Best Practices for Profitability Management with SAP Business Profitability Management and CO-PA

[Former Member]

Hi,

 

First blog contribution, my peers of the CPM Solution Management have a natural talent, so the hurdle is pretty high. However I decided to try.

 

My conception of this kind of blog is that we need to reach as many people as possible explaining in a simple and crispy way the solution to a problem they share. In this case, I would like to try to highlight some of the strengths of the 2 main products at SAP covering the Profitability Analysis, the good-old CO-PA and the newer one, SAP Business Profitability Management by Acorn. SAP Business Profitability Management by Acorn is the current application within the SAP CPM offering covering the Profitability Management topic, and is included in the portfolio through a reseller agreement with the company Acorn Systems, one of the leaders in the profitability analysis market and the activity based costing space.

 

First, what is the purpose of these two products?

 

1. To give you an insight on the profitability of cost objects, in the sense of any final objects to which costs can be assigned, but also to which revenue is attributed: Customer, Vendors, Distribution Channel. The profitability is simply the revenue minus the costs assigned to the cost objects. Of course the profitability is in fact very complex due to the difficulty of a “fair” assignment to cost objects.
2. To model a value chain assigning costs to the different levels of your cost objects. There you can use different methodologies, like Activity Based Costing, but also standard costing with a full costing approach and other possible alternatives. Some examples: assign the costs of a marketing campaign to a product group, assign logistic costs to a particular distribution channel.

 

So what is the difference between the two products? Let’s try to be brief and concise.

 

CO-PA

 

Everybody talks about CO-PA, but if you want to implement the whole value chain, various sub-modules of CO are required, like CO-CCA or CO-ABC. So let’s try to find the pro’s and con’s…

 

1. The big advantage of CO-PA is that it is deeply integrated in your operational ERP. Meaning that you can use your customer conditions at revenue level (and coming from SD and the customer invoicing) as well as you can use the valuation strategy for the COGS calculated in your ERP (coming from your standard costing in CO-PC or from the values calculated in the material ledger to get actual costing values). So finally a very tight integration in your transactional “world”. I won’t talk about the easy integration to existing master data, but this is also something we could highlight.
2. Another aspect is the functional coverage of CO-PA. With the CO modules, you can implement all possible cost accounting methods and I would like to highlight the actual costing capabilities through the material ledger that is really unique on the market. The values of your product are valuated to their values in the stocks and not to a standard price anymore. The functional coverage is really complete.

 

These 2 were the main pro’s, let’s take a look at the weaknesses

 

1. A complete value chain in CO is quite complex to implement, and the reason why is exactly the same integration problematic. It is distributed over several modules we all mentioned along the explanation above and the customizing must be done in all these sub-modules. A deep knowledge of the customization is required, and once it’s done, sometimes difficult to change at the pace of the business changes required.
2. It is tighten in your ERP system, meaning that you address only data existing in your instance of the ERP. What happens if you need information out of you ERP system, or if your operations are distributed over several other transactional systems (CRM, SCM, etc…)
3. It does not really cover simulation approach or scenario driven approach (what if?).

 

SAP Business Profitability Management by Acorn

 

This new offering in the SAP CPM portfolio targets the performance management; meaning has for goal the insight into profitability, the agility and the dedicated and comprehensive approach.

 

As a dedicated system, it has the following strength:

1. It is the centralized and unique place for the calculation of the model. Once you made the data acquisition, the model is handled in a unique and consistent user interface, dedicated to the profitability analysis and nothing else. The simplicity of the user interface enables the maintenance of the model by a business user.
2. As a stand-alone system, it enables the data acquisition and syndication over multiple transactional instances (SCM, CRM, ERP). You can bind and automate the integration of data and let the model calculate this set of data.
3. Again as a stand-alone system, it allows you to have more freedom in the modeling and envisage multiple scenarios and multiple simulations. It is an alternative to the fix and almost unique value flow developed in the ERP system that gives you more flexibility.
4. You can easily combine it with other SAP components like BI, as the model is multi-dimensional per definition, and fits into BI reporting model.

 

Against that:

1.      The data acquisition can be more painful and the system is loosely coupled with your operational environment. Concerning this inbound integration, we are going to address this in the future release over a better BI integration that gives then the availability of most data sources against transactional systems.

2.      It does not really cover the costing approach where most of the calculation logic resides in the manufacturing transactional system. No handling of Bill of Material is really possible, so that the COGS have to be calculated most probably in your SAP instance.

 

Said that, here are some decision elements to position the products in your business context:

 

1. You need a very operational driven, highly integrated approach to profitability analysis, focused on historical data. CO-PA might be the one required.
2. You need a dedicated and best practice system enabling a “different” view on your profitability. You also need a comprehensive, centralized system enabling data syndication in a convenient way. SAP Business Profitability Management by Acorn is then your choice.

 

And by the way, just to conclude: I truly believe that both approach are complementary and that a combined implementation makes perfect sense. As many ERP installations have already a CO-PA in place, it could now make sense to take a look at SAP Business Profitability Management by Acorn.