Product Hierarchy wise Profitability

Through the Financial Accounting and Profit center reporting it is not feasible to draw profitability at various levels of products. For example; In an automobile Industry the levels of Product hierarchy would be as under;

Level 1 : Auto Sector, Farm Equipment Sector

Level 2 : Export and Domestic

Level 3 : Type of vehicle (Passenger, Pickup, Tractor etc.)

Level 4 : Model Family (Bolero, XUV700 etc.)

Level 5 : Variants (AX5, AX7 etc.)

It is essential to have the contribution margin report at the various level of product hierarchy to take marketing decision & push for sales. This contribution reports at all the level of product hierarchy is required on real time basis, and Hence it is required to have the Product Hierarchy in COPA.

Basic COPA Module

Basic Costing Module

COPA Allocation Module

Sales value, Sales quantity , Contribution margin reports at all the level of product hierarchy would be available on real time basis for the Management for taking the business decisions.

At the month end we can get the complete profitability (Post allocation of common and overhead expenses) for each level of the Product Hierarchy.

Manual work for such type of profitability if asked by management is very high in the absence of this feature, so this is reduced / eliminated from the MIS / Costing team. (Dependency also not there the report can be run by anyone with proper authorizations in place.)

Approach : Design the Product Hierarchy as per the organizations and products maximum up to 6 levels. This Hierarchy to be assigned to the product master for the finished goods. Necessary settings to be done in System for this in SD and COPA module as well.

Assumptions:

All the finished goods should be mapped to the product hierarchy (designed) Flow of direct and indirect cost to be allocated up to the Product Hierarchy Levels.

Design document for the Product Hierarchy with level 1 to level 5 as per the business scenarios

Flow of the product hierarchy to COPA with linking to Sales & COGS on real time basis

COPA Report showing contribution as per the different levels of Product Hierarchy

We have many sample product hierarchy available and based on our database we can recommend the product hierarchy for the organizations, after understanding the business process and discussion with Business users.

Get the sign off on the product hierarchy with All HODs

Configure the product hierarchy in the system with all the levels

Mapping of the product hierarchy with Finished parts ( we need support of the business and marketing team to map the right product with right hierarchy)

Creation of required configuration in COPA to flow the hierarchy into COPA

Testing the entire solutions and Training for future maintenance

Move all the changes in system to Production system in SAP

Post go live support and hyper care

1 week to understand the current business process

1 week to prepare the document for sign off

1 week to configure the hierarchy in system and COPA

1 week for Testing in Quality system

1 week for moving the changes to Production and mapping the Hierarchy with Finished products.

1 week for post go live support

6 weeks to get the product hierarchy design, configure, map and ready for the COPA reports. This timelines can vary if the no. of products are high in any organizations, this timelines is for organizations where the products are in the range of 1000 to 1200

In any organizations it is very important to understand the High margin product range and Low margin product range, as the marketing team can take necessary pricing and discount decision based on that, It is possible only if there is a real time contribution report for all the product range is availble from the system automatically without any manual interventions. : If this type of report is available then the possibility of increasing the sales and contribution margin is extremely high. Based on our experience in any of the company with turnover within the range of 2000 to 3000 crore the opportunity generated with this type of reporting would be almost 60 to 70 Crore on annual basis.

1 Business Solution Architect: + 1 Senior Consultant + 1 Consultant 5 weeks + 1 weeks of Support = 6 weeks

M1 – Project start

M2 – Solution Document

M3 – UAT Sign off

M4 – Go Live

M5 – Completion of 1 weeks of Post go live support

INR 6,00,000/-

Investment of 6 Lacs is nothing if we get Visibility of the High margin product range on real time basis