Sales & Production Variances Reporting

Production variance is the key parameters which alone can save huge amount of money and resource if we can analyse the variance reports appropriately

Production variance is the result of : Actual consumption value vs. Planned consumption value >>> In most of the cases the actual value differs then the planned consumption value and we would not be in a position to understand the same in real way… it may be due to the process inefficiency or something else but since we could not to be root cause of the problem it remain
unanswered.
Any such questions can be or need to be answered if we raise the questions to Production Team accurately and in a precise way with proof of the documents and case to establish that such difference in the consumptions are getting posted than the planned norms.

Hence it is very essential to raise the right questions in a right manner to get the true answer, This type of monitoring if we establish in our production shop floors and review it on monthly basis then the entire production team would be very vigilient and careful for the booking of the actual consumption of materials in the shop floor and this will avoid wastages and improve the yeilds.

This right questions and right examples can be derived from the tool of SAP called as “Variance in Production Orders” : This tool would give us the visibility of the difference between the planned and actual consumptions and go to the root cause of the issues.

Basic Costing and Finance + SAP PP Module with correct BOM and Routing in Place for the production shop floors

Resource and Cost saving for the material quantity and value and visibility of the production variance will improve the yeild as well in the produciton shop floor

Approach:

1. First we will get the BOM verified by the Production and Costing Team through the release of the Standard cost and compare the standard cost with the required cost or available cost of the materials.
2. Once the BOM is verified the actual consumption process would be reviewed and if any GAPs are there that would be fixed either by SAP system route or through the process route with the support of the Production Team
3. Settlement of the production orders would be set as monthly practice to get the variance and post the same in the books of accounts.
4. Analysis of variance by each of the production order in following variance categories:

– Price Variance of materials – Due to change in price at the time of planning and actual booking.
– Quantity Variance of materials – Due to excess or less consumption of planned materials during production confirmations
– Usage Variance of materials – Due to consumption of different material then the planned material in the BOM.

These three parameters would be of great help to understand the total variance on account of Material consumed in the production process.
Assumptions:
1. Input and output of the materials postings in the production orders would be done in appropriate way
2. BOM to be maintained and changed regularly if the norms are changed or revised
3. Once the production in production order is complete then production team needs to Set the production order status as TECO
4. Costing team should be following the settlement of the production orders on regular basis

IF by following some SOP and processes in production, there is a saving in cost and resource then that has to be followed and adhered by all the team in the organization as this is for the benefit of our organizations . No ones interest is above the interest of the organizations.

Production orders remain in the open or release status even after the completion of the production,
In some cases even though the status is TECO (Technically Complete) still booking of input and output got posted in the production order with TECO status,
Large volume of production orders remains open in the system which make the entire variance calculation and settlement process very very slow and time consuming.

Production variance report by categories : with material and plant
SOP for the process of variance calculations and settlements

Firstly in a live system the important point is to close all the old production orders by Force, as sometimes these orders could not be closed through regular closure route.

Once the orders are closed then the missing configuration for the variance and settlement to be completed with reporting for the variances
Testing and Training to the costing team is very important for the success of the reports.

1 weeks for understanding the business process
1 week for preparing the solution documents based on the understanding and sign off
2 weeks for Realization and Testing the solutions in the DEV and Quality system of SAP
1 week for moving the TR To Production system and some amount of sample flash report in Production systems

NA

Once the variance on account of production activities are surfaced by the plant/output materials and resultant input material with respective team or processes then it is very easy and specific to control and work on that particular area to reduct the adverse variance and improve the efficiency
There is an opportunity to control and save 2 crore and more of additional cost on an annual basis only due to control on the variances and production efficiency

4 weeks (development and testing) + 1 week (Support for first month end closing) to complete the variance calculation processes in SAP for all the production order in the plants.

M1 – Project start
M2 – Solution Document sign off
M3- UAT Sign off
M4- First month end closing

INR 5,00,000/-

Variance Reporting is one of the MUST take away from SAP