What's UCB?

Jessica_Dewald

Co-authored by @Eva_Wang and Jessica Dewald

What's UCB?

Universal Component Breakdown (UCB) offers comprehensive transparency and insights into the cost structures of products, specifically targeting the costs of goods manufactured and sold. This innovation addresses a critical business need, enabling companies to better understand and manage cost factors that influence product profitability and company contribution margins. UCB will continuously replace the existing product costing capability with an innovative and streamlined solution tailored for SAP S/4HANA Cloud Public Edition.

With the initial version of the product cost breakdown you have a solid foundation to obtain those insights.
The functionalities of UCB will be gradually enhanced in the coming releases. The result will be a fully integrated solution providing cost transparency from planning and procurement to manufacturing and sales across even complex multi-level value chains.
In the past, controllers had blurry vision when it came to advising the business on product profitability due to aggregation of things like allocated costs. With the new component breakdown types, opportunities to take action come into focus and new questions can be answered with the data to back them up.

If you’re new to this topic, you’re in the right place to get answers and find further resources on the following questions:

Which functionalities are included with scope item 7NH, and which additional scope items are required? (See sections What’s Covered by Scope Item 7NH and Scope Activation and Dependencies)
How is it set up? (See sections Scope Activation and Dependencies and SAP Standard Content)
What’s the default content and what can you do in terms of configuration? (See section SAP Standard Content)
How does it work in an end-to-end scenario? (See part 2 of our blog series)
What’s the relationship between UCB and the existing cost component split solution (based on scope item BEG)? (See part 2 of this blog series)

The UCB solution is currently represented by two scope items. Each of them has a different focus area:

7NH: Product Cost Breakdown in Plan/Actual Value Flow
6VN: Product-Related Carbon Emission Quantities

In the following section, we'll focus on the product cost breakdown (7NH).

What’s Covered by Scope Item 7NH: Product Cost Breakdown in Plan/Actual Value Flow

In this blog, we will give you an overview of the key benefits of scope item 7NH (Product Cost Breakdown in Plan/Actual Value Flow) and will also highlight the new features that have been released with S/4HANA Public Cloud Edition 2508.

First of all, scope item 7NH enables the production cost breakdown and origin cost breakdown in the plan and actual value flow for a manufactured product with quantity structure and calculates material standard cost estimates.

Now let’s take a look at what these breakdown types include:

The production cost breakdown provides an explanation of the cost of goods manufactured (COGM) from the point of view of the manufacturing process (material usage, internal activities, external activities, etc.).
The origin cost breakdown is an alternative way of showing the cost of goods manufactured of a product. You can review the original production factors to understand the impact of changes to your primary costs. These changes include increases in energy prices, higher wage costs, or adjustments in depreciation rules. Without the origin cost breakdown, these costs would be subsumed in the activity rate and simply grouped as production activity costs.
Both the cost of goods manufactured (COGM) breakdown and the cost of goods sold (COGS) breakdown are specific views that you can display for a sold product. They can either be based on the origin cost breakdown or the production cost breakdown structure in product profitability analysis.

UCB Terminology and Concepts

You may be familiar with an already existing solution called the “cost component split”, and yes it’s comparable, but UCB offers a lot more.

To make the new UCB solution more distinguishable from the existing cost component split, we introduced a couple of new terms to describe the key entities of the new breakdown.

UCB method: A component breakdown method is defined by an ID and a method type, which can be either a cost breakdown or a quantity breakdown, and the related component structure.
Quantity breakdown structure: The quantity breakdown structure groups quantity components, for example, greenhouse gas (GHG) categories.
Cost breakdown structure: The cost breakdown structure groups cost breakdown components and is used to explain, for example, the origin of costs in decision-making.
Quantity breakdown component: A quantity breakdown component is an individual element of the quantity breakdown that defines the origin of the quantity in question. For example, downstream transportation or purchased goods and services are possible quantity breakdown components when determining greenhouse gas emission quantities.
Cost breakdown component: The cost breakdown component groups G/L accounts that are used to create a detailed analysis of specific expenses associated with a product to gain a more granular insight into resource allocation. Cost breakdown components can be, for example, raw materials or overhead costs.

For more information, see Universal Component Breakdown.

Scope Activation and Dependencies

In order to enable the cost component breakdown, you need to activate scope item 7NH (Product Cost Breakdown in Plan/Actual Value Flow) in combination with the following mandatory prerequisite scope items:

Integrated Financial Planning (4RC) enables cost rate planning and the cost rate split.
Import Connection Setup with SAP Analytics Cloud (1YB) enables the integration of the cost rate breakdown with SAP S/4HANA Cloud Public Edition. It is only required if you want to use the origin cost breakdown.

For more information on scoping, see SAP Note 3544173.

SAP Standard Content

You define the cost breakdown structure and their assigned cost components in your configuration environment via the Define Cost Breakdown Structures (ID: 500697) configuration activity. Then, the cost breakdown results are determined automatically through the process of material standard cost estimates and the costs posting from the manufacturing and selling process.

The following types of cost breakdown structures are available:

Origin Cost Breakdown (OB): It describes the cost breakdown from the point of view of the original costs (for example, material usage with origin group, energy usage, labor usage).
Production Cost Breakdown (PB): It describes the cost breakdown from the point of view of the manufacturing process (for example, material usage, internal and external activities).

The production cost breakdown (PB) is the main breakdown structure and is used as the default structure in reporting. The cost of goods sold (COGS) breakdown is based on structures PB and OB.

Overview of the configuration activity Define Cost Breakdown Structures.

Example of a production cost breakdown structure (PB).

Example of an origin cost breakdown structure (OB).

For more information, see Configuration on the SAP Help Portal.

Cost Breakdown Hierarchies

In the Manage Global Hierarchies app, you can define your own cost breakdown hierarchies which you can use in reporting. They're based on the configured cost breakdown structures. SAP delivers two default cost breakdown hierarchies:

Universal Origin Cost Breakdown Group (UOCB) based on the origin cost breakdown structure.
Universal Production Cost Breakdown Group (UPCB) based on the production cost breakdown structure.

Predelivered cost breakdown hierarchies in the Manage Global Hierarchies app.

Example of an origin cost breakdown hierarchy.

Cost breakdown hierarchies replace the old cost component group concept. You don't have to define them in your configuration environment any longer. Instead you can maintain them anytime as a business user.

For more information, see Define Component Breakdown Hierarchies on the SAP Help Portal.

In the second part of this blog, we will illustrate how UCB works in an end-to-end scenario, first in the plan value flow and then in the actual value flow: Universal Component Breakdown (UCB): Revolutionizing Product Cost Management and Transparency Pt. 2