Product Cost Forecast and Simulation – a driver-based approach
Update February 2021:
The related SAP Business Warehouse Content has been set to “obsolete”.
Please refer to SAP note 1929531.
This article describes an analytical extension of the SAP ERP Product Costing. Based on freely-definable drivers such as commodities or exchange rates (FX), Product Costing results are forecasted. Ad-hoc what-if simulations are supported to provide deeper insight into your cost structure and the impact of the drivers on your P&L and margin.
This solution is available as part of the SAP HANA optimized BI Content.
Starting Point: standard product costs
Starting point of the solution are the results of the SAP ERP Product Costing (CO-PC). Product Costing is one controlling modules in SAP ERP. It is used to calculate the cost of goods manufactured (COGM) and cost of goods sold (COGS) for products, materials and services.
The calculation results can be extracted from the ERP system to an SAP BW with standard data sources. For the forecasting and simulation, the Full Itemization (“BOM”) and the Cost Component Split data sources are necessary. No changes to the ERP system are required.
Data is mapped to and stored in InfoProviders that can be installed from the latest BI Content. Non-SAP data sources may also be used using standard SAP BW ETL capabilities.
New BI Content “Product Cost Forecast & Simulation (SAP HANA-Optimized)” – a 3 step process
Once the Product Costing results and the relevant master data (e.g. material master) are available, the forecasting and simulation process runs in the following 3 steps:
- Step 1: Cost Drivers forecast and new Purchase Prices calculation:
In the first step, freely-definable cost drivers are used to determine future purchase prices for materials. Examples for possible cost drivers are commodities, energy costs or foreign exchange rates (FX).
Materials are grouped into similar subsets and these groups are correlated to one or more drivers. Thus, a predicted future price change of the driver changes the price of all correlated materials by the same percentage and new prices can easily be forecasted.
A cost driver may change all, some or one cost component. It can be correlated to more than one subset of materials.
Example: One subset consists of plastic bottles. This subset is correlated to crude oil by 50%. Then a future increase in crude oil by 20% will result in a price increase for all plastic bottles by 10%. In this case, only the cost component “packaging” should be changed.
- Step 2: Roll-Up changed purchase prices to new COGS:
In the second step, the full itemization (“bill-of-material”) information is used to roll up the new material prices into the future product costs of finished goods.
Of course, conversion costs or other non-material related cost components may also be changed.
For instance, all products using plastic bottles will become more expensive because the prices for plastic bottles will increase by 10%. The change will be visible in the packaging cost component of the finished goods.
Thus, the impact of the crude oil price change can be evaluated for a given product, product group or even the complete company.
- Step 3: Analyze future procurement spend and margin impact:
Finally, planned sales volumes as well as gross revenues and sales deductions may be taken into account to forecast the future margin and procurement spend.
The BI Content offers a basic contribution margin schema that can easily be enhanced. So ultimately, the impact of a crude oil change of 20% on your company’s margin can be analyzed.
The solution runs on a SAP BW-on-HANA system only. The calculation logic has been pushed down to the in-memory database and the processing speed allows you to evaluate your full set of materials and their complex itemization relationships on-the-fly.
Therefore it is feasible to ad-hoc simulate changes of the drivers in what-if scenarios. One might, for example, run the 3-step process explained above for various changes of crude oil and evaluate several scenarios and their impact on the company P&L in online transaction times.
The following architecture slide illustrates the building blocks of the solution:
Product Cost Forecasting and Simulation content within BI Content 7.57 is compatible with SAP BW 7.4 and 7.5. powered by SAP HANA.
All information on the BI Content Release Strategy can be found here:Note 153967 – BI Content Release Strategy.
For more details see the attached presentation and the available online documentation (BI Content 7.57)
Please also use the comments functionality to post any feedback.
Guido Eichmann – firstname.lastname@example.org
Rolf Sieberg – email@example.com
Update April 16th 2014:
We also encourage you to read the blog posted by Tristan Colgate from Bluefin: SAP’s Product Cost Forecasting and Simulation tool is SAP HANA’s best kept secret.
As the new BW 7.40 release offers many nice enhancements (see also Blog: 3 Major Reasons To Migrate To BW 7.4 on HANA | SAP HANA) we are currently working on using on or the other feature in our content – stay tuned for more information.
Update April 28th 2014:
We have upload a recording showing the BI Content in action. Please review it here:SAP HANA-optimized BI Content Product Cost Forecast & Simulation – Demo
Any questions and comments? Please feel free to post them here or directly at the demo video posting.
Update July 30th 2014:
In addition to the BI Content, SAP Consulting created the Implementation Service “Implementation of Product Cost Forecasting and Simulation for SAP BW” (CRM number 50124199). This service will implement the BI Content on a fixed costs basis within a short timeframe based on a scoping workshop to ensure, that the specific customer situation is taken into account. For more details please contact your SAP contact person.
Update June 30th 2015:
Some time has past since the last shipment and the last post here. But to be ableto ship the latest enhancements we relied on some enhancements within the SAP BW core stack. Here is whats new with BI content 7.57 SP06:
– ability to directly enter raw material prices and for such cases not use a driver based calculation
– the copy functionality which was until now only described in a note is now part of the shipment
More details can be found in the release notes: http://help.sap.com/saphelp_nw74/helpdata/en/b6/1034555cf98026e10000000a4450e5/content.htm?frameset=/en/2e/033455c4d86b38e10000000a174cb4/frameset.htm¤t_toc=/en/a3/16c204723d4c40a520489a544b68b1/plain.htm&node_id=13
Update November 2016:
With BW/4HANA available now were also planning the release of the existing “Product Cost Forecast and Simulation” content for BW/4 HANA. The target is to have it availble in Q2 2017 – current planning. We will provide an update early 2017.
Update Feburary 2017:
Unfortunately we will not be able to already provide an updated content for “Product Cost Forecasting and Simulation” for BW/4HANA in Q2 2017.
We are not yet able to share a new planned release date. Please check back soon.
As always we appreciate your feedback.
Update November 2017:
Want to enhance Cost Forecasting and Simulation with tariffs? – Please read the following blog.
Update February 2020:
Currently there are no plans to also provide the content for BW/4HANA.