how_rockwell_automation_optimized_its_product_costing_process

3. Introduction • We will review how Rockwell Automation’s product costing process transitioned from many disconnected legacy systems to a single instance of SAP in order to: • An overview of Rockwell’s product costing process from standard to complex engineer-to-order products • How Rockwell optimized SAP costing with minimal manual master data maintenance • Leveraging out of the box SAP functionality to support specialized costing requirements such as maintaining freight and duties adders with third party vendor procurement • How Rockwell overcame unique global design challenges using customized reports and transaction codes 3

4. Topics 4 • Overview of Rockwell Automation • Scope of Product Costing • Master data • Product Costing Process • Ongoing Challenges • Lessons Learned Start of first section: List the main points in your presentation and insert this slide at the start of each new topic. Move the highlighted box down for each new section. This divides your presentation into easy to follow sections.

5. Leading global provider of industrial power, control and information solutions Rockwell Automation At A Glance 5 Fiscal 2012 Sales • $6.26 Billion • > 50% outside the U.S. • 22% in emerging markets Two Segments – One Business • Architecture & Software • Control Products & Solutions Global Reach • 22,000 employees • 80+ countries Serving Customers for 100+ Years • Culture of integrity & corporate responsibility • Domain expertise • Technology innovation

6. = Distribution Centers = Manufacturing Locations Rockwell Automation Sites Running on SAP 6

7. Rockwell Automation – SAP System Scope • Single instance of SAP • ECC 6.0 • Implementation consists of: • Order-to-Cash • Purchase-to-Pay • Issue-to-Resolution • Market-to-Quote • HCM • Finance 7

8. Rockwell Automation – Costing Organization • Cost Accounting centralized daily and annual costing needs • Team of 11 to support global costing and production analysis • Daily costing service level agreement to complete costing within 24 hours of request • Cost completion only achieved if the cost relevant master data is accurate at the time of the cost roll request 8

9. Rockwell Automation – SAP Costing Scope • Diverse product range required multiple costing techniques • Standard Costing • Fixed BOM’s and routings : product not specific to individual customer requirements • Often stocked at distribution centers • Sales Order Costing • Products which require engineering support • Products are manufactured for specific orders • Material Variant Costing • Products with unlimited variations but main assembly is the same (ex. Push buttons) • Products which can be both stocked and nonstocked 9

10. Rockwell Automation – Costing Design Requirements 10 • Daily new part / product costing • About 11,000 – 15,000 materials per month • Annual cost roll • Maintain costs on close to 1,600,000 material extensions in SAP in 58 plants • Manufacturing (21 Plants) • Distribution (11 Plants) • Returns (4 Plants) • Support feeding information to Non SAP (22 Plants) • Ability to include markups on 3rd party as well as intra/intercompany transactions • Minimize master data maintenance • Build process to easily identify parts to be costed

11. Topics • Overview of Rockwell Automation • Master data • Product Costing Process • Ongoing Challenges • Lessons Learned 11 Start of first section: List the main points in your presentation and insert this slide at the start of each new topic. Move the highlighted box down for each new section. This divides your presentation into easy to follow sections.

12. Master Data • Utilized PIR’s for 3rd party purchases and subcontract materials • External Operations as part of routings • Purchasing conditions for Freight and Duties adder • Utilized special pro keys to cost intercompany purchases • Costing sheets used to apply intra/intercompany freight, duties and markups • BOMs and routings for make items • SuperBOMs and routings for material variants • Fully Burdened rates used for labor and burden absorption • Costing sheets not utilized to allocate overhead at month end • Most labor is back flushed based on routed hours, not actual time (except in ETO manufacturing) 12

13. Master Data Objectives • Minimize the amount of time spent maintaining master data • Automate data maintenance where feasible • Programs that update cost fields based on changes in other master data • Eliminate redundant master data • Intercompany and intracompany should not require purchasing records • One source of truth • Intercompany transactions should not require maintenance of data to support purchasing (STO’s), sales and costing • Minimize requirements to communicate need to cost • Build process that initiates costing based on changes material master 13

14. Master Data – Freight • Tcode MEK3 • Condition type ZFR1 • Plant/Vendor based setup as a percentage application • Default rate maintained per plant • Rate setup for parts purchased from other Rockwell SAP locations (VXXXX – XXXX represents the sending plant) • Mass upload program available for Annual/mass maintenance purpose • Maintained by OES • Plant to Plant rates are loaded to costing sheet which is used for Inter/Intra costing purposes 14

15. Master Data – Duties • Tcode MEK3 • Condition type ZD01 • Plant/Vendor based setup as a percentage application • No Default • Rate setup for purchases made from other Rockwell SAP locations • Mass upload program available for Annual/mass maintenance purpose • Maintained by OES • Plant to Plant rates are loaded to costing sheet which is used for Inter/Intra costing purposes via custom program 15

16. Master Data – Intra / Intercompany Markups • Condition type ZG01 • Company Code/Inv. Party/BU • Used for Purchasing, Costing and Billing purposes – Fully Integrated • No Default rate should be maintained • Rate setup for purchases made from other Rockwell SAP locations • Rates must be loaded for all the BU’s • Mass upload program available for Annual/mass maintenance purpose • Currently owned by Tax and Cost Organization • Markup rates between regions on SAP are loaded to costing sheet which is used for Inter company costing purposes via custom program 16

17. Intra / Intercompany Markup Costing Integration • Used only for planning purpose for setting standard costs • Costing sheet is used to support Inter/Intra company usage of condition tables • Rates are updated daily using a batch program to ensure purchasing percentages are in sync with costing percentages • Markup is applied to the base value of the part • Freight and Duties are applied to the sum of base & markup Overhead Rates/Costing Sheet

18. Master Data Results – Freight/Duties/Inter & Intra Markup 18

19. Automated Master Data Maintenance & Review • Created daily change report to email cost organization for cost relevant fields • Procurement Type, Special Procurement Key, Plant Block • Created program to update key fields utilized for costing • Origin Group, Overhead group • Created program to remove costing block when new parts are costed and released without error • Automated costing sheet updates tied to Intercompany Purchasing conditions for freight, duties and markups 19

20. Daily Change Report • Created daily change report to email Cost organization for cost relevant fields • Procurement Type, Special Procurement Key, Plant Block • Excludes approved users to removed Costing Block 20

21. Update Key Fields • Created program to update key fields utilized for costing • Origin Group, Overhead group • Program reviews changes to special procurement keys 21

22. Remove Costing Block • Created program to remove costing block when new parts are costed and released without error • TVARV created to allow team to change based on status 22

23. Review and Update Costing Lot Size • Program to review and update costing lot size on mfg parts that have setup time or purchased parts that have scale pricing 23

24. Master Data Maintenance • Maintenance Continued • Upload and download capability of freight, duties and intercompany markup tables • Freight Table has over 1,800 records • Duties Table has over 500 records • Markup Table has over 6,000 records 24

25. Analyzing Inventory • Custom report for analyzing inventory • Inventory by Cost Component Split 25 Amount Quantity Raw Material Import Duty Inter-co Transfer Freight Subcontracting Full Burden Absorpti Plant Material MYR MYR MYR MYR MYR MYR MYR 5120 Malaysia Distribution Center XXXXX 13,107.35 1.000 EA 2,944.7700000 1,660.2900000 5,461.3900000 640.4000000 0.0000000 789.6300000 5120 Malaysia Distribution Center XXXXX 14,029.82 7.000 EA 2,913.4700000 1,812.3000000 5,845.7700000 868.0700000 0.0000000 723.3800000 5120 Malaysia Distribution Center XXXXX 4,788.38 1.000 EA 1,116.8800000 618.8600000 1,995.1500000 307.6100000 0.0000000 268.4900000 5120 Malaysia Distribution Center XXXXX 4,579.52 1.000 EA 1,112.6800000 576.3500000 1,908.1400000 227.7500000 0.0000000 164.7000000 5120 Malaysia Distribution Center XXXXX 6,767.00 2.000 EA 1,074.0000000 874.1400000 2,819.5800000 426.0200000 0.0000000 226.6200000 5120 Malaysia Distribution Center XXXXX 3,896.93 1.000 EA 938.7400000 503.3900000 1,623.7200000 233.2700000 0.0000000 218.4400000 5120 Malaysia Distribution Center XXXXX 2,590.93 1.000 EA 877.3100000 351.0700000 1,079.8700000 189.7100000 0.0000000 52.1300000 5120 Malaysia Distribution Center XXXXX 2,659.93 12.000 EA 875.2100000 343.6000000 1,108.3000000 160.5900000 0.0000000 85.9300000 5120 Malaysia Distribution Center XXXXX 15,604.52 1.000 EA 704.6100000 2,062.4800000 6,501.8800000 1,007.4400000 0.0000000 850.3200000 5120 Malaysia Distribution Center XXXXX 2,066.06 5.000 EA 679.6200000 279.9500000 860.8600000 143.6500000 1.7300000 99.8200000 5120 Malaysia Distribution Center XXXXX 2,337.42 2.000 EA 620.2400000 316.7200000 973.9200000 158.5600000 1.4600000 85.6400000 Machine Absorption Semi finished Goods Finished Goods Trading Goods Customs Brokerage External Proc Cost Total Material Cost Total Burden Cost Total Cost Plant Material MYR MYR MYR MYR MYR MYR MYR MYR MYR 5120 Malaysia Distribution Center XXXXX 8.5000000 1,593.0000000 0.0000000 9.3700000 0.0000000 0.0000000 12,309.2200000 798.1300000 13,107.3500000 5120 Malaysia Distribution Center XXXXX 2.2400000 1,864.5900000 0.0000000 0.0000000 0.0000000 0.0000000 13,304.2000000 725.6200000 14,029.8200000 5120 Malaysia Distribution Center XXXXX 0.0000000 466.0300000 0.0000000 15.3600000 0.0000000 0.0000000 4,519.8900000 268.4900000 4,788.3800000 5120 Malaysia Distribution Center XXXXX 86.6200000 503.2800000 0.0000000 0.0000000 0.0000000 0.0000000 4,328.2000000 251.3200000 4,579.5200000 5120 Malaysia Distribution Center XXXXX 0.6400000 1,346.0000000 0.0000000 0.0000000 0.0000000 0.0000000 6,539.7400000 227.2600000 6,767.0000000 5120 Malaysia Distribution Center XXXXX 74.0400000 305.3300000 0.0000000 0.0000000 0.0000000 0.0000000 3,604.4500000 292.4800000 3,896.9300000 5120 Malaysia Distribution Center XXXXX 0.0000000 40.8400000 0.0000000 0.0000000 0.0000000 0.0000000 2,538.8000000 52.1300000 2,590.9300000 5120 Malaysia Distribution Center XXXXX 74.5700000 11.7300000 0.0000000 0.0000000 0.0000000 0.0000000 2,499.4300000 160.5000000 2,659.9300000 5120 Malaysia Distribution Center XXXXX 0.0000000 4,477.7900000 0.0000000 0.0000000 0.0000000 0.0000000 14,754.2000000 850.3200000 15,604.5200000 5120 Malaysia Distribution Center XXXXX 0.0000000 0.4300000 0.0000000 0.0000000 0.0000000 0.0000000 1,964.5000000 101.5600000 2,066.0600000 5120 Malaysia Distribution Center XXXXX 0.0000000 180.8800000 0.0000000 0.0000000 0.0000000 0.0000000 2,250.3200000 87.1000000 2,337.4200000

26. Master Data Challenges 26 • Complexities with Costing and Master Data • Products Change from make to buy and procure from plant A today to procure from plant B tomorrow. • Owners of master data are spread around the world • Communication between master data owners and Cost Accounting is minimal • Lack of understanding the integration of master data to the successful costing of products in the business

28. Product Costing Process – New Parts DEVELOPMENT OF MATERIAL COST FIELD MAINTENANCE MATERIAL READY FOR COSTING MATERIAL READY FOR COSTING COSTING RUN MATERIAL COSTED SUCCESSFUL MATERIAL FAILED COSTING 28

29. Product Costing Process – New Parts (cont.) DEVELOPMENT OF MATERIAL Create/Extend Material (08 Plant Specific Block) Load Cost Relevant Data BOMs PIRs Spec Proc KeysCOST FIELD MAINTENANCE Batch Jobs run nightly and before cost rolls to mantain cost fields MATERIAL READY FOR COSTING Business changes Plant Specific Block to 03- Ready for Costing 29

30. Product Costing Process – New Parts (cont.) LOT SIZE REVIEW Cost Accounting reviews for 03 materials with Setup or Scales and reviews/changes lot sizes COSTING RUN CA runs T-Code CK40N for materials in 03 status and no released std, four times per day, each region in two cost runs daily MATERIAL COSTED SUCCESSFUL If material costed successfully cost Released and program runs to remove 03 Blocks MATERIAL FAILED COSTING If material failed costing, move to FC plant specific block and email sent to person who applied 03 block 30

31. Key Points to Daily Costing Process • Process designed around change to plant specific material status • No internal communication required • Automation of key fields used in costing • Automation of block removal on costed parts • Automation of failed costing status • Analysis report built for setup time and scales 31

32. Product Costing Process – Annual Cost Roll COMMUNICATION MOCK COST ROLLS FROZEN COST ANALYSIS RATES & PURCHASING COSTS LOT SIZE REVIEW Year Over Year Review RELEASE OF STANDARD COSTS 32

33. Product Costing Process – Annual Cost Roll (cont.) RATES Collection of Freight/Duties and Burden Rates PURCHASING COSTS Buyers reviews of PIR pricing for 3rd party purchases RATES & PURCHASING COSTS DNC (Do not cost analysis) •DNC should be on Procurement types "E" or "F" with a special procurement type •Analyze for recent activity and consider removal of frozen costs •DNC flagged materials are marked (ZPCS) Planned Price 1 analysis •PP1 should be on "F blanks" •Analyze for valid purchasing, vendor records FROZEN COST ANALYSIS Mock cost rolls run at different costing versions and materials in error status are monitored and fixed Selection: •30 'live' plants •(excl. Shadow, Returns, or Closed, Plants) •Exclude Blocked Materials MOCK COST ROLLS "Quiet Period" communication to all global SAP live locations COMMUNICATION 33

34. Product Costing Process – Annual Cost Roll (cont.) 58 Plants (Distribution Centers, manufacturing, Shadow, Return, closed plants) For Configured Materials and Standard Materials Excluding 22 blocks RELEASE OF STANDARD COSTS Analysis of changes in cost year over year by material component (material, labor/burden/ freight/ intercompany markup) with quarterly usage Year Over Year Review Review Manufactured and Purchased materials Lot sizes LOT SIZE REVIEW 34

35. Key Points to Annual Costing Process • Process is dependent on key cost relevant master data freeze • Many parts are excluded due to blocks (last time buy, phase out, obsolete, no longer used etc…) • Test cost rolls begin 3 months before final cost roll • Issues occur due to variant and standard cost roll colliding • Lot sizes are updated based on last five production orders or purchase orders if setup time or scales exist • Year Over Year review is done an prioritized based on sales or usage • Costs are released over the weekend 35

37. Ongoing Challenges 37 • Accuracy of fields affecting costing • PIR price per inaccurate • Potential user exit to analyze percent change from prior price • Components in BOM that are blocked • Inter/Intra company cost request when not costed in sending plant • Major changes to BOM/Routing after cost requested • Removal of blocks by business before costing and subsequent inventory activities • Annual Cost Roll runtime is getting out of control • Inability to cost variants and standard products complicates annual cost roll

39. Lessons Learned • Intercompany costing too integrated • Issues with price changes when parts are recosted in certain countries • Peso Legal Entity selling in US dollar currency and effects on daily exchange rate conversion • Challenge part extension proliferation during design • Parts are extended to every distribution center, even if never sold there. • Maintenance of the data when never used 39

40. Lessons Learned (cont.) • Standardization on company code, plant, special procurement keys across implementation streams • Company code to plant consistency • Special procurement keys consistent across all plants • Use of material variants versus sales order costing • Would recommend not to create a material number for each variation at time of first order. • Ensure reporting requirements are well understood before doing custom reporting • Rework due to revised requirements caused delays and excessive development costs 40

41. Resources • Product Cost Controlling with SAP (SAP Press) • http://www.sap-press.com/products/Product-Cost- Controlling-with-SAP.html • Production Variance Analysis in SAP Controlling (SAP Press) • http://www.sap-press.com/products/Production-Variance- Analysis-in-SAP-Controlling-%282nd-Edition%29.html • SAP Help – Product Costing • http://help.sap.com/saphelp_46b/helpdata/en/0d/d5e33698d0 eb07e10000009b38f889/frameset.htm 41

42. Five Key Ideas • Importance of understanding master data and the implications of decisions made at the start of the project • Automation of master data maintenance is key to successful costing in organizations with massive amounts of materials • Controls put into other areas processes are key to accurate costing • Think outside the box! Many times I was told something could not be done, but we found a way • Educate non-finance people on how their process affect costing 42

43. Questions • Now: • Ask questions now for immediate answers • Later: • cfkarch@gmail.com 43 Q&A

44. Disclaimer SAP®, R/3, mySAP, mySAP.com, xApps, xApp, SAP NetWeaver®, Duet®, PartnerEdge, and other SAP® products and services mentioned herein as well as their respective logos are trademarks or registered trademarks of SAP AG in Germany and in several other countries all over the world. All other product and service names mentioned are the trademarks of their respective companies. ERP Corp is neither owned nor controlled by SAP.

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