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Software as a Service (SaaS) or public cloud option of SAP, has high standardization and less flexibility to configure/modify. SAP adds more features in SAP S/4 HANA Cloud Public Edition regularly. As of now, every year there are 2 major releases in February and August. Smaller fixes are released between these major releases and systems are upgraded automatically during these release cycles. Hence, it is important to keep track of the available functionalities in each release. Moreover, some of the features are first released in the public cloud version before it is released in the on-premise or private edition. This blog focuses on the functionality to use SAP TM (Transportation Management) Freight Order charges in SAP SD (Sales and Distribution) Billing Document, which was first released in S/4 HANA Cloud Public Edition (2019). This feature is now available in the private edition too.
Business Requirement:
One of the common business requirements for an end-to-end integrated order to cash and logistics process is the ability to invoice the customer the freight cost incurred for delivering the product. Some of the common scenarios are:
- Mark-Up: Charge an amount in Billing Document (as separate item) which is more than the estimate from the TM. One reason is to generate additional profit and freight revenue which will add to the overall profitability of the sale. Another reason is to incorporate the normalized amount of variance in freight costs (with respect to actual carrier invoices received from carrier) so that further credit/debit memo can be avoided.
- As-is: Charge the initial estimate from TM as is in the billing document. If there is a variance in freight cost (compared to carrier invoice), then the customer is charged a subsequent invoice or debit/credit memo. Some customers may write-off/ignore the variance or embed the normalized/estimated variance in the overall selling price of the product.
- Slabs: If we use the price from TM as is or with a percentage mark up, then there is chance that the freight charge amount in the billing document can be different for the same ship-to party from the same source location. This can be because of the variability of weekly fuel surcharge, other accessorial charges etc. To resolve this issue, certain customers employ slab rates where the freight charge within a specific range will be a fixed amount.
- Do not use TM cost: Here the freight charge used in the billing document is not based on freight estimate from TM system. Instead, quarterly or annual freight cost incurred is analyzed and the pricing is finalized. In this case the customer gets a fixed cost for specific scenarios and the variance with respect to actual cost is incurred by the selling company. This technique is losing popularity as the relatively accurate cost is available from TMS system nowadays.
- Do not charge freight as a separate amount: In this scenario, freight is not charged as a sperate item in the billing document. However, the freight cost may be incorporated/embedded in the selling price. The break-up of freight is masked, and the customer may not have the visibility of freight component of the overall price and selling prices can vary based on the customer’s location. However, the Freight-Out accounting will be critical as the margin or Cost & Profitability Analysis (COPA) is the key input for pricing.
In short, the freight cost to deliver the product to customer is an important component for SD (Sales and Distribution) pricing. This will be critical when the freight cost is significant compared to product cost. Additionally, if the customer invoice is based on the TM freight estimate (either as is or marked up) then there will be the key and essential requirement of distributed freight cost. When multiple orders for different customers are transported together, distributed freight cost (for example based on ratio of weight of the products) is required to invoice the customers. Moreover, businesses would like to have different logic/rules to charge the freight cost (based on TM estimate) for different customers.
SAP Solution:
SAP Sales and Distribution uses condition technique to accurately calculate the prices in Billing Document. Same technique is used to calculate price for sales orders, purchase orders and other similar documents in SAP S/4 HANA. Over the years, using this feature, SAP could cater to most of the business requirements in the pricing area across industries.
The condition technique is an infrastructure that helps to define master data and configure its determination. The master data are called condition records and are maintained in condition tables. To configure the determination, it uses the pricing procedure, condition type, and access sequence. In pricing, master data can be prices, discounts for materials and business partners, surcharges, sales taxes, and planned costs for customs or freight. The system uses this data to calculate the net value in a business document.
The pricing procedure defines the calculation sequence for the net value by specifying the order of condition types and subtotals. In addition, it defines which values are posted to accounting (Statistical Check Box). Subtotals are intermediate results of the price calculation, like the sum of discounts or sales tax values.
A condition type is a representation of a price, a discount, surcharge etc. Condition types control the process from the definition of master data to the net value calculation in a business document. For most condition types, different condition records can be defined for a combination of different price-relevant attributes and their values.
To control the search sequence per condition type, an access sequence can be defined and assigned to a condition type. Additionally, the access sequence defines when the system must stop searching.
For typical pricing activities, the standard SAP system provides predefined pricing procedures (sales), condition types, and access sequences. For example, the delivery includes condition types for material prices, discounts for materials, customers, or suppliers, and surcharges for freight and sales taxes. In the case of each element, one can use the standard version, modify the standard version, or create entirely new definitions to suit the business needs.
Reference: SAP Help
The above example details the use of condition technique to calculate the handling fee in billing document. Based on the parameters in Billing Document and Pricing procedure determination configuration, Z17J01 pricing procedure is selected. HF01, which represents handling fee, is a condition type assigned to the Pricing Procedure. HF01 has the access sequence AS01, which has 3 accesses and condition tables respectively. Since the system didn’t find any condition records (which match the billing data) for the first access (No 10/ table 901), condition records in for condition table 902 is checked and 10 USD is determined. This value is later used in the Billing Document for pricing. Similar process is executed for all condition types in pricing procedure and the total amount is calculated.
Once the Freight Units (based on Sales Order/Delivery) are planned in TM to create Freight Order, charges are calculated based on the carrier assigned. The standard TM module distributes the cost to underlying order items based on the rule (for example gross weight) set in the configuration. During billing document creation, the distributed cost can be pulled from the TM FO into the Billing document pricing conditions using the standard set-up.
Details for this set up are available in document ‘Setting Up Manual Transportation Planning’ (6W2 - version 2024-06-26) Section 6.1 to 6.6. In short, the condition type config should have FCTM as the Condition Function. Additionally, we need to update the price source in copy control settings between delivery and billing document for item category as I - Order/Freight Order. Accordingly, distributed freight costs from TM will be available in Billing document against the condition type at the item level.
If we want to mark up and charge a higher percentage to the customer, standard pricing features of SD area can be utilized. For example, we can use a statistical or inactive condition type to pull and store the distributed freight cost while creating the billing document. Then we can have another condition type with a markup percentage which references the statistical condition type. Also, it is common to mask the percentage markup and print only the total freight cost in the invoice document we send to the customer.
Demo:
In order model the scenario to charge the certain customers 5 or 10% markup of the distributed freight cost calculated in TM FO, some of the key configuration set up (via Central Business Configuration) used are detailed below:
Pricing procure Z17J01 is configured to have ZBHD condition type (along with other condition types) with statistical check. ZFRM condition type (active) is also included in the pricing procedure and is a reference to item 10 (ZBHD statistical condition type) to calculate the markup percentage and amount.
ZBHD condition type is configured to pull the distributed freight cost from TM.
Additionally copy control settings are updated for the relevant item category as I – Order/Freight Order.
ZFRM condition type (active) is configured to calculate the markup with reference to inactive ZBHD condition type and access sequence DGP2 is assigned.
Access Sequence DGP2 has one access with condition table 020.
Condition Table 020 has Sales Org, Distribution Channel, Division and Price Group as the fields.
For ZFRM condition type, condition records with condition amount/ratio 105% (5% markup) is maintained for C1 Price Group and 110% for C2 Price Group.
Please note that in the demo only the few pricing condition types are included to focus on the TM freight cost. Secondly input parameters to determine condition records are limited to Price Group only. This can be extended, and all features of SD pricing are available to cater to the business requirements.
Sales order 110 is created in Sales Area 1710/10/00 for US Customer 2 (1700002) with Shipping Condition 06 (TM – Int Planning) and Customer Price Group as C1 – Regular Buyer. 200 PC or 3600 KG TG11 material is order from Plant 1710.
Similarly, Sales order 111 is also created for 300 PC / 5400 KG. Automatically created FU 4200000910 & 4200000911 against SO 110 & 111 are planned in Transportation Cockpit to create FO 6600000813. Carrier is updated and freight charges of 1000 USD are calculated in TM based on freight contracts/agreements maintained in TM.
Deliveries 80000070 & 80000071 are created from TM and the documents are updated in TM document flow.
Pick, Pack and Post Goods Issue process of the outbound deliveries are completed, and the document is ready for billing. Additionally Distributed freight cost (based on ratio of gross weight) 400 USD & 600 USD are also available in the Freight Order.
Using Create Billing Document App, the billing document 90000037 for Sales Order (110)/ Delivery (80000070) is generated and saved.
Freight cost (400 USD) at item level is retrieved from TM and is updated in item/header condition ZBHD of the billing document as an inactive/statistical charge. ZFRM condition referenced the ZBHD condition type, determined 105% markup from the condition records (as the condition records for customer group C1 is 105%) and updated the total amount as 420 USD. The total amount in the billing document includes the Price (PPR0), Freight Customer (ZFRM) and Tax (JR1). As designed, it did not include the inactive charges (Internal Price (PCIP) & TM Freight Cost/Est (ZBHD)). In this way we could charge a 5% markup of the distributed TM freight cost to the customer (with Price Group C1). This is just one way to model the prices. Using the SD pricing feature these can be designed differently and efficiently as per the business requirement.
Please note that there are some limitations to using TM distributed freight cost in SD billing. The feature can be used (as of now) when there is only one freight order document for the delivery and the freight order has the same currency in which you calculate the cost. For example, multistage delivery with multiple freight orders or bookings assigned are not supported. Freight Cost accounting (Freight-Out) and Cost & Profitability/Margin Analysis aspects are also not discussed in this blog as this blog focuses only on the freight revenue and use of TM freight cost in SD billing document. These areas can be topics for future blogs.
Business benefits:
- Using distributed Freight Cost from TM in SD pricing conditions can significantly improve the accuracy of the pricing.
- Customer satisfaction from robustness in pricing and integrated SD-TM solution.
- Improved analytics helps in deciding collect vs prepaid contracts with customer.
- No need to push for collect scenarios with customer because of the inability of TMS to provide reasonably accurate freight cost.
- Ability to generate reasonable freight revenue as per the business requirement.
- Options to avoid freight allowance (Reference) charged by customers by using prepaid scenarios
Conclusion:
SAP adds more features in SAP S/4 HANA Cloud Public Edition regularly. Some of the functionalities are first released in the public cloud version before it is released in the on-premise or private edition. Hence, it is important to keep track of the available features in each release.
Ability to use distributed TM freight cost in SD billing document is critical business requirement and an integrated solution is the key to cater to such requirements. In S/4 HANA Cloud Public Edition, in addition to pull the distributed freight cost from TM, all the features of SD pricing can be utilized to modify the total freight charged to the customer. This showcases robust and seamless integration of various modules in S/4 HANA Cloud Public Edition. Additionally, this solidifies the business case for having an integrated solution where all the products are from the same product vendor (SAP). Hence potential SAP customers must evaluate whether S/4 HANA Cloud Public Edition with its current functionality and future roadmap is suitable for their business process, before they decide to explore other products/vendors.
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