Case Study: Cooper Tires

SAP Material Ledger

Implementation Lessons
Learned

Chris Crim, Cooper Tire

Johannes Le Roux, Jari Consulting 2013 ERP Corp. All rights reserved.
 Topics

Cooper Tire Strategy and Vision

Implementation Options
Lessons Learned at Cooper Tire
Springboard to SAP Profitability and Cost Management
Summary

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 Cooper Tire Strategy and Vision

Cooper Tire weighed the pros and cons of activating SAP

Material Ledger as part of their initial SAP implementation or
during a future rollout phase. In this session well cover:
Why Cooper Tire implemented SAP Material Ledger as part of
their initial SAP implementation
Leveraging Material Ledger as a springboard to SAP
Profitability and Cost Management software
Proper master data setup lessons learned

Best practices for configuring Material Ledger for long term

requirements
Find out what Cooper Tire would advise companies
embarking on this process including importance of
understanding the impact on finance and non-finance
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process teams
 Cooper Tire Implementation Timeline

2009: Cooper Tire made the decision to implement an ERP

system
Feb. 2010: SAP selected
Aug. Oct. 2010: Blueprint/requirement gathering
Requirements gathering process led to decision to
implement SAP Material Ledger
Oct. 2011: 1st Go Live was in the Mickey Thompson division
(Sales & Dist.)
Feb. Nov. 2013: 2nd Go Live in Cooper US (Mfg, Sales, Dist)
2014 2015: 3rd 5th go lives in Cooper Mexico, Europe, &
Asia (Mfg, Sales, Dist)

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 Weighing the Pros and Cons of the SAP Material Ledger
SAP Without ML /LEGACY
NO Traceability of Actual Material
Cost by product
Purchase Price Variance
BOM Usage Variance
Production Usage Variance
COGS at actual cost
NO traceability of production
efficiency by product
NO Report Standard & Actual
Value of Inventory by product
NO Product level
Profitability/Gross Margin
Reporting without Intercompany
Markup
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SAP Material Ledger
Traceability of Actual Material Cost
by product
Purchase Price Variance
BOM Usage Variance
Production Usage Variance
COGS at actual cost
Traceability of production
efficiency by product
Report Standard & Actual Value of
Inventory by product
Product level Profitability/Gross
Margin Reporting without
Intercompany Markup
 Material Ledger Implementation Basics

Support externally calculated Double Extension LIFO

Value Inventory in Multiple Currencies
Support Different Global Statutory Reporting requirement by
Company Code (FIFO/LIFO)
Actual Cost by Cost Component by product
Actual Cost of Material by Product

Actual Cost of Labor by Product

Actual Cost of Depreciation by Product

Actual Cost of Sales

Actual Cost Component

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 Material Ledger Implementation Basics (cont.)

During the accounting period all material movements are valued

at a standard cost and recorded by material in the material
ledger
Price Differences (Variances) for each material movement are
recorded
At the end of the period an actual cost (periodic unit price) is
calculated for each material though out multiple levels of
product produced
Revaluation of Inventory and Cost of Goods Sold
Distribution of usage variance is allocated to product
Revolution of COGS

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 Streamlining the Cost Process

SAP Material Ledger streamlined their cost process into a fully

integrated process as seen below:

Profitability
Cost Planning Production Actual Costing
Analysis
Evaluating master Recording logistical Recalculating the Reporting Costs and
data information for value flow using Contribution Margins
Bill of materials controlling: Actual quantity Production costs
Routing Consumptions structure Sales Revenues
Planned prices Yield & scrap Actual activity Actual cost
recording Component
Planned activities Purchasing & supplier
invoices Multi-level value flow
Planned yield
Activities & time Actual raw material
Dimensions
recording prices
Regions
Consumption
Revaluation Channels
Distribution of Usage Customers
variances Product Hierarchy

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 Streamlining the Cost Process (cont.)

Cost center
Raw Finished Distribution
material Semifin.
material product center Sales
order

Production Production order

order
1 2 3 4

1) Sale of Raw Material to the Production Profit Center within a Legal Entity
2) Sale of Semi-Finished Good to Affiliated Company
3) Use Semi-Finished Good in a production order and add value from activity
in a cost center
4) Transfer finished product to distribution center including actual cost
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 Material Ledger Benefits

Integrate 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
variances
Analytical information by scorecards, statutory reports, and
performance analysis
Provide accurate profitability information
Maximizes corporate profitability to grow market capitalization
and shareholder value
Integrate planning with a single model across the enterprise to
improve organizational alignment and financial performance
Provide real-time information quickly

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 Cooper Tire Value Strategy

Cooper Value Strategy Cooper Value Strategy Proposal

Legal valuation If we had to do it again, we would use
Legal group valuation the following strategy
Group valuation without markup

Currency / Company code Currency / Company code

Visional Currency Visional Currency
Legal 10 Legal 10
Group / legal 30 Group / legal 30
Profit Center 32 Group 31
Why we would propose a different strategy:
Less maintenance Only two cost roles
Profit center valuation not needed not using profit center transfer price

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 Define Individual Characterisitcs

You cannot change the currencies, currency types and

material ledger types after production startup

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 Currency and Valuation Profile

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 SAP Material Ledger Without Revaluation

Cooper Implement Material ledger without revaluation

What Cooper did was used the

accrual method but report the
accrual as part of there inventory
value in there balance sheet
using an inventory direct posting
account

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 SAP Material Ledger Without Revaluation

Cooper implement SAP Material ledger without revaluation

Used the accrual method, but reported the accrual as part of
their inventory value in their balance sheet using an
inventory direct posting account

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www.sap.com AC530 - Training actual costing/Material ledger
 SAP Material Ledger Without Revaluation (cont.)

If you decide not to revaluate your materials with the actual

price, the amount which would have been posted to the material
stock account is posted to another price difference account
using posting key LKW
It is up to you which account you choose for this posting

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 Topics

Cooper Tire Strategy and Vision

Implementation Options
Lessons Learned at Cooper Tire
Springboard to SAP Profitability and Cost Management
Summary

18
 Implementation Options

Two methods to implement the Material ledger

Activate Material Ledger to track material postings
Ability to do multi-currency inventory valuation

Recording business transaction

Structuring value chain direct product only

Activate Actual Costing

Revaluation of inventory based on actual cost

Multi level variance value chain

Gross margin analysis using both standard and

actual cost

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 Implementation as Part of Initial Phase

Pro s Cons
No migration needed activation of all plant for company at High level of Discipline needed when using material ledger
once
Tracks variances across multiple product levels / plant and Organization not ready for complicity and discipline
company codes needed
Tracks purchase material price variances to finished Additional training required
products on the basis of consumption

Provides historical information on actual cost to facilitate

the estimation of new standard costs from initial go-live

Ability to track multiple valuations and/or currencies at the

material level

Ability to revaluate inventory on the basis of real cost

calculation visibility of variances

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 Implementation After Go live
Pro s
Low level of complexity after initial go-live
No discipline and restrictions to change cost after initial
go-live
Faster closing process after initial go-live
Organization do not have to deal with complicity and
discipline after initial go-live
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Cons
Migration requirements
Closing of all open production order
Closing of all open purchase order
Conversion and activation by plant
Go-love migration long and slow process
No historical information on actual cost to facilitate the
estimation of new standard costs after initial go-live
No ability to track multiple valuations and/or currencies at
the material level after initial go-live
No ability to tracks purchase material price variances to
finished products on the basis of consumption after initial
go-live
 Cooper Tires Decision to implement Material Ledger

SAP Material Ledger SAP Without ML /LEGACY

Traceability of Actual Material Cost by
product
Purchase Price Variance
BOM Usage Variance
Production Usage Variance
COGS at Actual cost
Traceability of Production efficiency by
product
Report Standard & Actual Value of
Inventory by product
Product level Profitability/Gross Margin
Reporting without Intercompany
Markup
NO Traceability of Actual Material Cost
by product
Purchase Price Variance
BOM Usage Variance
Production Usage Variance
COGS at Actual cost
NO Traceability of Production
efficiency by product
NO Report Standard & Actual Value of
Inventory by product
NO Product level Profitability/Gross
Margin Reporting without
Intercompany Markup

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 Cooper Tires Decision to implement Material Ledger

Keep all companies with same valuation strategy

Standard vs. moving average in Sales & Distribution
companies
Visibility
Needed better visibility of variance analysis across
production processes
Better product cost

Global product cost

1 time change management

Big Bang (kind of)

Clean System
No open production order to delete and recreate

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No open purchase order to delete and recreate
 Topics

Cooper Tire Strategy and Vision

Implementation Options
Lessons Learned at Cooper Tire
Springboard to SAP Profitability and Cost Management
Summary

24
 Lessons Learned at Cooper Tire

Avoid those who only believe Material Ledger is difficult

SAP trainers

Sapphire sessions

Consultants

Cooper Tire Accounting Managers

Overkill

Activity revaluation

Distribution of usage variances

Trusting the results

Complexity

Focus on benefits and future capabilities

Look at complexity/timeline/cost implementing ML in future
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 Results/Gains from Implementing Material Ledger

Impact of PPV on specific tire line

Actual cost to support LIFO calculation
Consolidated location to see In/Out transaction by material
See actual cost of inventory by cost component
Inventory valuation visibility without inter-company markup
Ability to see actual product line profitability without
intercompany mark ups

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 Results/Negatives from Implementing Material Ledger

Massive volume of data

Increased time-to-close by at least 1 day maybe more as more
plants go live
Distribution of usage variances extremely time consuming
Difficult to validate the accuracy of the posting at a high level
Difficult for casual/non-users to comprehend

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 Material Ledger Worth the Expense?

Yes
Love the level of detail, tons of information!

No
Takes too long, not worth the effort

Maybe
See the potential, cant wait for full rollout to be complete

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 Cooper Tire Lessons Learned

Make the final decision early

Quality consultant/implementer
Configure for all potential long term requirements
Make decision what material will be included

Actual costing

Cost component structure

Understand all ML component

Integration: The impact that Material Ledger has on other

processes/teams
Proper master data setup/conversion
Cutover/client setups
Ongoing validation/maintenance
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 Make The Final Decision Early

Impacts Currency Profiles

Based on setup will impact costing process

Material Master Defaults

Costing Variants
Resources
Make sure you have dedicated resources

SMEs & Testing Validators

Make sure test cycles fit material ledger test requirements

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 Quality Consultant/Implementer

Closely review experience

Check references

Check results of prior ML implementations

Contract through life of implementation and beyond

Most issue happen 3-4 month after go-live

Training cycle 3-4 months

Process and discipline related

Poor master data

Poor closing processes

Poor monitoring processes

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 Configure For All Potential Long Term Requirements

Configure for Long Term Needs

Currency profiles
Actual cost component split

LIFO / FIFO

The impact that Material Ledger has on other processes teams

Operations

Inventory Management

Sales & Distribution

Basis

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 Cutover/Client Set Up

Cutover/Client Set Up
Demand quite system during client start ups

Open/close clients to change default setting on price

determination during material load/extensions
Ensure cutover team understands impact of improper ML
start up
Master Data Setup
Solid process established prior to go live

Importance of status controls

Product costing prior to material movements

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 Ongoing Validation/Maintenance

Daily/weekly distribution of usage variances

Set up detailed validation template
Pick a raw material and follow it through a sale

Set up high level validation template

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 Resources

Do not underestimate the effort

Cooper staffing
One lead business analyst

Included plant accountant in each implementation

Learn the process
Understand data flow and conversion
One lead consultant Make that sure that he/she knows
Material Ledger
Due to conversion, support time ( 3 plus months) and training
required it could require additional business analyst

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 Topics

Cooper Tire Strategy and Vision

Implementation Options
Lessons Learned at Cooper Tire
Springboard to SAP Profitability and Cost Management
Summary

36
 Springboard to SAP PCM

Integrated transaction and analytics solutions

Totally integrated into transactional processing to PCM
Cooper Tire phase II to integrate with PCM
Cost Producti Actual Profitability Profitability&Cost
Planning on Costing Analysis Management
Evaluating master Recording logistical Recalculating the
data information for value flow using Reporting Reporting Costs and
Bill of materials controlling: Actual quantity PROFIT Contribution Margins
Routing Consumptions structure
Yield & scrap Actual activity
Production costs Being totally integrated into
Planned prices
Purchasing & recording Sales Revenues transactional processing
Planned
supplier invoices Multi-level value materials ledger makes ideal
activities
flow Actual cost
Planned yield Activities & time place for Calculating the direct
recording Actual raw Component
material prices cost of product
Consumption Transferred to the profitability
Revaluation Dimensions segment component and
Distribution of
Regions uploaded into SAP BOBJ &
Usage variances
Channels PCM
Customers Combining the strengths of the
controlling components of SAP
Product
ERP with SAP BOBJ & PCM
Hierarchy

37
 Profitability Analysis Ideal Staging Area

Profitability Analysis is an ideal staging area for:

Capturing revenue and sales data at the customer and
product level
Furthermore, having functionality such as the materials
ledger makes the controlling component the ideal place for
calculating the actual direct cost of products
Transferred to the profitability analysis component and then
loaded into SAP BusinessObjects Profitability and Cost
Management
Combining the strengths of costing and profitability reporting
functionality provided a makes it easier to use the two solutions
in tandem, enabling organizations to tailor a cost and
profitability reporting solution to match their needs
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 SAP Best Practice

Integrate ECC, business intelligence and enterprise

performance management
SAP BusinessObjects Profitability and Cost Management is the
selected solution on the SAP product road map for delivering
cost and profitability management
These tools can also be used for detailed scenario modeling,
such as assessing how changing the price of an individual
product or the discount given to an individual customer impacts
profitability
SAP uses integration with enterprise performance management
delivers true business performance optimization

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 Topics

Cooper Tire Strategy and Vision

Implementation Options
Lessons Learned at Cooper Tire
Springboard to SAP Profitability and Cost Management
Summary

40
 Material Ledger Benefits

Tracks variances Tracks purchase Provides historical

Across Multiple material price information on
product levels / variances to Actual Cost to
plant and Company finished products facilitate the
codes on the basis of estimation of new
consumption Standard Costs

Ability to revaluate Ability to track Enables faster and

inventory on the multiple valuations more effective
basis of real cost and/or currencies decision making to
calculation at the material management
level.

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 Actual Cost Flow Integration

Actual Cost Flow Integration

MM-PO Actual CC Allocations
Price Variance
Variances CO-PA
Material Ledger Documents
Activity Price revaluation
Actual Cost
CO-CCA Receipts/Consum Component
Activity Split
MFG ption
type ABC Template Allocation
Cost Center Price Differences
PP-PO
Production Production
Single Level Price WIP
Orders Variances
Determination
FI-GL
Multi level Price Documents
CO-CCA Variances Revaluation
Business Determination Inventory
MFG Overead MM COGS
Process Closing Entries
Cost Center Movements
DUV usage variance
Scrap/Cycle/
Transfer
Actual Cost Calculation

During the month Month end

Month end closing activity

Material Ledger Actual Costing

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 Springboard to SAP PCM

Integrated transaction and analytics solutions

Totally integrated into transactional processing to PCM
Cooper Tire phase II to integrate with PCM
Cost Producti Actual Profitability Profitability&Cost
Planning on Costing Analysis Management
Evaluating master Recording logistical Recalculating the
data information for value flow using Reporting Reporting Costs and
Bill of materials controlling: Actual quantity PROFIT Contribution Margins
Routing Consumptions structure
Yield & scrap Actual activity
Production costs Being totally integrated into
Planned prices
Purchasing & recording Sales Revenues transactional processing
Planned
supplier invoices Multi-level value materials ledger makes ideal
activities
flow Actual cost
Planned yield Activities & time place for Calculating the direct
recording Actual raw Component
material prices cost of product
Consumption Transferred to the profitability
Revaluation Dimensions segment component and
Distribution of
Regions uploaded into SAP BOBJ &
Usage variances
Channels PCM
Customers Combining the strengths of the
controlling components of SAP
Product
ERP with SAP BOBJ & PCM
Hierarchy

43
 Resources

SAP Finance
www.sap.com/solutions/business-
suite/erp/financials/featuresfunctions/index.epx
SCN
www.scn.com

AC530 - Training actual costing/Material ledger

Actuhttp://www.sap-press.com/
al Costing with the SAP Material Ledger - Vanda Reis
2011 Edition

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 Key Ideas

Avoid those who only believe ML is difficult

Keep all companies with same valuation strategy
Material ledger visibility
Integrated across multiple level and company codes

Variances included in all reporting

One time change management
Value quantities of inventories with three different valuations
Legal valuation, group valuation and profit center valuation

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 Questions

Now:
Ask questions now for immediate answers

Later:
Johannes Le Roux - leroux@jari-consulting.com

Chris Crim - cacrim@coopertire.com

Q&A
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