First Steps in SAP S/4HANA Controlling

2.1 Overview of controlling

Alex sat down and opened the Finance Training Manual. He was keen to learn about the SAP software. Alex started reading. The manual provided an overview of the SAP software system and how GCI recognized the value in streamlining processes by implementing SAP. Several pages provided step-by-step instructions on how to log into the SAP system. Alex would have to wait until he got access to GCI’s system in order to try the steps out himself, but he could review the training manual until then.

The manual went into further detail on the various modules in SAP. Alex started taking notes.

2.1.1 SAP modules

Materials Management (MM)

In addition to procuring materials for the organization via a purchase order, the Materials Management (MM) module also deals with the movement of materials within and between various departments. MM supplies raw materials and other components for production. Once products are produced, the software enables materials to be stocked in the warehouse, ready to ship when needed. The SAP software (usually) records a financial transaction when goods are moved into/within/outside the organization. Vendors submit invoices and are paid at a later date—depending on the payment terms—thereby completing the procure-to-pay cycle. Alex remembered that they called it a source-to-pay cycle at FLW.

Production Planning (PP)

Production Planning (PP) through the materials requirement planning (MRP) functionality uses information from sales orders, demand forecasting, and available inventory to create a production/procurement plan. The SAP PP module tracks the production of semi-finished and finished materials and makes them ready for the next level of consumption or shipment. In doing so, the SAP system calculates numbers for reports using the valuation of manufacturing components supplied by MM, the valuation of the internal labor and machine hours consumed in manufacturing, and overhead costs not directly associated with the manufacturing process. Here too, a financial transaction is recorded when goods are moved into/within/outside the production department. Alex could relate this to the shop-floor execution cycle at FLW.

Sales and Distribution (SD)

The Sales and Distribution (SD) module tracks the activity from the start of a customer inquiry and converts it into a sales order, which is later followed up by a shipment. A sales invoice is then generated. The cycle ends when the customer makes a payment (FLW called it the order-to-cash cycle). Alex did not expect a financial transaction to be generated during the inquiry and sales order stages, but he could quickly relate to the shipment, billing, and payment steps, and the transactions carried out at each stage.

Financial Accounting (FI) and Controlling (CO)

Now that Alex had a good understanding of supply chain functionality and how it mapped to the MM, PP, and SD modules, Alex understood how these transactions were recorded in the finance module. Every time there is a goods movement or a transaction with financial implications, the SAP software immediately records the financial transaction. The transaction is then typically entered into the general ledger (GL), as well as accounts receivable (AR) and accounts payable (AP). Each of the transactions records profit center information and provides further details for reporting.

It all made logical sense to Alex, but he was not able to understand what role the SAP Controlling module played in the structure. The Finance Training Manual went on to say that the SAP Controlling (CO) module was all about recording transactions internally within the organization. It dealt with cost center accounting (CCA), overhead cost management (OCM), activity-based costing (ABC), product costing (PC), and margin analysis, also known as profitability analysis (PA)—all of which support internal reporting requirements. Additionally, project systems (PS) enable tracking of a capital project and its eventual conversion to a fixed asset in the asset accounting (AA) module. Both FI and CO are integral parts of the record-to-report or accounting-to-report cycles. FLW called this process finance-to-report. A different name, but the same concept.