PLM - NPD and Costing - Mastering of Financial Feasibility!

New Product Costing in SAP ECC: Navigating the Conceptual Phase

Table of Contents

1. Introduction
2. The Challenge of Costing the "Non-Existent"
3. Conceptual Costing in SAP ECC: Methods and Tools
   • 3.1 Base Planning Objects (BPOs)
   • 3.2 Unit Costing
   • 3.3 Simulated Bills of Materials (BOMs) and Routings
   • 3.4 Preliminary Costing with Costing Runs
4. Incorporating Overhead and Activity Costs
   • 4.1 Overhead Costing Sheets
   • 4.2 Activity-Based Costing with Cost Centers
   • 4.3 Linking to R&D Projects with Internal Orders
5. Profitability and Pricing Analysis for Conceptual Products
   • 5.1 Profitability Analysis (CO-PA) for What-If Scenarios
   • 5.2 Target Costing in the Conceptual Phase
6. Financial Feasibility Reporting and Decision Support
   • 6.1 Cost Breakdown Reports for Conceptual Products
   • 6.2 Profit and Loss Simulations
   • 6.3 Break-Even Analysis for New Product Ideas
7. Conclusion

1. Introduction

New Product Development (NPD) often begins with a spark of an idea—a concept that doesn't yet exist as a tangible product or even a defined material in your ERP system. This presents a unique challenge for product costing: how do you estimate costs for something that essentially doesn't exist? SAP ECC offers powerful tools to address this challenge, enabling you to perform conceptual costing and financial feasibility studies even before a material master is created.

2. The Challenge of Costing the "Non-Existent"

Costing a new product in its conceptual phase is fraught with uncertainties:

• Undefined Product Structure: The Bill of Materials (BOM) may be fluid, with components and quantities still under consideration.
• Unknown Production Processes: Manufacturing methods might not be finalized, making it difficult to estimate labor and machine costs.
• Lack of Material Masters: Without a material master, standard costing techniques may not be directly applicable.

3. Conceptual Costing in SAP ECC: Methods and Tools

SAP ECC offers flexible approaches to overcome these challenges:

3.1 Base Planning Objects (BPOs)

• BPOs in Product Cost Planning allow you to simulate costs for conceptual products without needing a material master.
• You can define a hypothetical product structure, assign cost estimates to components, and perform cost roll-ups.
• Transaction Code: CK94 (Base Planning Object Maintenance)

3.2 Unit Costing

• Manually input cost components (materials, labor, overhead) for a single unit of the conceptual product.
• This provides a quick and rough estimate for initial feasibility assessments.
• Transaction Codes: CK13N (Display Cost Estimate), CK14N (Create Cost Estimate with Quantity Structure)

3.3 Simulated Bills of Materials (BOMs) and Routings

• Create "simulated" or "reference" BOMs (CS01) with estimated quantities and potential components.
• Develop generic routings (CA01) or use existing routings of similar products as templates for cost estimation.

3.4 Preliminary Costing with Costing Runs

• Perform costing runs (CK40N) with your simulated BOMs and routings to generate preliminary cost estimates.
• Use costing variants to define different scenarios and assess the cost impact of various design choices.

4. Incorporating Overhead and Activity Costs

4.1 Overhead Costing Sheets

• Define overhead cost elements specific to R&D and NPD processes (KZS2).
• This ensures that your cost estimates include a realistic allocation of indirect costs.

4.2 Activity-Based Costing with Cost Centers

• Assign planned activity rates for activities like design, prototyping, and testing to relevant cost centers (KP06, KP26).
• This allows for a more accurate allocation of overhead costs based on resource consumption.

4.3 Linking to R&D Projects with Internal Orders

• Create internal orders (KO01) to represent your NPD projects and track costs associated with research and development activities.
• This provides a clear picture of project-related expenses and facilitates budget control.

5. Profitability and Pricing Analysis for Conceptual Products

5.1 Profitability Analysis (CO-PA) for What-If Scenarios

• Use CO-PA (KE30, KE24) to simulate revenue and cost structures for your conceptual product under different scenarios.
• Analyze the impact of various pricing strategies, sales volumes, and cost assumptions on profitability.

5.2 Target Costing in the Conceptual Phase

• Define target costs based on market research, competitive analysis, and desired profit margins.
• Compare your estimated costs with the target costs to identify areas for cost optimization early in the design process.

6. Financial Feasibility Reporting and Decision Support

6.1 Cost Breakdown Reports for Conceptual Products

• Generate detailed cost breakdown reports (using Report Painter/Writer - GRR1, GRR2) to analyze the cost contribution of different components and activities.
• Use standard cost analysis reports (e.g., S_ALR_87013558) to gain insights into cost drivers.

6.2 Profit and Loss Simulations

• Create profit and loss (P&L) simulations based on your cost estimates and revenue projections.
• This helps assess the financial viability of the new product and identify potential risks and opportunities.

6.3 Break-Even Analysis for New Product Ideas

• Perform break-even analysis (KE21S, KE24) to determine the sales volume required to cover all costs and achieve profitability.
• This informs pricing strategies and helps assess market demand for the new product.

7. Conclusion

SAP ECC empowers you to navigate the uncertainties of costing new products in their conceptual phase. By leveraging BPOs, unit costing, simulated BOMs, and other tools, you can generate preliminary cost estimates, analyze profitability, and make informed decisions about the financial feasibility of your NPD initiatives. This proactive approach to costing ensures that your product development efforts are aligned with your business objectives and financial goals.