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Former Member

Use of Transfer pricing or other alternative

Dear Experts,

I am working on a project for a Large Multinational Manufacturing company in Spain and we are currently in the design phase.

The project scope is to define a global template and gradually roll-out all group subsidiaries worldwide in a single client.

I have a doubt on whether it would be a value added for the project to implement Transfer Pricing + Material ledger (for parallel valuation) for intercompany margin elimination for consolidation or if it would be better to use other available alternatives to the transfer pricing solution.

The concrete business scenario is the following:

- The group has around 80 subsidiaries worldwide with significant intercompany flows.

- We are implementing a single SAP client where all companies will be rolled out in a 4-5 year time frame.

- Currently each site/country operates with local SAP systems or legacy systems.

- The company has currently an own developed application to perform Group Consolidation until Gross Margin per business line. Each subsidiary monthly uploads local P&L until Gross Margin at material level. The application has own-programmed rules to eliminate intercompany operations. The idea is to replace this application in the future with BPC.

- We are implementing COPA, but not activating PCA as the business line will be derived from material master attribute (e.g. Product Hierarchy). New GL will be activated and Profit Center field will be used if there is a legal requirement to have P&L and Balance Sheet at lower level than company code. Transfer prices (mark-ups) are not applied between business lines, only at company code level.

- We will be activating Material Ledger to achieve actual costing, but there might be cases where it is not activated and use standard valuation if the size of the company is not significant.

Having this in mind, I would like to know if it will be wise to implement Transfer pricing functionality and use ML parallel valuation to facilitate and obtain group intercompany movements elimination for the Group consolidation and if there are other alternatives in SAP that could be recommended.

It is clear that the current group consolidation application will remain the existing one (or BPC in the future) that has already a programmed logic to eliminate the intercompany margins, therefore, I have doubts to what extent embarking in the complexity of Transfer pricing and ML is a good idea. I hope you experts can give me some light into this.

Thanks in advance for your kind support.

Eric

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3 Answers

  • Jan 03, 2011 at 01:55 PM

    Hi Eric

    We welcome you to SDN!

    1. I think ML is a good option for you... You are anyways activating it for Actual costing... ML also supports parallel valuations in the system.. So, this addresses all your concerns

    2. Parallel valuations in SAP is possible only using ML and there is no other solution

    3. If you dont want to activate actual costing for some companies owing to their size, you can still use ML's parallel valuation feature there... Both are independant features

    4. It would be difficult to comment on your current consolidation engine as we are not aware of that... But, SAP does offer to integrate with many legacy applications.. So, I guess that should not be an issue.... You will have to explore on this

    I have seen companies using BPC and doing mark-up eliminations in inter company transfers.,,.. BPC perfectly supports that

    Do let us know if you have vacancy in your company for us ... lolz.. Just kidding!

    Regards

    Ajay M

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    • Former Member Former Member

      Hi Eric,

      It was quite interesting to read your post. I'm working on a project for large multinational company as well.

      The goals of our project are quite similar to yours: integrate in one client all business processes of all companies (+100) belonging to the group. Currently different units of the group use their own SAP systems (dozens of them).

      And we also face similar issue in term of inter-company sales. In our case a supply chain for a finished product can be spread across 4-5 companies. So internal profit elimination is very important.

      We decided to use the solution suggested by Udo Werner in his earlier post. But keep in mind it's only available as of enhancement pack 5 which I believe is only in rump-up phase now.

      This solution is based on ML but does not require activating transfer prices. In fact there is very little config (on top of standard ML config) required for solution proposed by Udo.

      I understand your concern about complexity of ML implementation. It's true that there are a few traps in this area.

      But once you get it right it's actually quite stable and relatively easy to use.

      In my opinion it's better to sort out the elimination of inter-company profit in transactional system as it gives you full transparency, accuracy and audit trial. Reporting solutions (BCS, not to mention BPC) are always some kind of approximation and may be more complex do design (and maintain) than ERP solution.

      We are just moving into the design phase of inter-company profit elimination based on ML solution.

      Happy to share experiences.

      Regards,

      Szymon

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    Former Member
    Jan 04, 2011 at 04:21 AM

    hi eric..

    I am working as AGM(ERP) in a very big company having 6 big seperate units and some subsidiaries. We have implemented SAP seperately for each unit. Now our corporate wants to integrate all units under one client just like your case. Considering this views in mind initially all our units activated ML.

    Presently our accounts are also being consolidated at corporate level without any difficulty. So your approach is absolutely alright.

    kkumar

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    Former Member
    Jan 07, 2011 at 12:57 PM

    Dear Eric,

    you don't need the transfer price functionality, because that is used to maintain prices for transfers between profit centers, or in your word, business lines, that belong to the same company code. If your transfers are between different companies of the same group you just have intercompany sales processes and the prices to be used come from sales orders, info records etc, just like in the sales processes between partners from outside the group.

    So from a logistical point of view you don't need transfer prices. SAP consolidation solutions like SEM-BCS and presumably also BPC would not profit from paralell valuations. They just need the info that there was a sales process between partners from the same group and they get that from the partner field in the vendor and customer master data.

    If you use actual costing anyway, I would rather recommend to activate a group valuation view instead of a profit center valuation view. Using the new solution for intercompany sales processes you would get transparency into the whole vale chain from a group perspective.

    See the documentation in SAP help and a magazine article on the new development:

    [SAP Help: Cross-Company Code Stock Transfer Processes |http://help.sap.com/erp2005_ehp_05/helpdata/en/d2/cb532d455611d189710000e8322d00/frameset.htm]

    [http://www.financialsexpertonline.com/article.cfm?id=5547]

    But again: Also the group view is not necessary or even very helpful for the (legal) financial consolidation process.They derive all the info from the company code or legal view in general ledger, not from group view or profit center view in material ledger. The Group view just creates additional internal transparency into your value chain and cost and profit contributions throughout the whole chain.

    best regards,

    Udo

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