Whilst the functionality of ‘Cost distribution’ features much more prominently in the Advanced version of SAP Transportation Management, it should be not be missed, that elements of this functionality also exist in Basic Transportation Management in SAP S/4HANA Cloud – and what is there should not be sneezed at.
If your organisation requires the use of transportation services, then there is no doubt that freight spend represents a sizeable expenditure and the ability to report on freight costs in your financial reporting is of great importance. Moreover, you need to be able to allocate those freight costs correctly and accurately to other parts and processes of your organisation. For example:
- To understand the true cost of transportation of materials
- To understand the profitability of a sales order, a customer, a product…
- To invoice your customers with the true cost of transportation (Pulling cost from the freight order to the customer billing document)
Before we work through an example, let’s cover some basic knowledge to understand where charges can exist, so that we have a better understanding of how they can be distributed back to a source object.
At what level can charges exist?
In the context of transportation management, the charge calculation can happen at different levels on a freight order, as illustrated below:
- At the Freight Order Level (ROOT): The charges here will be distributed to all the items being transported in a freight order
- At the Stage Level (STAGE): The charges here will be distributed to all the items that are relevant at this stage
- At the product level (PRODUCT): The charges here will be distributed to the item being transported
To further illustrate this hypothetical use case, let’s assume we have a freight order that has:
- A freight cost of $110 at the (ROOT) freight order level. This cost of $110 will be distributed to all the items in the freight order
- 2 items (products) having a gross weight of 100 Kg and 150 Kg respectively. This means that the total freight order gross weight is 250 Kg (item 1 accounts for 40% of the weight and item 2 for 60% of the weight). We also see that item 1 has a $100 freight cost (at the product level) and item 2 has a $150 freight cost (at the product level). The freight cost of each product will be distributed back to the sales order to which it is associated.
Assuming that we have Gross Weight based cost distribution rule, then the cost distribution of this freight order should look like this:
We have the $110 cost at the freight order level, distributed back to the items based on their gross weight. So, 40% of the $110 ($44) will go to the sales document/item linked to product 1 and 60% of the $110 ($66) will go to the sales document/item linked to product 2. The freight costs recorded at the product level, will each be distributed back completely to the sales document/item they are linked to.
A system example
Let’s now move on to a real system example.
To set the scene, I have already created two sales orders, for two different customers (both in California).
Both sales orders only have one item and their details are as below.
We will go on to create one freight order. The goods will be loaded onto a truck from our Distribution Centre in Palo Alto, CA, and then delivered to our customers, stopping in Vacaville first and then going on to Stockton.
We have planned the freight units onto a freight order and the planning looks as below:
If we look at the created freight order we can follow the document flow information and correlate this back to the items transported.
We now move on to assigning a Carrier and maintaining the Purchase Organisation and Group, so that a freight agreement can be determined, and the freight order costed.
Once this is done, the freight charges are visible in the freight order.
What we see is that:
- The total freight cost of the freight order is 260 $
- $250 represents the Freight rate, which is set at the Freight Order (Root) level. We have gone with a simple charge of 1$ per 1Kg. So a total weight of 250Kg = $250
- We also have a loading charge for one product, with a flat rate of $10
We can further drill down to find out which product is attracting this loading charge – it is product PR-TG11.
You will also note that once charges exist in your freight order, the cost distribution is performed in the background when you save it – and you are notified of this.
As this is not the object of this blog post, we have moved forward and created the deliveries, performed the picking, recorded the goods issue, and updated the execution statuses on the freight order – the freight order is now completed from a logistical point of view.
The next step in the process is to perform the accrual posting, and it is in this step that we will be able to see the details of the cost distribution. To do this we open the application named ‘Monitor Accrual Postings’ and go to the ‘Cost Distribution’ tab of the document, where we have all the details we need.
- In yellow, we see the total cost of the freight order which was $260. If we move further down the screen we can see that 42.3% of the freight costs were distributed to one item and the remaining 57.7% to the other item. This represented $110 and $150 respectively.
- In orange, we see the freight rate, which if you recall was based on the total gross weight of the freight order (the charge was at the root level). The freight cost was distributed to the 2 items based on their gross weight. So, one item received $100 (40%) and the other received $150 (60%).
- Lastly, in cyan, we see the loading charge, which was at the product level. This charge was, therefore ‘distributed’ 100% to the sales document to which it was linked.
As stated in the opening of this post, the purpose of cost distribution is to allow you to account and allocate a cost accurately to a source document or object. To follow up on our freight order, you could leverage the embedded SAC to build your own reports and for example analyse the profitability of a sales order item to analyse the freight spend vs the revenue from the sale, for a product, customer…
Lastly, before we close this post, you will have noticed that in this example, I used a cost distribution rule based on the gross weight. This is not the only option that is available to you.
To set a different distribution rule, or see the other options, then go into your configuration environment, for the application area ‘Supply Chain’, sub-application ‘Transportation Management’, in the item ‘Transportation Charge Management’ and the step ‘Define Charges Profile’.
You will see the distribution options available.
In closing, in this blog post, we have learned demonstrated how cost distribution works in Basic Transportation Management, how you can leverage it to assign a freight cost to a source object, and how you can configure it to suit your requirements.
Do not hesitate to leave your feedback and questions in the comment section below.