Non Valuated Grouped Stock in Project Manufacturing Management and Optimization
In this blog post, I would like to explain the concept of “Non-Valuated Project Stock” in the context of SAP Project Manufacturing Management and Optimization in SAP S/4HANA which enables you to group and co-mingle requirements for common materials across Work Breakdown Structures (WBS) elements across different contracts to help achieve greater efficiency, logistical flexibility and cost savings. Using an example, you will see how cost flows in the Non-valuated project stock scenario.
Project Stock Indicator
When creating a project (transaction CJ20N), you have to set the project stock indicator and there are 3 options:
- No project stock
- Non-valuated stock
- Valuated stock
This setting drives how the cost flow happens with regards to project stock. If you select “No project stock”, then the project does not allow individual project production. The other two settings are more relevant for this blog post.
Non-Valuated Project Stock
If this setting is set, then the material in project stock is managed only on a quantity basis. Goods movement do not trigger postings in the inventory accounts in Financial Accounting (and therefore do not show on the balance sheet). Instead, the costs with their original account numbers are posted directly to project cost object (e.g. WBS element).
Valuated Project Stock
If this setting is set, then the material in project stock is managed on both quantity and value basis. Goods movement trigger postings in the inventory accounts in Financial Accounting.
For more information on valuated and non-valuated project stock, see SAP Note 533207.
The primary reason for using non-valuated project stock is when manufacturing companies act as agents or contractor to engineer, design, build and deliver material based on a contract (typically long term contracts for example in industries like Aerospace and Defense), they would not hold the subassemblies and externally procured components on their balance sheet. These make-to-order (MTO) / engineer-to-order (ETO) manufacturing entities use actual costing method as the cost accounting method (in contrast to standard costing method, which is predominant in make to stock scenario). The actual costs are charged and expensed directly to the project, and often billed to the customers at various project milestones so that the contractor can recoup the costs as early as they can without having to wait until the completion and delivery of the final product. Non-valuated project stock is best suited for contracts that are cost reimbursable where the contractor is reimbursed for the actual costs (for e.g. cost plus fixed fee or cost plus incentive fee).
Grouping allows you to combine material requirements across one or more WBS elements (which belong to same or different project) for the purpose of Material Requirements Planning (MRP). This combined stock segment is also a WBS element that has a special indicator that indicates that it is a grouping WBS. Once grouping is set, MRP generates procurement elements for the grouped requirements in the grouping WBS stock segment.
Process Flow using an Example Scenario
The example below should help understand the process flow in the case of non-valuated project stock.
Consider a simple Bill of Material (BOM) structure to demonstrate the value flow in the case of non-valuated project stock. The BOM contains a raw material, semi finished material and a finished material.
Now let’s create a demand for this finished material in 2 WBS elements (NVPS.I1 for 5 EA on 10/31/2021 and NVPS.I2 for 6 EA on 10/31/2021), which are grouped under a grouping WBS NVPS.G. (For simplicity reason, all the WBSs are created in the same project. In real life, they could all belong to different projects (i.e. contracts).
When creating the project in transaction CJ20N, we have also set the project stock indicator to “Non-valuated stock”.
Once the project is saved, the demand (i.e. requirements) from the network activity is visible in stock requirements list under the grouping WBS stock segment for the finished material.
After MRP run, the supply elements are created in the grouped project stock segment (i.e. NVPS.G) for the finished material, subassembly and raw material based on the Bill of Material. As you may have noticed, grouping the requirements has enabled the material requirements planning to generate combined supply elements (i.e. planned order and purchase requisition) that are account assigned to the grouping WBS. This helps achieve greater efficiency and cost saving by combining demand for common parts thereby generating lesser number of production orders and purchase orders due to grouping.
As the raw material is setup to be externally procured, the purchase requisition is converted to a purchase order and once the supplier delivers the raw material, a goods receipt is posted using the transaction MIGO. From the accounting point of view, the actual costs of the purchase order (this includes the purchase price variance) is posted as primary costs to the grouping WBS. As the project was created with “Non-valuated stock”, the goods receipt does not post the raw material cost into inventory. You can see that in the output of transaction MB52 that shows the total value as 0. As explained in the definition of “Non-valuated stock”, the the material in project stock is managed on a quantity basis only.
If you look at the costs on the grouping WBS NVPS.G (transaction CJI3), you will see the actual cost of the purchase order posted in this group WBS under the cost element.
So how does cost flow to the WBS NVPS.I1 and NVPS.I2 that actually created the requirements? This is exactly where Project Manufacturing Management and Optimization comes into picture. Pegging establishes the relationship between the supply elements in grouping WBS to the top demand from the individual WBS. It acts as a cost mapping tool that is later used by Distribution to move the costs from the grouping WBS to the individual WBS. Pegging and Distribution are typically run in a batch mode immediately after MRP run.
Once Pegging and Distribution are completed, you can notice that the costs are credited on the grouping WBS and posted using the same cost element to the individual WBS that created the demand for the top level requirement.
In the next step, the planned order for subassembly is converted to a production order and the raw material is goods issued to the production order and labor costs are posted during the production process. For this production order using non-valuated project stock, production order settlement is irrelevant since the actual costs are posted as secondary costs with one or more cost elements on the production order cost object. Note here that the costs are posted on the production order and not on the grouping WBS, even though the production order is account assigned to the grouping WBS. Typically, settlement rules are turned off for this production order type and Distribution acts as the dynamic version of settlement based on the cost mapping assignments created by Pegging. The grouping WBS for this production order is used for the stocking of parts only and later on for Distribution to determine the individual WBS to where the secondary costs from the production order should be distributed. Note that indirect overhead costs are posted directly to the individual WBS elements using costing sheets on the project. Also, during goods issue of raw material to the production order, there is no accounting document posted, since in the “Non-valuated stock”, there is only a quantity flow, and no value flow.
Below screenshot shows the actual costs after labor costs were posted on the subassembly order, raw material was goods issued to the order and order was confirmed including goods receipt of the subassembly.
If you again look at the output of transaction MB52 for the subassembly, you do not see any value of the subassembly on the inventory. Also, in a “Non-valuated stock”, you will not see these production orders considered as Work In-Progress (WIP) in the balance sheet. There are also no variances, no overheads, no settlement postings on the production order in the case of “Non-valuated stock”.
Once Pegging and Distribution runs are executed, the secondary costs from the production order are distributed to the individual WBS based on the cost mapping assignments generated by Pegging and using the same cost element that were used to post on the order originally.
The production order for the finished material also behaves the same way, as the subassembly. Once the finished material is in stock, it is issued to the individual network activity from where the demand originally originated.
To summarize, here are the key differentiators when using “Non-valuated stock”:
- Absolute actual costs recognized against the WBS from where the requirements originated without any material price difference postings.
- Actual costs are visible immediately by material on the WBS elements where the demand originated (for e.g. when goods receipt / invoice receipt of a raw material, followed by Pegging and Distribution) thereby enabling the possibility to bill the customer, whereas in the valuated scenario, the costs stay on the inventory and do not get allocated to the WBS until the final goods issue happens to the network activity of the individual WBS.
- Cost elements do not get changed along the entire manufacturing process from costing point of view, even when costs get distributed from grouping WBS and the production order to the individual WBS. Actual costs are available with the original cost element.
- Inventory is owned by the WBS elements (i.e. the customer for who the project will be delivered) and within Materials Management, inventory is only managed at quantity level. Inventory is not on the balance sheet.
- Unlike valuated stock, to calculate actual costs on a production order in a “Non-valuated stock” you have to rollup the costs of the underlying components pro-rated to the assigned quantities to this production order.
- No WIP, Variances, Overheads, Settlement Rule on Production Order. Instead Production Order acts as a passthrough cost object for the project.
- Production Overheads are directly posted on the project.
Note that Project Manufacturing Management and Optimization only supports non-valuated grouped project stock.
Hope this blog post gives you an overview and a basic understanding of non-valuated grouped project stock, in the context of Project Manufacturing. Feel free to post your comments and I encourage you to post questions about the topic in our SAP Community using this link. More blog posts to come regarding new features in SAP Project Manufacturing Management and Optimization in SAP S/4HANA, stay tuned!
It is helpful.
Thank you for your feedback!
It is helpful. Thanks, Mathavan
Great article. Working with a client who uses Valuated Project Stock (Q Stock), any insite into being able to use the RPSCO base reports (CN41N, etc.) when Valuated Stock is used?
Thank you for your feedback!
RPSCO based reports should work with valuated project stock. I recommend you also check the note 2210611.
Using valuated or non-valuated stock, there will not be any difference while looking at the CJI3/CJI5 report at every goods movement. In both cases, there will be a cost related to the material. However, the difference can be seen in the material report. Is my understanding correct?
Thank you for the feedback.
There will be differences in CJI3 between non-valuated and valuated scenario after every goods movement depending on the timing.
When using valuated project stock, you will see statistical actual costs on the project WBS element (CJI3) during goods receipts and goods issues. Goods Issue triggers credit of the valuated component costs and Goods Receipt triggers debit of the valuated component costs plus the labor and overhead costs on the production order.
For non-valuated scenario, the true actual costs are always visible on the project WBS element right from when you do the first GR on the purchase order for the raw material and with settlement of production order for semi and finished materials. There are no statistical postings in this case. There are no changes to CJI3 result during Goods Issue. Labor and overhead costs are settled directly to the project WBS element and are visible in CJI3.
For more details, please refer to the quantity and value flow for valuated project stock here and for non-valuated project stock refer here.
Hope this helps.
This is very well explained.
For these kind of projects what would be the ideal RA method?
Thank you for the feedback.
I am not an expert in that area, but I would think RA methods 3 and 9 are the ones to consider.
Thanks Kanda. It is a helpful document.
It seems PMMO is supported for non valuated stock only. Is that it can work for valuated project stock also as grouping will make the procurement cycle efficient?
Thanks for the feedback.
The grouping and pegging parts of PMMO do not have any dependency on whether you use valuated project stock or non-valuated project stock. PMMO Distribution currently only supports non-valuated project stock. Unless you plan to use PMMO distribution, you can still leverage grouping and pegging within PMMO for valuated project stock.
Hope this helps.
Thanks it helps.
Under the non-valuated stock scenario (the option is ticked at the project definition), if
1.a semi-finished good is assigned to a network activity, and
2.the semi-finished good is produced by a production order which is related the WBS element,
3.I issue a raw material to the production order
4. the raw material has some variance during purchasing in the period.
How does the variance of raw material will flow?
I know if it's a valuated stock scenario, the variance from raw material will flow to the semi-finished good during actual costing by month-end. But now, the semi-finished is receipted into inventory only in qty-basis, without value. The variance of raw material will have no way out, right?
Thanks in advance.
Thanks for your question.
In the case of non-valuated scenario, if there is a purchase price variance, then variance will be posted also on the account assignment WBS of the purchase order. In my example, if the purchase price variance is 2 EUR (therefore the true actual cost on the PO is 13 EUR instead of 11 EUR), then during MIRO, the 2 EUR variance is posted to the account assignment WBS element NVPS.G as actual costs in ACDOCA. The next PMMO Distribution run would distribute the 2 EUR from the grouping WBS element NVPS.G to the individual operative WBS elements NVPS.I1 and NVPS.I2 using the assigned quantities from the PMMO Pegging run.
Hope this clarifies.
Thanks for your reply.
That means, the variance will go across the material, directly to the WBS element NVPS.G. Right?
If it's the case, then the product cost is not the actual cost, because it doesn't absorb the variance from the raw material. Maybe we should only concern about the final WBS element cost report.
Yes, that's correct - the variance costs will go directly to the WBS element NVPS.G
You are right. In case of non-valuated project stock, you cannot use the product cost. Actual costs for a given material can be calculated by rolling up the component costs.
In a few weeks, I plan to write a blog post on calculating actual costs in the case of non-valuated project cost by rolling up the component costs. Please stay tuned!
Best Regards, Kanda
Thanks for your quick response. I've got it.
Look forward to your new blog post.
You can check my blog post, specifically the Actual Cost Rollup Fiori app. I plan to publish a separate blog post about this Fiori app in the coming weeks.
In S/4 1809, Can the project stock indicator be changed during or after the project definition creation (before release)?
I see that it is greyed out in our system and seems to be completely dependent upon the project profile assignment.
According to the F1 help description on this project stock indicator field:
Hope this helps.
Best Regards, Kanda
Thanks for the quick response. I did find that a change to the Field Selections for the Project Definition was required in order to set the field to "Input" instead of "Display".
Yes, you are right. The field selection controls whether it allows input or not.
Best Regards, Kanda
In the ERP versions, I understood that valuated project stock was favored over non-valuated project stock. This seems especially apparent as it relates to the number of disadvantages of non-valuated project stock listed in SAP Note 533207.
Do some of the disadvantages of non-valuated project stock go away with the availability of these new PMMO functionalities in S/4 versions?
Yes, PMMO addresses some of the disadvantages of non-valuated project stock mentioned in the note. For example, with the latest S/4HANA 2022 release, PMMO provides an order cost rollup Fiori report that provides the true actual costs on a production order. For further information, feel free to check my latest blog post here. As PMMO continues to evolve, you can expect more capabilities addressing some of the shortcomings of non-valuated project stock. Kindly note that PMMO currently supports only grouped non-valuated project stock.
Hope this helps.
Best Regards, Kanda