The tools available in SAP S/4HANA enable multidimensional analysis of profitability by business unit, business line, and product group. In SAP S/4HANA, the main sources of cost and revenue data are the sales and distribution, materials management, production and finance modules. In sales, the input data relevant to reporting includes revenues, rebates and discounts, production costs recorded in production orders, cost center overheads and all other costs.
 

Controlling objects

In the SAP system, important elements of controlling are controlling objects where events are recorded (collected costs and revenues). For example, the costs of salaries and wages, depreciation, energy, machines, etc. are recorded at production cost centers.

Production orders are objects that present the production process from the logistics side, as well as from the controlling (accounting) side. It is the production order that consumes raw materials and requires activities to be performed (processing costs). It is the production order that a finished product originates from and is received into stock.

Another controlling objects are marketing orders, i.e. objects collecting sales and marketing costs usually assigned to the appropriate categories in the CO-PA. Other cost centers are, for example, CCs for general sales, administrative or management costs. Ultimately, all the controlling objects – in combination with the CO-PA profitability analysis – are used to present the profitability analysis in the desired layout.

CO-PA profitability analysis

SAP CO-PA (Controlling Profitability Analysis) is a module used to control the profitability analysis. It helps analyze the profitability of market segments. Typically, companies organize market segments by product, customer, or business line. The purpose of the CO-PA module is to provide the organization with market data that help make better business decisions.

CO-PA collects all the business events recorded in the system, which is the starting point of the profitability analysis. Reporting in CO-PA can be visualized as a multidimensional cube, where the profitability analysis (revenues, manufacturing cost, costs of sales and general costs) can be reported broken down by various characteristics, e.g. a given customer, product, brand, region or sales representative.

The main sources of data for CO-PA are documents recorded in the sales module. Each invoice is issued by a given entity for a specific customer where a given product is sold. Each of these pieces of information is stored in the CO-PA module as a characteristic that can be used for reporting purposes. CO-PA has a built-in derivation mechanism that can be used to derive additional CO-PA characteristics. Using this feature, we can obtain dependent characteristics, e.g. for a customer – a customer region or a customer group; for a product – a brand or a product line. The system also allows us to create our own characteristics by which we want to report (e.g., a segment, a strategic business unit, a sales representative).

Product costing

Product costing includes all product costs that are involved in presenting the final cost of manufacturing. In the sales process, during the delivery to the customer, COGS (manufacturing cost) is posted, and during the posting of a sales invoice, the revenue is posted. If we want to make a profitability analysis as part of financial accounting, we can use two available items: revenues and manufacturing cost. Using the product costing, i.e. dividing the product price into components, we can divide in SAP CO-PA the total manufacturing cost into individual components (materials, internal activities, overheads, and other).

In the SAP system, the product costing is performed on the basis of a specific bill of material using a routing, i.e. PP quantity structures. The combination of the quantity structure and price data in the system helps obtain information about the value structure of the product. It consists of the price of raw materials, packaging, costs of operations, overheads and other. The sum of all these costs provides information about the technical cost of manufacturing of a single item of a product.

An interesting insight into the value structure of the product price is the cost component schema i.e. a grouping of all costs according to given criteria (e.g. raw materials, packaging, departmental costs). This structure can be used in the profitability analysis. As a result, we can explore different coverage margins.

Report in CO-PA

The profitability analysis report in CO-PA shows revenue, discounts, manufacturing cost and also other costs. COGS can be divided into indirect and direct manufacturing costs. This in turn enables different coverage margins to be correctly reported. The report also presents sales and marketing costs as well as general and administrative costs.

Multi-dimensional analysis in SAP helps present a profitability report for a selected characteristic, e.g. a customer group, a material group, a region, as well as for a combination of these characteristics. On a single screen, we can compare in a convenient way various items within one characteristic, e.g. a profitability analysis broken down by individual customer regions where we operate.

The report can be narrowed and displayed at a higher level of detail by selecting, for example, a specific customer region and presenting specific customer groups. Then, within the customer groups, we can display material groups purchased by them. In more detail? Why not. The report allows us to drill down to the specific products that were most popular with customers in the selected material group. Using the drill-down mechanism, we get to the very source of revenue – to the level of individual items affecting the revenue, and even to the invoice document.

It is worth noting that the revenue or manufacturing cost is directly assigned to a product or customer. At a general level, we see sales and marketing costs and general and administrative costs, but as a rule, these costs are not directly assigned to a product or customer. In order to include these costs in the presentation of profitability per product/customer, some organizations use the top-down distribution. In this way, the lowest-level profitability takes into account all the costs of the organization.

Finally, let us mention that profitability reporting in CO-PA is not “rigid" and can be modeled according to the needs of the organization.