Lean Implementation of the Material Ledger with Multiple Valuations in a Production Environment

  • by Praveen K. Murugesan, SAP CO Solution Architect
  • August 2, 2016
Learn how to design the standard SAP system to implement the Material Ledger with multiple valuations in the production environment using the Special Purpose Ledger. The main reason to use the Special Purpose Ledger is to avoid changes required in existing currency settings and impacts on other applications that are already in use. The Special Purpose Ledger supports multiple valuation approaches and seamlessly integrates with the Material Ledger and other related applications.
Learning Objectives

By reading this article you will learn:

  • The impacts of changing the currency settings in a production environment to implement the Material Ledger with multiple valuations
  • How the Special Purpose Ledger can be used as an alternative for multiple valuations in the FI module to avoid changes to existing currency settings
  • How to configure the Special Purpose Ledger to work in sync with multiple valuations in the Material Ledger
Key Concept
Implementation of the multiple valuation approach in the Controlling (CO) module along with the Material Ledger requires corresponding currency settings in FI; otherwise, the values of multiple valuations are not posted in FI. In the production environment, changing the currency settings required for multiple valuations has ripple effects on other applications that are already in use, and often requires complex data conversions. To avoid these complexities, you can use the Special Purpose Ledger in FI for multiple valuations.

The ever-shifting transfer pricing strategies and an increase in the volume of intercompany transactions demand visibility on the actual cost of goods sold at different organizational levels by eliminating internal markups. Implementation of the Material Ledger with a multiple valuation approach addresses this demand and provides visibility on the actual cost of goods sold at three different organizational levels: the division level (each area of responsibility or product line), the legal entity level, and the corporate level.

To overcome these complexities and complex data conversions, you can use the Special Purpose Ledger in FI in conjunction with the Material ledger.

A multiple valuation approach in the Material Ledger provides the value of goods in three different views in two different currencies—profit center view, legal view, and group view.

Profit center valuation provides the value of goods with a markup agreed upon by other areas of responsibility or the profit center.

In legal valuation, the markups charged between the profit centers are eliminated because they are added only to determine the profitability of an individual division or product line within a legal entity. In addition, the legal valuation includes the intercompany markup or transfer price on a par with the competitive market price to avoid manipulation of income tax.

In group valuation, the markups charged between the affiliated legal entities are eliminated. This provides the true value of the cost of goods manufactured and the actual value of inventory on hand.

Implementing the Material Ledger with a multiple valuation approach in a production environment has many complexities due to changes required in the existing currency settings. Various applications in the SAP system use the same currency settings. Changing them has multiple impacts and often requires data conversion. Normally, data conversions due to currency changes are more complex and can be performed only through SAP System Landscape Optimization (SAP SLO).

Note
For ease of explaining the concept of using the Special Purpose Ledger for multiple valuations, I use only group valuation in this article. However, the concept is applicable for profit center valuation as well.

Changing Currency Settings in a Live System: A Complex Undertaking

Before discussing how to use the Special Purpose Ledger for multiple valuations, I explain the difficulties in changing the currency settings in a production system. The ideal currency settings required in FI for multiple valuations are shown in Figure 1.


Figure 1
Currency settings in FI for implementing multiple valuations

Any documents that are posted in the SAP General Ledger with the above currency settings have four different values—legal valuation in document currency, legal valuation in local currency (10), group valuation (31), and profit center valuation in group currency (32). The details are shown in Figure 2.


Figure 2
Example: FI document with multiple valuations

Note
In the SAP system, currency types and valuation methods are represented by numeric codes. For example, 10 and 30 represent local and group currencies, respectively. Likewise, 0, 1, and 2 represent legal, group, and profit center valuation methods, respectively. The combination of currency type and valuation method forms the valuation approach, which is represented by the first digit of the currency type and valuation method. Thus, 10 represents legal valuation in local currency, 30 represents legal valuation in controlling area currency, 31 represents group valuation in group currency, and 32 represents profit center valuation in group currency.

Note that the value of profit center valuations is not shown in Figure 2, as my focus is only on group valuation to illustrate the concept.

Praveen K. Murugesan

Praveen K. Murugesan is an SAP Controlling (CO) solution architect with extensive experience in multiple end-to-end implementations and global rollouts. His areas of expertise include product costing, Material Ledger, Profitability Analysis, Project System, transfer pricing, intercompany accounting, and FI-CO integration with other SAP modules. He has also worked on the classic General Ledger, the SAP General Ledger, Accounts Payable, Accounts Receivable, Bank Accounting and integration with Vertex. Praveen holds a bachelor’s degree in engineering and master’s in finance.

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