO Report Standard & Actual Value of


Inventory by product

Product level Profitability/Gross Margin


Reporting without Intercompany
Markup

NO Product level Profitability/Gross


Margin Reporting without
Intercompany Markup

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Cooper Tires Decision to implement Material Ledger

23

Keep all companies with same valuation strategy


Standard vs. moving average in Sales & Distribution
companies
Visibility
Needed better visibility of variance analysis across
production processes
Better product cost
Global product cost
1 time change management
Big Bang (kind of)
Clean System
No open production order to delete and recreate
No open purchase order to delete and recreate

Topics

24

Cooper Tire Strategy and Vision


Implementation Options
Lessons Learned at Cooper Tire
Springboard to SAP Profitability and Cost Management
Summary

Lessons Learned at Cooper Tire

25

Avoid those who only believe Material Ledger is difficult


SAP trainers
Sapphire sessions
Consultants
Cooper Tire Accounting Managers
Overkill
Activity revaluation
Distribution of usage variances
Trusting the results
Complexity
Focus on benefits and future capabilities
Look at complexity/timeline/cost implementing ML in future

Results/Gains from Implementing Material Ledger

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Impact of PPV on specific tire line


Actual cost to support LIFO calculation
Consolidated location to see In/Out transaction by material
See actual cost of inventory by cost component
Inventory valuation visibility without inter-company markup
Ability to see actual product line profitability without
intercompany mark ups

Results/Negatives from Implementing Material Ledger

27

Massive volume of data


Increased time-to-close by at least 1 day maybe more as more
plants go live
Distribution of usage variances extremely time consuming
Difficult to validate the accuracy of the posting at a high level
Difficult for casual/non-users to comprehend

Material Ledger Worth the Expense?

28

Yes
Love the level of detail, tons of information!
No
Takes too long, not worth the effort
Maybe
See the potential, cant wait for full rollout to be complete

Cooper Tire Lessons Learned

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Make the final decision early


Quality consultant/implementer
Configure for all potential long term requirements
Make decision what material will be included
Actual costing
Cost component structure
Understand all ML component
Integration: The impact that Material Ledger has on other
processes/teams
Proper master data setup/conversion
Cutover/client setups
Ongoing validation/maintenance

Make The Final Decision Early

30

Impacts Currency Profiles


Based on setup will impact costing process
Material Master Defaults
Costing Variants
Resources
Make sure you have dedicated resources
SMEs & Testing Validators
Make sure test cycles fit material ledger test requirements

Quality Consultant/Implementer

31

Closely review experience


Check references
Check results of prior ML implementations
Contract through life of implementation and beyond
Most issue happen 3-4 month after go-live
Training cycle 3-4 months
Process and discipline related
Poor master data
Poor closing processes
Poor monitoring processes

Configure For All Potential Long Term Requirements

Configure for Long Term Needs


Currency profiles
Actual cost component split
LIFO / FIFO
The impact that Material Ledger has on other processes teams
Operations
Inventory Management
Sales & Distribution
Basis

32

Cutover/Client Set Up

33

Cutover/Client Set Up
Demand quite system during client start ups
Open/close clients to change default setting on price
determination during material load/extensions
Ensure cutover team understands impact of improper ML
start up
Master Data Setup
Solid process established prior to go live
Importance of status controls
Product costing prior to material movements

Ongoing Validation/Maintenance

34

Daily/weekly distribution of usage variances


Set up detailed validation template
Pick a raw material and follow it through a sale
Set up high level validation template

Resources

Do not underestimate the effort


Cooper staffing
One lead business analyst
Included plant accountant in each implementation

One lead consultant Make that sure that he/she knows


Material Ledger
Due to conversion, support time ( 3 plus months) and training
required it could require additional business analyst

35

Learn the process


Understand data flow and conversion

Topics

36

Cooper Tire Strategy and Vision


Implementation Options
Lessons Learned at Cooper Tire
Springboard to SAP Profitability and Cost Management
Summary

Springboard to SAP PCM

Integrated transaction and analytics solutions


Totally integrated into transactional processing to PCM
Cooper Tire phase II to integrate with PCM

Cost
Planning
Evaluating master
data
Bill of materials
Routing
Planned prices
Planned
activities
Planned yield

37

Producti
on
Recording logistical
information for
controlling:
Consumptions
Yield & scrap
Purchasing &
supplier invoices
Activities & time
recording

Profitability
Analysis

Actual
Costing
Recalculating the
value flow using
Actual quantity
structure
Actual activity
recording
Multi-level value
flow
Actual raw
material prices
Consumption
Revaluation
Distribution of
Usage variances

Profitability&Cost
Management

Reporting
PROFIT

Reporting Costs and


Contribution Margins

Production costs
Sales Revenues
Actual cost
Component

Being totally integrated into


transactional processing
materials ledger makes ideal
place for Calculating the direct
cost of product
Transferred to the profitability
segment component and
uploaded into SAP BOBJ &
PCM
Combining the strengths of the
controlling components of SAP
ERP with SAP BOBJ & PCM

Dimensions

Regions
Channels
Customers
Product
Hierarchy

Profitability Analysis Ideal Staging Area

38

Profitability Analysis is an ideal staging area for:


Capturing revenue and sales data at the customer and
product level
Furthermore, having functionality such as the materials
ledger makes the controlling component the ideal place for
calculating the actual direct cost of products
Transferred to the profitability analysis component and then
loaded into SAP BusinessObjects Profitability and Cost
Management
Combining the strengths of costing and profitability reporting
functionality provided a makes it easier to use the two solutions
in tandem, enabling organizations to tailor a cost and
profitability reporting solution to match their needs

SAP Best Practice

39

Integrate ECC, business intelligence and enterprise


performance management
SAP BusinessObjects Profitability and Cost Management is the
selected solution on the SAP product road map for delivering
cost and profitability management
These tools can also be used for detailed scenario modeling,
such as assessing how changing the price of an individual
product or the discount given to an individual customer impacts
profitability
SAP uses integration with enterprise performance management
delivers true business performance optimization

Topics

40

Cooper Tire Strategy and Vision


Implementation Options
Lessons Learned at Cooper Tire
Springboard to SAP Profitability and Cost Management
Summary

Material Ledger Benefits

41

Tracks variances
Across Multiple
product levels /
plant and Company
codes

Tracks purchase
material price
variances to
finished products
on the basis of
consumption

Provides historical
information on
Actual Cost to
facilitate the
estimation of new
Standard Costs

Ability to revaluate
inventory on the
basis of real cost
calculation

Ability to track
multiple valuations
and/or currencies
at the material
level.

Enables faster and


more effective
decision making to
management

Actual Cost Flow Integration


Actual Cost Flow Integration
MM-PO
Price Variance
Variances

CO-CCA
MFG
Cost Center

Business
Process

Material Ledger

Activity Price revaluation

Receipts/Consum
ption

Activity
type
PP-PO
Production
Variances

Production
Orders
CO-CCA
MFG Overead
Cost Center

Actual CC Allocations

Price Differences
Single Level Price
Determination
Multi level Price
Determination

MM
Movements
Scrap/Cycle/
Transfer

ABC Template Allocation

WIP

Variances

Closing Entries
DUV usage variance

Actual Cost Calculation

During the month

Month end
Month end closing activity
Material Ledger Actual Costing

42

CO-PA
Documents
Actual Cost
Component
Split

FI-GL
Documents
Revaluation
Inventory
COGS

Springboard to SAP PCM

Integrated transaction and analytics solutions


Totally integrated into transactional processing to PCM
Cooper Tire phase II to integrate with PCM

Cost
Planning
Evaluating master
data
Bill of materials
Routing
Planned prices
Planned
activities
Planned yield

43

Producti
on
Recording logistical
information for
controlling:
Consumptions
Yield & scrap
Purchasing &
supplier invoices
Activities & time
recording

Profitability
Analysis

Actual
Costing
Recalculating the
value flow using
Actual quantity
structure
Actual activity
recording
Multi-level value
flow
Actual raw
material prices
Consumption
Revaluation
Distribution of
Usage variances

Profitability&Cost
Management

Reporting
PROFIT

Reporting Costs and


Contribution Margins

Production costs
Sales Revenues
Actual cost
Component

Being totally integrated into


transactional processing
materials ledger makes ideal
place for Calculating the direct
cost of product
Transferred to the profitability
segment component and
uploaded into SAP BOBJ &
PCM
Combining the strengths of the
controlling components of SAP
ERP with SAP BOBJ & PCM

Dimensions

Regions
Channels
Customers
Product
Hierarchy

Resources

44

SAP Finance
www.sap.com/solutions/businesssuite/erp/financials/featuresfunctions/index.epx
SCN
www.scn.com
AC530 - Training actual costing/Material ledger
Actuhttp://www.sap-press.com/
al Costing with the SAP Material Ledger - Vanda Reis
2011 Edition

Key Ideas

45

Avoid those who only believe ML is difficult


Keep all companies with same valuation strategy
Material ledger visibility
Integrated across multiple level and company codes
Variances included in all reporting
One time change management
Value quantities of inventories with three different valuations
Legal valuation, group valuation and profit center valuation

Questions

Now:
Ask questions now for immediate answers
Later:
Johannes Le Roux - leroux@jari-consulting.com
Chris Crim - cacrim@coopertire.com

Q&A
46

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