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Introduction
In this blog post, I would like to explain the concept of "Non-Valuated Project Stock" in the context of SAP Project Manufacturing Management and Optimization in SAP S/4HANA which enables you to group and co-mingle requirements for common materials across Work Breakdown Structures (WBS) elements across different contracts to help achieve greater efficiency, logistical flexibility and cost savings. Using an example, you will see how cost flows in the Non-valuated project stock scenario.
Project Stock Indicator
When creating a project (transaction CJ20N), you have to set the project stock indicator and there are 3 options:
- No project stock
- Non-valuated stock
- Valuated stock
This setting drives how the cost flow happens with regards to project stock. If you select "No project stock", then the project does not allow individual project production. The other two settings are more relevant for this blog post.
Non-Valuated Project Stock
If this setting is set, then the material in project stock is managed only on a quantity basis. Goods movement do not trigger postings in the inventory accounts in Financial Accounting (and therefore do not show on the balance sheet). Instead, the costs with their original account numbers are posted directly to project cost object (e.g. WBS element).
Valuated Project Stock
If this setting is set, then the material in project stock is managed on both quantity and value basis. Goods movement trigger postings in the inventory accounts in Financial Accounting.
For more information on valuated and non-valuated project stock, see SAP Note 533207.
Background
The primary reason for using non-valuated project stock is when manufacturing companies act as agents or contractor to engineer, design, build and deliver material based on a contract (typically long term contracts for example in industries like Aerospace and Defense), they would not hold the subassemblies and externally procured components on their balance sheet. These make-to-order (MTO) / engineer-to-order (ETO) manufacturing entities use actual costing method as the cost accounting method (in contrast to standard costing method, which is predominant in make to stock scenario). The actual costs are charged and expensed directly to the project, and often billed to the customers at various project milestones so that the contractor can recoup the costs as early as they can without having to wait until the completion and delivery of the final product. Non-valuated project stock is best suited for contracts that are cost reimbursable where the contractor is reimbursed for the actual costs (for e.g. cost plus fixed fee or cost plus incentive fee).
Grouping
Grouping allows you to combine material requirements across one or more WBS elements (which belong to same or different project) for the purpose of Material Requirements Planning (MRP). This combined stock segment is also a WBS element that has a special indicator that indicates that it is a grouping WBS. Once grouping is set, MRP generates procurement elements for the grouped requirements in the grouping WBS stock segment.
Process Flow using an Example Scenario
The example below should help understand the process flow in the case of non-valuated project stock.
Consider a simple Bill of Material (BOM) structure to demonstrate the value flow in the case of non-valuated project stock. The BOM contains a raw material, semi finished material and a finished material.
Now let's create a demand for this finished material in 2 WBS elements (NVPS.I1 for 5 EA on 10/31/2021 and NVPS.I2 for 6 EA on 10/31/2021), which are grouped under a grouping WBS NVPS.G. (For simplicity reason, all the WBSs are created in the same project. In real life, they could all belong to different projects (i.e. contracts).
When creating the project in transaction CJ20N, we have also set the project stock indicator to "Non-valuated stock".
Once the project is saved, the demand (i.e. requirements) from the network activity is visible in stock requirements list under the grouping WBS stock segment for the finished material.
After MRP run, the supply elements are created in the grouped project stock segment (i.e. NVPS.G) for the finished material, subassembly and raw material based on the Bill of Material. As you may have noticed, grouping the requirements has enabled the material requirements planning to generate combined supply elements (i.e. planned order and purchase requisition) that are account assigned to the grouping WBS. This helps achieve greater efficiency and cost saving by combining demand for common parts thereby generating lesser number of production orders and purchase orders due to grouping.
As the raw material is setup to be externally procured, the purchase requisition is converted to a purchase order and once the supplier delivers the raw material, a goods receipt is posted using the transaction MIGO. From the accounting point of view, the actual costs of the purchase order (this includes the purchase price variance) is posted as primary costs to the grouping WBS. As the project was created with "Non-valuated stock", the goods receipt does not post the raw material cost into inventory. You can see that in the output of transaction MB52 that shows the total value as 0. As explained in the definition of "Non-valuated stock", the the material in project stock is managed on a quantity basis only.
If you look at the costs on the grouping WBS NVPS.G (transaction CJI3), you will see the actual cost of the purchase order posted in this group WBS under the cost element.
So how does cost flow to the WBS NVPS.I1 and NVPS.I2 that actually created the requirements? This is exactly where Project Manufacturing Management and Optimization comes into picture. Pegging establishes the relationship between the supply elements in grouping WBS to the top demand from the individual WBS. It acts as a cost mapping tool that is later used by Distribution to move the costs from the grouping WBS to the individual WBS. Pegging and Distribution are typically run in a batch mode immediately after MRP run.
Once Pegging and Distribution are completed, you can notice that the costs are credited on the grouping WBS and posted using the same cost element to the individual WBS that created the demand for the top level requirement.
In the next step, the planned order for subassembly is converted to a production order and the raw material is goods issued to the production order and labor costs are posted during the production process. For this production order using non-valuated project stock, production order settlement is irrelevant since the actual costs are posted as secondary costs with one or more cost elements on the production order cost object. Note here that the costs are posted on the production order and not on the grouping WBS, even though the production order is account assigned to the grouping WBS. Typically, settlement rules are turned off for this production order type and Distribution acts as the dynamic version of settlement based on the cost mapping assignments created by Pegging. The grouping WBS for this production order is used for the stocking of parts only and later on for Distribution to determine the individual WBS to where the secondary costs from the production order should be distributed. Note that indirect overhead costs are posted directly to the individual WBS elements using costing sheets on the project. Also, during goods issue of raw material to the production order, there is no accounting document posted, since in the "Non-valuated stock", there is only a quantity flow, and no value flow.
Below screenshot shows the actual costs after labor costs were posted on the subassembly order, raw material was goods issued to the order and order was confirmed including goods receipt of the subassembly.
If you again look at the output of transaction MB52 for the subassembly, you do not see any value of the subassembly on the inventory. Also, in a "Non-valuated stock", you will not see these production orders considered as Work In-Progress (WIP) in the balance sheet. There are also no variances, no overheads, no settlement postings on the production order in the case of "Non-valuated stock".
Once Pegging and Distribution runs are executed, the secondary costs from the production order are distributed to the individual WBS based on the cost mapping assignments generated by Pegging and using the same cost element that were used to post on the order originally.
The production order for the finished material also behaves the same way, as the subassembly. Once the finished material is in stock, it is issued to the individual network activity from where the demand originally originated.
Summary
To summarize, here are the key differentiators when using "Non-valuated stock":
- Absolute actual costs recognized against the WBS from where the requirements originated without any material price difference postings.
- Actual costs are visible immediately by material on the WBS elements where the demand originated (for e.g. when goods receipt / invoice receipt of a raw material, followed by Pegging and Distribution) thereby enabling the possibility to bill the customer, whereas in the valuated scenario, the costs stay on the inventory and do not get allocated to the WBS until the final goods issue happens to the network activity of the individual WBS.
- Cost elements do not get changed along the entire manufacturing process from costing point of view, even when costs get distributed from grouping WBS and the production order to the individual WBS. Actual costs are available with the original cost element.
- Inventory is owned by the WBS elements (i.e. the customer for who the project will be delivered) and within Materials Management, inventory is only managed at quantity level. Inventory is not on the balance sheet.
- Unlike valuated stock, to calculate actual costs on a production order in a "Non-valuated stock" you have to rollup the costs of the underlying components pro-rated to the assigned quantities to this production order.
- No WIP, Variances, Overheads, Settlement Rule on Production Order. Instead Production Order acts as a passthrough cost object for the project.
- Production Overheads are directly posted on the project.
Note that Project Manufacturing Management and Optimization only supports non-valuated grouped project stock.
Hope this blog post gives you an overview and a basic understanding of non-valuated grouped project stock, in the context of Project Manufacturing. Feel free to post your comments and I encourage you to post questions about the topic in our SAP Community using this link. More blog posts to come regarding new features in SAP Project Manufacturing Management and Optimization in SAP S/4HANA, stay tuned!
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