New Product Pricing

New product pricing for any new product specification as shared by the R&D Department is to be carried out by the Costing Team following are processes being followed for the same: The entire new product pricing currently being done in large and heavy excel Files with multiple formulae and checks into it. Which seem to be very difficult to decode, there are some parameters which are being fixed in past and that are being carried in current days as well.

Depending on the product specification by R&D the material requirement being worked out and the market rate of the input raw materials being applied on the same to get the RM Cost with latest market rate of RM.
R&D Department also provide the similar product of FG for the new product so that some of the costing details such as conversion cost etc. can be taken from the existing FG at the time of new product pricing.

For the conversion cost of various process such as Mixing, Tred, Bead, Inner, Chaffer, Calender, tyre building there are multiple excel files and Norms available offline based on that the costing team compute the conversion cost, this conversion cost has no co-relation with the current / latest or everyday cost of the Direct labour, Indirect labour, Machine cost, Power cost etc. These rates in excel

files being fixed in past and it is being taken for new product costing every time.
The curing cost of tyre depends on the curing time that information is being given by the R&D in the product specification sheet. Costing users need to apply the cost of curing for that given time and derive the curing cost.
After the material cost , conversion cost and curing cost there are various overheads are also there which we need to apply on the cost, following are the various overheads.

Stores OH
Scrap OH
Admin OH
Freight
Interest
Marketing OH

After the above cost is compiled in the sheet the new product costing is completed. This costing information then shared with marketing team for necessary margin working and determination of prices of new products.
On and average on a daily basis there are 2-3 new product pricing requirement is coming to the costing department, and for each of that it requires lot of efforts to complete in these excel files.
The entire process is very cumbersome and there is a risk of error as well, hence it is required to have this process in SAP system of Costing with proper logic and understanding for each of the figures that have been considered in the new product pricing.

Solution Approach

Then entire solution for the new product pricing will be carried out on the standard SAP feature of “ Base Planning Object” along with additional support from the systems costing mechanism and some custom reports that are already being developed for some other purpose.

The solutions for the new product pricing is as under:

Create the base planning object for the product specification sheet as shared by the R&D Department in the T. Code KKE1

We can create the new costing specs. By copying the similar previous specs. So that all sorts of formulae and working can be re-used for the new pricing process.

The new Specs. Name is DOM_CS_NO/0717. At the time of new product pricing there is no finished material code available in system for doing the costing or maintaining the BOM or Routing for the New Product Specs. So we need to carry out the costing without the FG material code.

In the following screen we will give the required details for the New Product Specs.

After this initial set-up for the new product specs. Then we need to plan the material cost, curing cost ,conversion cost , various overhead,

This costing is for the costing lot size of 100 tyres.

This data can be printed in documents and downloaded in Excel as well.

Following are the additional support required in the above costing model;

The materials for compound as given by the R&D for the new products will be used for the above costing purpose, however we cannot use the available standard cost for that compound, the reason being the RM in that costing is considered at Moving average price, but we need to value the RM at latest Market price, this RM prices will be maintained by the costing users in the RM materials on a monthly basis in the Commercial Price 1 field of the Accounting data 2 view of all the RM.
Based on that latest RM prices a new costing for all the SFG and FG will be worked out and that revised costing of all the SFG and FG also will be stored in the respective Commercial price 1 field of respective SFG and FG material masters. Here we will do the costing only for the material cost, in this costing variant we will skip any kind of conversion cost from the costing purpose.
Now the conversion cost and curing cost part. As we know that R&D team give us the similar material for the purpose of taking the conversion cost and other related data, which we will be using for the conversion cost working for each of the processes. For the process wise conversion cost we have developed as Report in SAP system i.e. ZCO_PROCESS. This report gives us the conversion cost incurred at each of the process for one unit of Tyre.

We can take this data and enter in the above costing sheet for new product pricing.

Additional monthly activities:

Maintenance of latest market rate in the commercial price 1 for current quarter market price field of all the RM codes in SAP, Commercial price 2 for previous quarter and Commercial price 3 is for previous to previous quarter

Running the costing for the commercial price 1 ,2,3 for all the SFG at every quarter. With the T.Code CK40N

New Product Pricing

Solution Approach

Additional monthly activities:

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