MAT LEDGER 01

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SAP Material LedgerView from ABC PerspectiveITT-SAPYannick Kounga1IS MATERIAL LEDGER DIFFICULT?No2How is Material Valuated in SAP?depends on the price control that was set for the material in the material master. 1. Moving Average Price (V-Price)-

Adjusted with every receipt If at all, only to be used for raw materials and materials procured externally

2. Standard Price (S-Price)

Constant or Stable for long period.Recommended for all material types 3. Material Ledger:

- Standard Cost during the month- Periodic Moving Average Price at the month end.

Costing Methodology3With moving average price control, a new material price is calculated after every goods receipt, invoice receipt, and/or order settlement. This material price is an average value calculated from the total inventory value and the total quantity of the material in stock.

With standard price control, goods movements are valuated with a price that remains constant for at least one period. The standard price that is assigned to a material is usually the result of a standard cost estimate.

The main difference between the two valuation procedures is that the moving average price represents a current delivered price while the standard price is based on planned values and not actual values.

Organizations had to choose between standard cost and moving average cost as the basis for valuing Inventories

Both methods had its advantages and disadvantages. Neither solved the issues faced by organizations in a dynamic market place

Organizations were looking for a hybrid of standard cost and moving average approaches

Moving Average price is adjusted with every receipt and hence gives a real-time value for materials. However, this value is distorted when variances and price differences (for stocks already consumed) are settled to Inventories.

Standard Price allows comparison of actual costs with standard and hence better evaluation of variances. However, using standard price to valuate inventories provides poor visibility of actual costs. There could be significant lead time before standard prices could be adjusted. Selling prices dependent on out-of-date standard cost could lead to lower margins.

Material Ledger allows organizations to value Inventory and transactions at standard cost during the month. It provides Periodic Moving Average price as information during the month and as a basis for re-valuing inventories at the end of the month

3What is Material Ledger?Sub ledger of GL ,Management Tools1- The term "Material Ledger" is not a "financial" Ledger but a capture-and-report mechanism of inventory values. 2- It is an enhanced sub-ledger for Materials. ML tables are the base for Material valuation data like goods movements, price changes, variances.

4- Enable the calculation of the periodic unit price for each material before the period close (can be used as next period standard).Material Ledger5. A fundamental task of the material ledger is managing inventories in multiple currencies and/or valuations3- If Material Ledger is set up for multiple currencies and these currencies are aligned with currencies in Financial Accounting, then Material Ledger values reconcile with Financial Accounting values in all aligned currencies.

4Synergy 1+1 = 3

Activating Material Ledger (ML) allows you to view Material Master Inventories and transactions in multiple currencies. It is recommended to map FI and CO currencies to ML. This will allow easy reconciliation between the various ledgers.

Actual costing valuates all goods movements within a period at the standard price (preliminary valuation). At the same time, all price and exchange rate differences for the material are collected in the material ledger. At the end of the period, an actual price is calculated for each material based on the actual costs of the period. The actual price that is calculated is called the periodic unit price and can be used to revaluate the inventory for the period to be closed. In addition, you can use this actual price as the standard price for the next period.

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Driving Factors for implementing Material Ledger Do we need Material Ledger at ABC ?Does ABC want to value inventories in multiple currencies real-time? Does ABC want to value inventories at standard cost but also want to evaluate inventories at moving average cost? Does ABC want to amortize purchase and production variances over the life of the inventories? YES / NO ?Does ABC want an effective transfer pricing mechanism between its various businesses across legal entity? Does ABC want to support Different Global Statutory Reporting requirement by Company Code (FIFO/LIFO)?5FEATURES OF MATERIAL LEDGERDo we need Material Ledger at ABC ?1.Actual Costing.

During the period, valuation of all goods movements is done with the preliminary valuation price which is normally the standard price. All variances from the preliminary valuation are maintained in the ML. At period end, revaluation of ending inventory can be performed with the determined actual price. This is not mandatory. Actual prices can be calculated for statistical purposes only.2.Parallel currencies and/or valuations of material stocks.

All goods movements in the ledger can be maintained in 3 currencies. The values are translated into other currencies using the historical exchange rates. Prerequisite for usage of transfer pricing functionality.3. Information

Provide accurate profitability information.

What Else?6Multiple Currency Allows Inventory values and Inventory transactions to be valuated in local currency and group currency

Multiple Valuation Combine the benefits of Standard Price Control for preliminary valuation and Moving Average Price Control for Balance Sheet Enable accurate periodic valuation Settle proportionate price variances to period end inventories Roll up price variances throughout the production process Enable Transfer Pricing for intra-company transfers

ML generates 6 views: current period/ current year previous period/ current year Last period/ previous year Future Costing Run Current Costing Run Previous Costing Run

6Weighing the Pros and Cons of the SAP Material LedgerSAP Without ML /LEGACY

Single Material Valuation Strategy

(what Else?)

SAP Material Ledger

Multiple Currency Allows Inventory values and Inventory transactions to be valuated in local currency and group currency (Up to 3 Currencies)

Multiple Valuation Combine the benefits of Standard Price Control for preliminary valuation and Moving Average Price Control for Balance Sheet Enable accurate periodic valuation Settle proportionate price variances to period end inventories Roll up price variances throughout the production process Enable Transfer Pricing for intra-company transfers

ML generates 6 views:77Benefits of Material Ledger for ABC Integrate planning with a single model across ABC to improve organizational alignment and Financial Performance.What Else?Provides global unit cost information across plants and legal entities providing an global transparent view of costs and variancesIntegrate and align cost structure to reduce cost Maximizes corporate profitabilityAnalytical information by scorecards, statutory reports, and performance analysis Value Inventory in Multiple CurrenciesProvide accurate profitability informationProvide real-time information quickly Revolution of COGS 8Integrate and align cost structure to reduce cost Provides global unit cost information across plants and legal entities providing an global transparent view of costs and variancesAnalytical information by scorecards, statutory reports, and performance analysis Provide accurate profitability informationMaximizes corporate profitability to grow market capitalization and shareholder valueIntegrate planning with a single model across the enterprise to improve organizational alignment and financial performanceProvide real-time information quickly

Variances of Finished GoodsVariances from external procurement (purchase orders) as well as from production activities are rolled up from raw and semi-finished materials to the finished goods level.To provide support for procurement related decisions.Detailed reporting for procurement processes and sources possible. Make vs.. Buy, Vendor A vs.. Vendor B. Price History.Combines the benefits of Moving Average and Standard PriceStable prices used for controlling purposes (standard) and actual prices used for valuation purposes (average).Easy to use display and error finding by consolidating the views.Allows quick access to detailed views of material master, standard costs and documents

Relatively simple configuration and set upTrue Cost of Sales AccountingPurchasing and production variances for unsold stocks are inventoried.Contribution Margin with Actual Costs of SalesBy utilizing multi-level settlement, actual values for your cost component split can be attained. This can be transferred to PA8Material Ledger & Periodic Moving Average Price . A Periodic Moving Average price is the moving average price of that period. This price avoids the fluctuations seen in Traditional Moving Average price and is more dynamic than Standard price. Periodic MAP = (Cumulated Receipts at Standard Price) + (Cumulated Price Differences) / Cumulated Receipt quantity

E.g = (126 tonnes * 900 USD) + 2,106.90 USD / 126 tonnes = 916.72 USD/tonne 9

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11Tracks purchase material price variances to finished products on the basis of consumptionProvides historical information on Actual Cost to facilitate the estimation of new Standard CostsAbility to track multiple valuations and/or currencies at the material level.Ability to revaluate inventory on the basis of real cost calculationEnables faster and more effective decision making to managementTracks variances Across Multiple product levels / plant and Company codes

Material Ledger Benefits

12R 150G 140B 140R 213G 209B 209R 0G 176B 240R 292G 0B 0R 255G 192B 0R 234G 40B 57R 123G 167B 157R 146G 208B 80R 60G 61B 62R 7G 43B 12812