Why is Material Ledger Mandatory in S/4 HANA
Material Ledger has two objectives:
1.) Actual Costing
2.) Parallel Currencies/ Valuation
The latter objective positions the ML as a sub-ledger for inventory valuation, and this is the mandatory part of the ML for SAP S/4HANA.
If an Organization records inventory on its balance sheet, then it will need a sub-ledger for inventory postings, which provide more granular detail about inventory transactions than G/L postings (as is done with AP, AR and Fixed Assets, which are also sub-ledgers of the SAP General Ledger.)
The inventory “sub-ledger” already existed in the SAP ERP system in the form of the inventory valuation tables xBEW(H), such as tables, EBEW, EBEWH, MBEW, MBEWH, OBEW, OBEWH, QBEW and QBEWH.
SAP enhanced these tables in SAP S/4HANA just as it did with the Universal Journal.
They leveraged the existing functionality of the ML to create a cohesive sub-ledger for inventory valuation in the SAP S/4HANA.
The actual Costing functionality is still optional (and this is what causes the most confusion). Therefore, companies that do not need to report their inventory and cost of sales at actual cost do not need to activate this functionality.
SAP S/4HANA offers a few new currency options, but more importantly, it offers new ways of evaluation Material Ledger data. Currency settings available in the Universal Journal is integrated with the ML.
Multiple currencies, or parallel currencies, is a functionality that allows companies to record transactions in more than one currency for every transaction posted to FI. This parallel currency functionality has been extended to the ML for any inventory transactions, which can be viewed in Material Ledger reports.
In SAP ERP System, you can have one company code currency (Local Currency 1) and up to two parallel currencies (Local Currency 2 and Local Currency 3) in the FI module. We have the option of adopting the currencies used in the FI module, the CO module, or both, or of assigning currency types individually. The currencies are translated based on the historical rates in the Material Master.
In SAP S/4HANA, a key improvement that SAP has made with parallel currencies is to allow up to eight freely definable currencies in the Universal Journal table, in addition to fixed (local and global) currencies as follows:
- Local : The company code currency
- Global: The Controlling area currency
- Freely defined: Up to eight currency types
“Freely defined” means that you can name the currencies any way that makes sense for your business and not rely on SAP’s predefined currency type names.
Also, if creating these currencies for parallel ledger, you don’t need to base these currencies on the currency of the leading ledger( as is the case with an SAP ERP system)
Exchange rates should be maintained for these extra currencies and system will perform the real time currency translations of the postings in FI module (and related sub-modules) into these additional currencies.
Alternatively, we could specify that the translation is performed at the end of the period with the foreign currency valuation program. As a result, a company can present it’s financial and management reports to different stakeholders in different currencies, as needed.
In the ledger settings for a company code, you can configure additional currencies along with the local and global currency types by using transaction FINSC_LEDGER.
Even though eight additional currencies are allowed in the Universal Journal, only three currencies are allowed in the ML. Therefore, when defining the currencies in ML(which is based on the currencies of the leading ledger), you’ll need to specify which additional currencies in the Universal Journal should be mapped to the ML. Also, all the valuation areas(plants) that belong to a company code should have the same currency type settings in the ML.
Very good material.
It will help a lot in the migration plan to Hana here in Brazil (where the material ledger is needed).
Very concisely put that only Parallel currency valuation is mandatory in S4HANA and that only three currencies can be viewed in Material Ledger! Actual costing is not mandatory. Wondering why S4HANA offers eight additional currencies, why eight and what could be the use cases for such a provision eight currencies?
Nice document. At one place you mentioned that " companies that do not need to report their inventory and cost of sales at actual cost do not need to activate this functionality".
Does this mean that in case of service industry, who majorly work on 'Order to Pay' scenario, should not activate the Material Ledger?
I am talking from perspective where business was in SAP ECC 1503 (on HANA DB) and now migrating to S4 HANA 1809.
Please reply urgently.
Content is short and TO THE POINT on ML side.
Thank you very much.
The Universal journal is the main reason to activate material ledger functionality technically.