Understanding Order Settlement in SAP PP: Closing the Books on Production

In the world of manufacturing, tracking costs is crucial. But how do you ensure you have an accurate picture of what it takes to produce your goods? This is where Order Settlement in SAP PP comes in.

What is Order Settlement?

Order Settlement is the process of finalizing production order costs in SAP Production Planning (PP). It involves transferring all the actual costs incurred during production to designated cost objects, which could be finished goods accounts, cost centers, or even sales orders.

Why is Order Settlement Important?

There are several reasons why Order Settlement is a vital step in production:

• Accurate Product Costing: By capturing actual costs, you get a clear picture of how much it truly costs to produce each unit. This information is essential for pricing, profitability analysis, and future production planning.
• Variance Analysis: Settlement allows you to compare actual costs with planned costs. This variance analysis helps identify areas where production deviated from expectations, enabling corrective actions and process improvements.
• Financial Reporting: Settled production orders contribute to accurate financial statements. They reflect the actual cost of goods sold and provide a complete picture of manufacturing expenditures.

The Order Settlement Process

Here’s a simplified breakdown of the Order Settlement process in SAP PP:

1. Production Confirmation: Before settlement, you must confirm production completion through functionalities like Confirmation (CO11N) or shop floor control systems. This records actual quantities produced and any activity times.
2. Cost Calculation: Additional calculations might be required for overhead costs (KGI2) or work in progress (KKAX, KKAO).
3. Settlement Execution: Transactions like CO88 (multiple orders) or KO88 (single order) are used to finalize the settlement process. This allocates actual costs to designated cost objects.

Benefits of Effective Order Settlement

• Improved cost control and profitability analysis
• Enhanced decision-making based on accurate cost data
• Streamlined financial reporting processes
• Identification of areas for production process optimization

Remember: Order Settlement is a crucial step in closing the loop on production activities within SAP PP. By effectively settling your production orders, you gain valuable insights into your manufacturing performance and can make data-driven decisions for future success.