Effectively Create a Standard Cost Estimate Across Plants

  • by Akhilesh Mittal, Lead Consultant, Infosys Technologies Ltd.
  • June 23, 2009
Management
A complex manufacturing scenario may require operations to be carried out in different plants that manufacture a given good at various stages. Weigh the pros and cons of SAP’s four methods for creating a standard cost estimate for a semi-finished good in the receiving plant in a multiple-plant scenario.
Key Concept

A standard cost estimate is the SAP functionality to create a standard cost for materials. You can create the standard cost estimate with or without a quantity structure. A quantity structure is defined by bill of material (BOM) and routing. BOM and routing are defined so that manufacturing transactions can be recorded in the SAP system. A standard cost estimate with quantity structure builds the standard cost using a bottom-up approach by cumulating the cost of the components and activities in the BOM and routing, respectively. Standard cost estimate creation is an iterative process that requires standard cost setup for all the materials in the BOM.

The end-to-end manufacturing process can either happen in a single plant or across multiple plants (Figure 1). If the manufacturing process is spread across plants, semi-finished goods are transferred from the plant where they are manufactured (plant CRA1) to the plant where they are consumed (plant IEA2). Manufacturing in the semi-conductor industry is an example of such a business scenario. In the semi-conductor industry, a silicon wafer (used to make an integrated circuit) is manufactured in a fabrication plant but the finished good, such as a CPU chip, is manufactured in an assembly and test plant. In this example, the plant where the semi-finished good is manufactured and is transferred from is called the source plant. The plant where the semi-finished good is received for consumption is called the receiving plant.


Figure 1
Manufacturing process across plants

Akhilesh Mittal

Akhilesh Mittal is a lead SAP consultant at Infosys Technologies Ltd. with eight years of consulting and industry experience. He has experience in FI and CO along with exposure to SD. Akhilesh is currently a consultant in the SAP space for a leading organization in the high technology domain. He has a degree in electronics and communication engineering from IIT Guwahati and an MBA in finance and systems from IIM Lucknow.

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