SAP.

PRODUCTION EXECUTION

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 PRODUCTION EXECUTION FLOW
For a start, let's remember what has happened prior to the production execution
process, when the production planning happened:
a. Planning quantities are derived and maintained in the system.
b. MPS and MRP run, generating the planned order for the net required quantity with
the start date of the production process.
c. Master data (BOM and Routing details) were copied into the planned order
automatically during MRP run.
So, considering that there are all data about
production and capacity planning,
the flow of activities might be represented
like this:

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A detailed view on activities in production execution

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 Production execution activities and modules involved

When taking into consideration the SAP modules that deal with the production execution, the effective
activities can be represented as in the following diagram:

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 1. Convert planned order into production order

Planned orders are created in MRP run to cover the requirements. They represent a
demand to procure or produce a material. Planned orders for materials that are to be
produced in-house are converted to production orders. There are following options:
 individual conversion (t-code CO40)
 collective conversion (t-code CO41)

When working with individual planned orders, their conversion is easy to be done from the
Stock/Requirements List screen. After indicating and selecting a planned order, use the
bottom buttons:

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Planned orders vs. Production orders

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 The production order

The Production Order defines the

following data:
 Material produced
 Quantity
 Location
 Time line
 Work involved
 Material resources used
 Rules for the costs
settlement

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 2. Release the production order (PO)
This is an important step in production. Releasing of production order indicates the
commencement of production. Unless the order is released, further processing of order is
not possible.
While releasing the production order the system can perform:
 Material availability
 Capacity availability
 Reservation creation
Configuration settings related to the above functions are covered in Availability check.

An authorized staff member changes the status of the PO to Release. Once released, the PO
is available to shop floor staff. The command to perform is (transaction code CO02):
Logistics  Production  Production Control  Order  Change
Enter the PO number. After that:

When the PO is released the order changes initial status CRTD with REL status.

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Availability check

Before releasing, the controller might want to do a final check of the material availability and capacity
availability. In Customizing, it is specified per order type and plant whether the availability is to be
checked automatically. But of course, user can always trigger a manual availability check.
Before starting production, it is important to check whether all the material components production
resources and tools (PRTs) assigned to a production order are available on the calculated requirements
dates.

The material availability check can be automatic or manually executed and determines whether the
components in an order are available and also performs:
 Determines availability on the required date
 Displays results of the check
 Missing parts list
 Reservations that could not be verified

For the capacity check, transaction CM01 is used for analysis purpose and capacity leveling. The initial
screen allows the user to enter a work center and a plant number. The output display gives an overview
of the available capacity, the capacity requirements for planned and production orders and the capacity
load in percentage for the next 60 working days summarized in a weekly format. If there is an overload,
this is displayed with a red figure.

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Availability check (cont.)

After the PO release:

 Print shop floor documents (materials' pull list or picking list, operations' list, etc.)
 Execute goods movements (materials staging)

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 Shop Floor Documents

Shop Floor Documents examples:

- Operation-based Lists
• Time Tickets, Confirmation Slips

- Component-based Lists
• Material Withdrawal Slips, Pull List (consumption list)

- PRT Lists
• Overview of PRT’s used and in which operations

- Multi-Purpose Lists
• Operation Control Ticket, Object Overview

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 Material staging

Material staging is nothing but transferring the material from the storage to the
production location. The transfer of the material before production it is called material
staging in SAP. The staged material is needed for production at a certain time, in a
particular quantity.
The system determines the material staging time using data from the routing. (If there is
no data, automatic material staging is performed with operation 10).

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 The Production Order Status

There are three important status values which explain the situation of a PO:
 Created – initially, PO has a "created" status, indicating that the PO is not released to the shop floor for
manufacturing. With this status, items cannot be issued, but the PO can still be updated.
 Released – the PO gets this status when it is released to the shop floor for production. At this point,
components may be issued and transactions can be reported for the production order.
 Closed – this status indicates that the production is completed.

Current status
values
Info message with Details on
status change status values

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Production Order Phases and correspondent status

Production orders go through different phases that follow on from one another. These phases are
represented by the production order status:
1. Production orders are created (CRTD)
2. Production orders are released (REL)
3. Shop floor papers are printed (PRT)
4. Production orders are executed. The quantities produced, the activities and the dates are continually
confirmed (PCNF)
5. Final confirmation takes place (CNF)
6. The production orders are technically completed (TECO)
7. Production orders are closed (CLSD).

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 3. Goods Issue for production order

Goods issue covers issuing required components to make the finished product. When a PO is created it
references a BOM to determine the necessary components to produce the material. It then places a
reservation on each of the components. Upon release of the order reserved materials can be withdrawn
from inventory. In effect:
 Reservation is updated
 Inventory is updated
 Costs are assigned to the PO as actual costs

In relation to this activity there is the back-flushing option. Back-flushing is automatic accounting (Goods
issues - 261 movement) of material consumed for production, at the time of confirmation. System will
automatically post the goods issue when the operations are confirmed. The effort is reduced as there is no
need to make manual issue.

This option can be configured in MRP2 view for material, in Work centre definition, or in Routing.
Other times, back-flushing is configured directly in the production order (in this case, it doesn't have to be
activated in MRP2 or Work center).

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 4. Confirmation of production order

Confirmation can be done once for the entire order, or the system may use operation or phase level
confirmation. Confirmation to each operation is executed according to the control key attached with each
operation. Operation level confirmations are useful because they help to monitor and track the progress of
an order through its production cycle.

Order confirmation includes:

a) declaring the quantity that is produced, the quantity that is scrapped and the quantity that requires
reworking;
b) stating the total activity hours put into producing the sub-assembly or assembly, from where derives the
order costs through activity based costing procedures;
c) recording the personnel data responsible in producing the stock.
The data are:
 Yield quantities
 Scrap quantities
 Rework quantities
 Total activity hours utilized at the operations
 Personnel responsible for production (employee who carried out the operation(s), number of
employee involved, etc.)
 Actual dates

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 Confirmation of production order (cont.)

Even if it doesn't have to do with order confirmation, at this point the actual values for any other activity
included in the work centers standard value key are entered (for example, the steam consumed, electricity
consumed, water consumption). These values are used in the further cost calculations.

Depending on the configuration, this can also be the moment when the system posts automatic goods
movements of all the components assigned to the operation in the order task list (back-flushing of
components during order/operation confirmations).

Also depending on the configuration, the system posts automatic goods receipt of quantities during
final confirmation of the final operation, for the final operation in the order task list which is assigned with a
control key for Auto-GR.
If the configuration is set as manual post, the user has to perform the operation (see transaction MB31 on
the following slides) when is prompted with the message "Post good movements".

If there is any error in activity costing, it is recommended to stop the confirmations and resume after
correcting the data. This makes sense since errors in activity confirmations means creating errors in order
costing. To cancel confirmations use CO13 transaction code.

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Main types of confirmation
Create PO

The operation level confirmation (time ticket confirmation) is used for Release PO
each and every operation to be confirmed for quantities, activities and
personnel. Partial quantities or activities can be confirmed. T-code: CO11N
Issue goods to produce
The milestone based confirmation determines the system to
order
automatically confirm all the operations from the current milestone
operation till the preceding milestone operation. Operations are marked as
milestone through the use of control keys in the order routing. T-code: Create operation level
CO11N confirmation (partial/final)
The order level confirmation is used for the entire production order in a
single given instance, for a given quantity. The confirmation can be partial Confirm the last operation
or final. The system automatically confirms all the operations. T-code: CO15 and produced quantities
The time event confirmation is used for processing time events for
particular points in time (e.g. start, finish) or for variable activities (e.g.
Receive goods into stock
interruption). T-code: CO19

PO settlement
To display confirmations that were created for an order, use t-code CO14.

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Confirmation of production order: HOW TO

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 Display PO status and confirmations

Display a PO status
At any point, the user may see the situation of a PO, indicated by its status or the operations' status. Use
transaction CO03 or choose:
Logistics Production  Production Control  Order  Display

Display confirmations
The controller can display confirmations that have been created for an order. In the Display
mode, user enters the order number. Selecting the Operation number is optional.
Transaction code - C014

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 5. Goods Receipt against production order

Once the production is completed, finished products will be received from the production order into the
respective storage area.
This can be achieved through two ways:
 Automatically, through confirmation (as described in the previous step);
 Manually, through separate transaction (MIGO).
Document number will be generated for each goods receipt. When the produced goods are brought to stock
they are priced at the material master's current standard cost or variable price derived at the time of goods
receipts as per the costing method in the Material Master Accounting 1 view.

The effects of the goods receipt are:

 Updates stock quantity
 Updates stock value
 Price stored for future valuation changes
 Production order is updated
 Three documents are created: Material document, Accounting document, Controlling document

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6. Order Settlement

Consists of settling the actual costs incurred in the PO to one or more receiver cost objects. Receivers could
include: a material, a cost center, an internal order, a sales order, a project, or a network.

There are two types of costs:

- Primary (materials, labor and external processing)
- Secondary (production, material, and administrative overhead)

When a production order is settled to a material account, the amount settled is the difference between the
actual costs incurred for the order and the costs credited to the order when the goods produced were delivered
to stock:
- Debt posting is made to the Production Order with the value of the material (material price is determined by
the quantity produced times the standard price in the Material Master).
- Difference between the debt posting and credit posting is posted to a price difference account

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 Costs of manufactured goods

During the manufacturing process, controlling objects carry costs, which in the end need to be re-assigned
to the G/L accounts (FI). Costs are divided in:
a) Direct costs: e.g. material consumption, labor cost. For the materials, with each good issue,
consumption account is debited (while material account is credited)
b) Indirect costs are allocated and absorbed in products via production orders. E.g. overhead costs like
energy, water, administrative expenses. To determine these costs, the system needs:
- Calculation base = a group of costs elements to which overhead is applied
- Overhead rate = a percentage factor applied to the value of the calculation base
- Credit key = the cost center which receives the credit (while the PO is debited)
During manufactturing, with each PO confirmation, the production order is debited and the production cost
center is credited. These costs are allocated in CO, there are no FI postings at this moment!
Also, period-end assessments move costs from overhead cost centers to production cost centers.

Maintenance of overhead cost elements is done with IMG (customizing), where the necessary
calculation elements are defined (calculation base, percentage or quantity-based rates, and credit keys).
The costing sheet links all the functions of overhead calculation.

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Sources for cost allocation

Cost component Source

Raw material and semi-finished goods BOM
Material overheads Costing sheet
Salaries (labor cost) Routing
Production overheads Costing sheet
Depreciation Costing sheet
Other costs Costing sheet

The costing sheet combines all parts of the overhead costing, and determines the rules for
calculating the values to be posted.

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 The variance in the COMG

When manufactured products are delivered to inventory, the correspondent G/L account is credited. The
value of goods issued is determined: quantity x standard price.
The standard price is pre-defined in the Material Master and it is meant to be used in stock valuation.
Normally, there will be differences between actual cost (derived from cost allocation and overhead cost
calculation) and the standard cost.

Variance represents the difference between actual cost debited to PO and standard cost credited to the PO
when finished goods are delivered to stock.

During the settlement process, the actual costs are determined, as well as the difference between actual
and pre-determined (standard) cost.

Debit Raw material

Labor
Overheads
Credit Finished goods (COGM)
Balance (difference) Variance

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 The settlement process

 Is determined by the settlement profile, which includes a range of control parameters and is defined in
IMG (the controlling area).
 The most common settlement profile value is PP01, indicating that the settlement is done in relation with
the production order.
 Another possible value is PP02, which defines a periodic settlement. In this case, variances and WIP are
reported on the basis of the quantities confirmed and delivered in a specific defined period of time.
 The system automatically assigns a settlement rule to the PO when the order is created. The
assignment is carried out via the default rule defined in Customizing. The settlement rule includes one or
more distribution rules for the production order. The distribution rule consists of a cost receiver (e.g. a
material, a cost center, a sales order, a project), a settlement share (the percentage rate for the cost), and a
settlement type (full or periodic settlement).
 The PO status controls the variance determination: if a PO has a DEL (delivered) or a TECO (technically
completed) status, the variance is calculated. For PO with the REL (released) status, the calculation is
done as WIP (Work In Progress) using actual costs (normally, at the end of the month).

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 Procedural steps with PO settlement

1. Actual overhead calculation on PO: t-code KGI2

Enter: PO number, period, fiscal year; check Test Run (only first time)
2. WIP (work in progress) calculation on PO: t-code KKAX
Enter: PO number, period, fiscal year; check Test Run (only first time), Log Info Messages and Display
orders with errors
3. Determine variance on PO: t-code KKS2
Enter: PO number, period, fiscal year; check Test Run (only first time)
The report indicates if processing generated any errors
4. Settlement on PO: t-code KO88
Enter: PO number, period, fiscal year, processing type (Automatic, by default); check Test Run (only
first time)
The report indicates if the settlement was executed and the eventual number of errors.
Using the DETAILS button, the determined value for the PO is displayed.

Transaction CO88 can be used for collective settlement of production orders.

5. At this point, when settlement was checked (Test Run) and executed, the production order can be set
with the status CLSD, which means closed.

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 Settle a PO: HOW TO

To settle a PO, use:

Logistics → Production → Shop floor control → Period-end closing → Settlement → Individual processing

Necessary data:
o PO number
o settlement period
o fiscal year
The following data can also be defined:
o processing type
o posting period
o asset value date
Before executing, the user decides whether to carry out the settlement as a simulation or as an update:
 If the indicator Test run is not set, the results of settlement are updated.
 If the indicator Test run is set, settlement is simulated (this helps to check, for example, the
completeness and correctness of the objects to be settled).
Execute with the appropriate button.

Note: a production order can be settled any number of times.

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 Cost analysis reporting

The cost analysis reporting includes:

- calculate and analyze planned costs, target costs, and actual costs of the production order.
- calculate and analyze variances.
To analyze production costs at product level, variance reports are useful. These reports show planned
costs for the order, actual incurred costs, and calculated variances. The reports also show detailed costs
per cost element. User can interactively analyze the variances and use a drilldown technique to display
individual cost allocations.
Other standard reports compare standard cost estimates for products with current production orders or
production cost collectors. Production order hierarchies can be defined, where to summarize orders for
the same product or for product groups.

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The Production Order Information System (transaction code COOIS)

The PO information system is a tool for shop floor control and process industries with reporting functions
for planned and production orders.

Menu Path: From the Production Control node, choose Information System -> Order Information System

The transaction COOIS allows the user to review information on a number of selected production orders.
The initial screen requires the user to enter selection criteria to restrict the number of PO to be reviewed.
The subsequent screen shows the production orders relevant to the search. The user can then select the
orders to be reviewed and then select to see the operation overview, component overview, status,
configuration, stock/requirements list, and the stock overview.

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 Closing &
Archiving Order Request
Order 16 1 Order Creation
settlement 2 Availability
15 Checks
Variance 3
Calculation
14 4
Production Machine
Reservation

Goods Receipt
13 Order 5
Order Release
Cycle
6
WIP 12
Download to
Determination PDC system
11 7
Confirmation 10 8 Print Order
9
Upload from Material staging
PDC system Material withdrawal
posting
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