Q&A SAP Material Ledger
In this post we want to share questions frequently asked before and during the implementation of SAP Material Ledger.
Q: What are the use cases for Material Ledger?
There are following main reasons why companies consider Material Ledger as a necessary functionality for their business:
(1) Material Ledger with Parallel Valuations without Actual Costing
allows a material valuation with different prices stored in up to 3 valuation views (legal, group, and profit center view) in the group and the local currency.
The legal valuation is usually used for financial closing and reporting of a single legal entity according to the legal requirements (external view).
The group valuation is used by a group for closing and reporting across legal entity boarders (internal view). The material prices in the group valuation are usually adjusted (corrected downwards) by intercompany profits.
The profit center valuation is used for management reporting, if the entire company is structured by internal areas of responsibilities (profit centers) who deal or compete with each other as if they were independent external companies (alternative internal view). The material prices in the profit center view are usually adjusted by a profit center mark-up or a mark-down.
(2) Material Ledger with periodic Actual Costing
allows a deeper analysis of material price components and material price variances based in relation to the standard price, and an update of material prices, stock values and consumption at actual costs (standard costs plus variances).
With this approach a deep understanding of cost structures through a cost component view as well as the periodic cost development trough variance analysis are possible. See the official SAP docu for more information.
(3) Material Ledger with alternative valuation run
supports a simulation of alternative cost of goods sold and stock values based on alternative material and activity prices which are not used for stock valuation. Such alternative prices can be standard prices of the previous year, future plan prices, purchase prices, stock valuation prices according to alternative GAAP etc. Alternative activity prices from any active planning version can be used.
This functionality can be applied as simulation costing for management reporting and/or as periodic revaluation for the purpose of parallel accounting according to a different valuation principle. See the official SAP docu for more information.
(4) Material Ledger with parallel COGM
allows you not only to setup parallel valuations according to different accounting principles for stock valuation as in case (3) but also to integrate it with Cost Center Accounting and Asset Accounting and General Ledger Accounting. This approach is used when an integrated monthly cycle of Accounting and Controlling with different valuation prices (actual or standard) is required for alternative accounting principles. See the official SAP docu for more information.
Q: What are the risks or disadvantages when you implement Material Ledger?
Q: What impact does Material Ledger has on the material price control?
The following dependencies should be considered when activating Material Ledger:
(1) Material Ledger with Parallel valuations without Actual Costing: material price determination is transaction-based; material prices are determined and updated real-time for each valuation when posting a material transaction. Material price control is set according to the strategy of the company, usually a moving average price (V) is applied to all internally or externally purchased materials e.g. raw materials, purchased spare parts, and a standard price (S) is applied to materials manufactured internally, e.g. semi-finished and finished goods.
(2) Material Ledger with Actual Costing: material price determination is multi-level or single-level, material prices are updated periodically at month-end closing. Material price control standard price (S) is applied to materials (raw materials, semi-finished and finished goods) which are involved in the manufacturing process and which price variances need to be included in the actual price of finished good. The multi-level price determination is applied when price variances need to be rolled up from the low level to the upper level material in the multilevel BOMs.
Q: Which valuation approach is recommended as the leading approach when using parallel valuations in Material Ledger?
Usually the legal valuation is used as the leading valuation due to the constraint, that some processes are not supported in non-leading valuations but need to be applied as per legal or internal requirements, e.g.:
Q: What is the impact of Material Ledger on the month-end closing process?
Additional closing steps to be considered:
(1) Material Ledger with Parallel valuations without Actual Costing:
(2) Material Ledger with Actual Costing: below is an example process based on the requirement to determine the actual price for all materials including all material price variances of the closing period and to update the standard price = actual price with validity for the next fiscal period:
The prerequisite to allocate variances to WIP correctly is that all WIPs have been completely posted for all production orders, projects and sales orders. The project controllers’ team can check the WIP posted against WIP determined in the result analysis.
Dependent on the requirements some of the above steps may not be necessary. E.g if you do not update material prices and just revaluate stocks you only need 1-h, j-k, m, p-t steps. If you do not have any impacted cost objects you skip step t.
Q: How are logistical processes integrated with Material Ledger? What needs to be considered when defining logistical processes?
Material Ledger is closely integrated with Material Management (MM), Production planning and execution (PP), and with Sales and Distribution (SD). In order to achieve the desired results with Material Ledger, esp. when Actual Costing is activated, it is important that logistical processes follow the best practices and stick to the established rules, e.g.:
Q: How to analyze if all material price variances are allocated correctly to the materials at month-end?
First, check the relevant account balances in FI (e.g. in FAGLB03 report): ideally the total balance of all price variance and variance offset accounts should be zero after Material Ledger Actual Costing closing postings. In this case Material Ledger has successfully allocated all variances either to inventories, WIP or material consumption (costs of projects / orders).The following MM/FI accounts are to be considered in this reconciliation:
Price variance accounts:
Variance offset tough ML closing:
Second, in case the total balance is not zero, further analysis can be done with the help of Material Ledger Value Flow Monitor. (CKMVFM). It provides a good overview whether and how variances have been allocated/distributed. Trough the drill-down function it is possible to find the root cause – mostly a process or master data issue in the related logistical processes, and to define actions to eliminate the identified issues.
Q: What are the causes of not allocated /not distributed variances?
Not distributed variances
are originated from the initial inventory/goods receipts. They are not considered in the actual price as Material Ledger considers them as price distorting or prevents a negative actual price.
They occur when
Not allocated variances
are originated from the consumption and multi-level rollup side and mean that Material Ledger was not able to allocated them neither to the stock on the material level, nor to the stock on the subsequent levels nor to any costs object.
They occur when
Q: What are the prerequisites to use the Material Ledger alternative valuation run for the purpose of alternative cost simulation?
First, you need to determine the valuation strategy for the alternative valuation run:
Typical process for simulation run (posting run: no, revaluation consumption: yes, acc. modification: blank, acc. principle: blank):
The results you can see directly in CKMLCPAVR transaction of in CKM3 (select the AVR run) or in the value flow monitor CKMVFM (select the AVR run).
Q: What are the prerequisites to use the Material Ledger alternative valuation run to revaluate stocks according to alternative accounting principle in a non-leading ledger?
In addition to the customizing described in the previous chapter you need to define stock accounts for BSD account in OBYC transaction and to set up a non-leading ledger and an accounting principle in FI new General Ledger.
Typical process for a posting run (posting run: yes, revaluation consumption: no, acc. modification: BSD, acc. principle: local:
The results you can see directly in CKMLCPAVR transaction of in CKM3 (select the AVR run) or in the value flow monitor CKMVFM (select the AVR run) as well as in Financial accounting reports by selection the respective non-leading ledger. See the official SAP docu for more information.
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[Author: Agilon GmbH, www.agil-on.com]