Production Order Actual Costs Split (new with SAP S/4HANA 2022 release)

In this blog, I describe the new production order split solution that is delivered with the SAP S/4HANA 2022 release and provide an example of its use in conjunction with the project manufacturing management and optimization (PMMO) solution. You can check out other new features of PMMO that were released in S/4HANA 2022 FPS0 release.

Purpose

In complex discrete manufacturing industries, during the production process there could be situations like capacity bottle necks, quality issues or engineering changes, in which case it’s required to finish a partial quantity of a production order as scheduled and to postpone execution of the remaining quantity. In other case can move the entire open order quantity when the header material number on the original production order needs to change. Order split is designed to split the existing production order into two different orders for partial quantities each or move all open quantities on new production order while zero remains on the original production order.

This new production order split solution ensures greater transparency and enables each order to contain its own share of components consumed and cost transfers. As an example, this feature is important for Aerospace & Defense (A&D) manufacturers building products for government contracts. Such customers require detailed tracking of actual costs in production for regulatory cost compliance reasons. The intent is that each production order stands on its own with their original cost element costs and component consumption. The virtual batch managed by-product material number is not used in this solution.

Production Order Actual Costs Split with PMMO

The ability to group common assembly parts in a single production order (to meet demand from multiple WBS Elements across multiple Projects) provides manufacturing optimizations.

When there are situations where the entire Production Order cannot be completed in time for the next higher assembly, Production Orders could be split for planning in order to give MRP different Goods Receipt dates and provide fewer units to meet the earliest demand. From a cost perspective, when a single order provides this component for all its next higher assemblies, all units from a common production order would have the same unit cost. When there are order splits from the original, the resulting orders’ unit costs can be different from other orders within a common order split tree. The costs on those orders should reflect the manufacturing of each unit as they progress through the multiple branches of the order split tree.

Once the Original Order is split, so have the WBS Elements that are driving demand. The cost must be correct for the units the WBS receives, which is why each order must have all of its components and costs. PMMO has a relationship table that aligns component source orders with the next higher assembly order when consumption occurs. If components do not get prorated, the WBS Element cost will be incorrect by over and under component allocations.

Production Order Split Configuration

1. To enable Production Order Actual Costs to be Split from Parent to Child order, activate the following setting in Transaction: OPL8 or in SPRO. Production → Shop Floor Control → Master Data → Order → Define Order Type Dependent Parameters for Production Orders.

          Double Click ‘Order Type’ and Under ‘Cost Accounting’ Tab enable the option ‘Split Actual     Costs’ checkbox.

     2.     If you want the system to allow changes to WBS element and/or order type of the child order at order split, you can configure this setting in Customizing under Production -> Shop Floor Control -> Operations -> Define Settings for Order Split. In this example, I have configured the settings for plant 0001 and order type PP01 to NOT allow changing WBS and Order Type.

3. This example is to show how production order split solution now supports PMMO process. I have PMMO activated, and test data created accordingly in the system.

Order Split process

I will show the order split steps for the method ‘Split with Same Material’. With this split method, a child order will be created as a copy of a parent order which can be extended and changed.

1. Below is the pegging assignment results for an example I setup. All the ‘R’ materials are ‘in stock’. And its next higher ‘S’ and ‘F’ material are ‘in procurement’ status.
2. In transaction MD04: For the semi-finished material, I partially convert a Planned Order to a Production Order for a quantity of 2 EA. I have 3 operations in the production order. Note: Alternatively, you can also create a production order via CO10N and start your scenario from there.
3. Next, I post a Goods Issue (GI) to the above Production Order for a quantity of 2 EA. – MIGO mvt 261 Q
4. I confirmed Operation 0010 on the Production Order via transaction CO11N with yield quantity of 2, Under Activities – Enter values for Setup, Machine and Labor minutes/hours.
5. The following is the activity costs posted on parent order. Transaction: KKBC_ORD, or go to menu Costs / Analysis.

6. Next I would like to split this production order. Open the above Production Order to be split in Edit mode using transaction CO02 or from MD04. Click on Operations. Perform the split from Operation 0020.

Click on Functions → Split Order.

Note: For posting goods movements only the operations prior to the split operation are checked for goods issue postings. When splitting the first operation of an order then nothing will be posted accordingly.

7. On the Order Split screen, under Selection of Split Method, choose ‘Split with Same Material’.

Verify the ‘Order Type’ and ‘WBS Element’ display but that no change is possible per the order split configuration settings.

8. Enter 3 into the Split Qty field and press the Enter key or try to perform the split. Verify an error occurs. The system checks against the quantity available at the operation and does not allow it to exceed with a quantity greater than the confirmed quantity on the prior operation; therefore, only a quantity of 2 or less can be split and moved to the child order.

9. Enter Split quantity as 1. Click the Split Order button.

10. Verify the details of the Parent Order. In this example, Order Number 1927722 is split with new Child Order 1927741. Click green arrow back. Click save to create the child order number

11. You can check material documents for performed order split. Choose Goto → Documented Goods Movements.

The system sent a cancelation on the parent order (262 posting) and performed a goods issue (261 posting) on the child order per the MATDOC (and MSEG) tables.

12. You can also go to SE16N and check the PMMO_CONSUMPTION, PMMO_CNSMPTN_HST and PMMO_STOCK_HST tables to verify the child order details are updated in the PMMO Consumption and Consumption History tables.

13. Verify actual cost results on the parent and child orders using Tcode: KKBC_ORD

Cost Analysis on parent order – The actual costs are reduced based on the split ratio, for this case it’s 50%.

Cost Analysis on child order – The reduced costs from parent order are distributed to child order.

Costs reduced on parent order by 50% and child order received the 50% as expected.

14. Run transaction PMMO_PEGGING.

Check the PMMO Pegging results with the new order information correctly pegged to its requirements.

15. Run transaction PMMO_DISTRIBUTION.

Check Cost results. PMMO Labor costs and PMMO component costs will re-peg and post according to latest PMMO_PEGGING run. Also, Labor costs (and Plant Stock component costs if any as those plant stock parts move from parent to child orders) on the Parent Order will be shared with the Child Order.

There is no change in the net cost results. Click on ‘Delta Costs’ to see the costs credit (decrease) from the Parent Order and debit (increase) on the Child Order.

Summary

The above was a straightforward example to demonstrate a production order split for PMMO relevant orders and how the components and actual costs move from parent to child order on a prorated basis. This process helps to maintain actual cost visibility and efficient tracking of costs by cost elements.

A production order can be split for further scenarios such as:

1. the entire deliverable quantity (ie the full order quantity can be split off) can be moved to the child order so that this supports engineering change scenarios.
2. an order can be split several times at different operations, that is, a parent order can have multiple child orders.
3. order splits can also be cascaded. A child order can be split as well being a parent order for another child order.

The solution was designed to be industry agnostic and can be used by customers using different production processes such as Make-to-Stock (MTS), Make-to-Order (MTO), and not just for Engineer-to-Order (ETO) PMMO customers. Cost Distribution is a key functionality of order split, which is enabled for both period-end based solution and event-based solution (with Universal Parallel Accounting) in product costing from finance side. ​For more information, see help documentation.

I hope you will find the advantages of the new order actual costs split to perform a detailed cost analysis useful for your customer scenarios.