Imagine you’re a company that manufactures and sells finished goods, using commodity components whose cost fluctuates and where you purchase globally leading to exposure to currency fluctuations. It’s important that you understand the impact of those potential material cost and currency fluctuations and the impact it has on your forecasted profitability, and have plans to mitigate against the variety of scenarios you might be presented with.
So what does SAP Product Cost Forecast and Simulation actually do?
The Product Cost Forecast and Simulation solution enables you to do just what I explained above. It takes as its input the following:
- Forecasted sales of finished goods
- Bills of Materials for finished goods
- Forecasted currency exchange rates.
Using these inputs it can derive a forecasted gross margin in group currency. It then enables scenario planning to predict the impact of currency or raw material price changes on that gross margin.
We have thousands of raw materials. Surely there’s a great deal of effort involved in modelling changes to raw material costs in a coherent way?
An important step in configuring the SAP Product Cost Forecast and Simulation tool is to group raw materials into “Commodity Groups”. For example, you may have a large number of hydrocarbon based raw materials whose cost fluctuates in a similar pattern, largely dependent on the price of crude oil. The tool enables you to group these together and then model cost changes at the Commodity Group level which, in turn, applies the cost change to all associated raw materials across all Bills of Materials. If the Commodity Groups are set up properly, then scenarios can be set up and ran in a number of minutes.
The volumes of data involved in this calculation are very large. Surely performance is a significant issue?
The solution uses SAP HANA to store and calculate the data. The calculation of a new scenario is designed to run in real-time, meaning that results should be seen in seconds. The solution is designed to be able to cope with customers who sell thousands of finished products.
From a technology standpoint, what do I need to deploy SAP Product Cost Forecast and Simulation?
Firstly, the solution itself requires a SAP BW on HANA environment to run on. The SAP Product Cost Forecast and Simulation functionality is delivered as HANA-Optimised Business Content in BW.
Secondly, the solution can leverage the standard costing BOMs from SAP ECC through the standard extractors. However, the solution is designed to be source system agnostic.
Finally, end users will need client tools to maintain the sales forecasts, forecasted exchange rates, and scenario assumptions, as well as perform reporting.
What are the options for those client tools?
The business content delivers simple BEx queries (both reporting and input-ready) making BEx the simple, default option. However, SAP Analysis for Office would be a good alternative for both data entry and reporting.
For reporting requirements, clearly the other SAP BI Suite tools are all compatible with SAP BW and would be good candidates for reporting, especially Dashboards.
Going further, SAP BPC 10.1 would represent an excellent front-end choice for this tool, using the Unified Planning Modeller on top of the delivered Integrated Planning/ PAK queries and functions. The advanced workflow (Business Process Flow) technology in BPC could be used to orchestrate the processes involved in furnishing SAP Product Cost Forecaste and Simulation with its input data.
How “configurable” is the standard Product Cost Forecast and Simulation tool?
The great thing about the tool is that it is delivered via Business Content in SAP BW. This means that it is designed to be used out of the box, but also supports enhancement. Possible enhancements that spring to mind are:
- Using SAP BPC 10.1 on top to provide orchestration and a superior user experience
- Enhancing the Sales Forecasting model that is delivered with the tool to a point where it could be used as the main commercial forecasting tool for the sales team
- Enhancing the data model to provide a more detailed chart of accounts when determining cost of goods
- Potentially including other aspects of pricing, including transportation.
Where can I find more detailed technical information about SAP Product Cost Forecast and Simulation?
There is a great post on the SCN written by Guido Eichmann and Rolf Sieberg, from SAP - Product Cost Forecast and Simulation – a driver-based approach
It is also worth reading the Product Cost Forecast & Simulation (SAP HANA-Optimized) help documentation.