Refurbishment of Repair Parts

at Procter & Gamble

Pam Hendrickson
Procter & Gamble

Mark W Scott
Vesta Partners LLC
Premier Sponsor

Platinum Sponsor

Produced by:

billion

P&Gs Billion-Dollar Brands

Procter & Gamble

Crest
Duracell

Downy

Dawn

Approximately 300 brands globally

Market in over 140 countries
$79 billion in worldwide sales
140,000 employees in 80 countries
140 manufacturing plants in 40 countries

Bounty

Head &
Shoulders

Iams

Pampers

Gillette
M3Power

Olay
Always Pantene

Charmin
Pringles Tide

Wella

Braun

Agenda

Business situation
Refurbishment work process
Refurbishment costs
Internal refurbishment
External refurbishment
Summary

Business Problem
Refurbishing parts can be less expensive than

always buying new

Refurbishment of repair parts can be done internally
in a shop or externally at a vendor
Need to properly account for the cost of the
refurbishment, inventory, and status of the
refurbishment

Presentation Objectives
How refurbishment orders can be used for the

internal refurbishment of repair parts

How subcontract purchase orders can be used for
the external refurbishment of repair parts
How costs flow when refurbishment orders and
subcontract purchase orders are used to refurbish
repair parts

Refurbishment versus
Buy New

Considerations
1)

Cost benefit vs. buying new

- as a guideline, repair cost should be no more than 50% of

new cost
2)
3)

Skill level in-house for repairs or external vendor availability for repairs
Vendor recommendation

4)

Engineering recommendation

Material Master
If part is considered repairable, then it is set up as
split-valued in SAP
Split-Valued categories:
1) NEW reflects quantity of the part in inventory
that are new
2) REPAIRABLE reflects quantity of the part in
inventory that are waiting for repair/not fit for use
3) REFURBISHD reflects quantity of the part in
inventory that have been repaired/fit for use

How do you know?

User sees an indicator on

SAP shop paper that a part
is R (Repairable)
Valuation category

User returns the broken

part to the storeroom

Storeroom Role
o Analyze feasibility of repair
o Throw away if not repairable
o Create:
purchase requisition for external repair; or,
refurbishment order for internal repair
o Send material to the vendor or deliver to repair area
o Receive repaired material back into inventory

Maintenance Role Internal

Repair
o Insure general task lists exist
in SAP for repetitive repairs
o Plan and schedule the
refurbishment order
o Refurbish the part
o Return the part to the
storeroom
o Technically complete the
refurbishment order

Refurbishment Costs
-Did not properly value inventory
-Complex PurReq/POs
-Cost flow and reports complex

SAP directly supports this method

12

Refurbishment Process Costing

Costs to repair expense materials settle
to the material master, and become part
of the moving average price for a
refurbished part
Costs to repair capital materials are
charged directly to a Cost Center or WBS
element

How should refurbished

materials be valued?
Value of Refurbished Material
Capital Part

How
can(V)this
NEW cost
of new
CAPITAL - $0 (S)
REFURBISHD - $0 (S)
REPAIRABLE - $0 (S)
S Standard Cost

Expense Part

be accomplished?
NEW cost of new (V)
REFURBISHD cost of repair (V)
REPAIRABLE - $0 (S)

V Moving Average Price

Refurbishment Process

Refurbishment Order Basic

Configuration
Refurbishment order types:
o
o

PM95
PM96

refurbishment of expense repair part

refurbishment of capital repair part

Settlement profiles and allocation structures:

o
o

PM95
PM96

to settle costs to the material in inventory

to settle capital repairs to WBS element
to settle expense repairs to a Cost Center

Default batch into refurbishment order to reduce errors

Refurbishment Order settlement

Internal Repair
(using Refurbishment Order)

Use PM95 order type Use PM96 order type

Expense Part

Capital Part

Capital Repair
Settle to WBS element
Some refurbishments of capital
parts are capital

Expense Repair
Settle to Cost Center (that
returned part to Storeroom)
Most refurbishments of capital parts
are expense

Settle to material
NA

General task list

Facilitate the planning of refurbishment work
Group
1000025

Rebuild Shop

Group Counter
1

Gearboxes

Operations
0010 Rebuild gearbox model ABC
0020 Rebuild gearbox model XYZ (major)
0030 Rebuild gearbox model XYZ (minor)

Clutches
0010
0020

Rebuild clutch model 123

Rebuild clutch model 456

Cylinders
0010
0020

Rebuild A1B cylinder

Rebuild 1A2 cylinder

Creating Refurbishment Order

Goods Receipt to return

Refurbished part to Storeroom
Transaction: IW8W

Sets DLV system status

o
o

Can handle serial numbered materials

Can handle partial deliveries

Refurbishment Order cost flow

PM95 settles
to a Material

PM95

PM96 settles to a
Cost Center or
WBS element

PM96

Refurbishment Order Cost Flow - Situation

Valuation
Type

Total
Stock

Price
Control

Moving Avg
Price

NEW

750.00

REFURBISHD

200.00

REPAIRABLE

Standard
Price

0.00

150.00
0.00
30.00
10.00
40.00

Refurbishment Order Cost Flow

Goods Issue to Order

Cost Center
abc

Confirm
TEST
Credit
80004700 ($150.00) 3 hours
@$50/Hr

80004700 $150.00

Refurbishment Order
Debit (charge)
80004700 $150.00
58070100 $40.00

58070100 $40.00

Storeroom
Inventory

REPAIRABLE $0.00
Material 1
$30.00
Material 2
$10.00

13701000 ($40.00)
Delivery
58099500 ($200.00)

Settlement
58099500 $10.00

Refurbishment Order Cost Flow

Goods Receipt from Order

Cost Center
abc

Confirm
TEST
Credit
80004700 ($150.00) 3 hours
@$50/Hr
Storeroom
Inventory

80004700 $150.00

Refurbishment Order
Debit (charge)
80004700 $150.00
58070100 $40.00

58070100 $40.00
REPAIRABLE $0.00
Material 1
$30.00
Material 2
$10.00

13701000 ($40.00)
Delivery
REFURBISHD
Material $200.00

58099500 $200.00
REFURBISHD
Order status: DLV

58099500 ($200.00)

Settlement
58099500 $10.00

Refurbishment Order Cost Flow

Order Settlement

Cost Center
abc

Confirm
TEST
Credit
80004700 ($150.00) 3 hours
@$50/Hr
Storeroom
Inventory

80004700 $150.00

Refurbishment Order
Debit (charge)
80004700 $150.00
58070100 $40.00

58070100 $40.00
REPAIRABLE $0.00
Material 1
$30.00
Material 2
$10.00

13701000 ($40.00)
Delivery

Total: $190

REFURBISHD
Material $200.00
REFURBISHD
Material ($10.00)
58099500 ($10.00)
REFURBISHD

58099500 $200.00
REFURBISHD
Order status: DLV

58099500 ($200.00)

Settlement
Settlement

58099500 $10.00

Capital material Expense Cost Flow-Situation

Valuation Type

Total
Stock

Price
Control

Moving Avg
Price

Standard Price

NEW

7000.00

REFURBISHD

0.00

REPAIRABLE

0.00

150.00

0.00
30.00
10.00
40.00

Capital material Expense Cost Flow

Goods Issue to Order

Cost Center
abc

Confirm
MECH
Credit
80004700 ($150.00) 3 hours
@$50/Hr
Storeroom
Inventory

80004700 $150.00

PM96 Order
Debit (charge)
80004700 $150.00
58070100 $40.00

58070100 $40.00
REPAIRABLE $0.00
Material 1
$30.00
Material 2
$10.00

13701000 ($40.00)
Delivery
58099500 ($200.00)

Settlement
58099500 $10.00

Capital material Expense Cost Flow

Goods Receipt from Order

Cost Center
abc

Confirm
MECH
Credit
80004700 ($150.00) 3 hours
@$50/Hr
Storeroom
Inventory

80004700 $150.00

PM96 Order
Debit (charge)
80004700 $150.00
58070100 $40.00

58070100 $40.00
REPAIRABLE $0.00
Material 1
$30.00
Material 2
$10.00

13701000 ($40.00)
Delivery

REFURBISHD
Material $0.00

58099500 $0.00
REFURBISHD
Order status: DLV

58099500 ($0.00)

Settlement
58099500 $10.00

Capital material Expense Cost Flow

Order Settlement (expense repair)

Cost Center
abc

Confirm
MECH
Credit
80004700 ($150.00) 3 hours
@$50/Hr

80004700 $150.00

PM96 Order
Debit (charge)
80004700 $150.00
58070100 $40.00

58070100 $40.00
REPAIRABLE $0.00
Material 1
$30.00
Material 2
$10.00

Storeroom
Inventory
13701000 ($40.00)

Inventory: +1

Value: $0.00

Delivery

REFURBISHD
Material $0.00

58099500 $0.00
REFURBISHD
Order status: DLV

58099500 ($0.00)

Settlement
Cost Center
xyz

80022100 $40.00
80022200 $150.00

Settlement

$190
Note: For a capital repair the settlement
rule would be a WBS element.

80022100 ($40.00)
80022200 ($150.00)

Summary of Cost Flow

Expense refurbishment:
o
o

Goods receipt at current moving average price

Settlement posts difference between moving average price and cost of
refurbishment

Capital refurbishment:
o
o
o

Refurbished part brought into inventory at zero value

Expense refurbishment settles to Cost Center
Capital refurbishment settles to WBS element

Results Analysis Key

As minimum, maintenance orders settled at end of month
All costs accumulated in order during the month must settle
What happens if costs have been posted to a refurbishment
order but the part has not yet been received by Storeroom?
o
o

Refurbishment order cannot settle!

Unless a Results Analysis Key is being used

A RA Key should be defined by Finance

A default RA Key can be assigned to an order type
Will settle posted costs to a WIP account
When refurbished part received by Storeroom the order can
be settled which will clear the WIP account

External refurbishment
Subcontract PurReq/PO
o
o

Designed for sending material(s) to vendor who then adds value (labor,
materials) and returning another material
Refurbishment:

Send REPAIRABLE material

Vendor adds labor and other materials
Returns REFURBISHD material

Goods issue to vendor

o
o

Transfers REPAIRABLE material to vendor

REPAIRABLE material still owned by and on company books
Able to track REPAIRABLE materials at vendors

Create Subcontract PurReq

Receiving

Sending

Define material to be sent for Refurbishment.

Define material to be received back after being Refurbished.
Custom screen (ABAP, GuiXT, etc.) can simplify creation and
reduce chance of error.

Goods Issue to Vendor

Transfer posting (MB1B) movement type 541
Using Subcontracting Stock Monitoring List (ME2O)

Transfers material to vendor, however, still on company books

Available reports show what materials at which vendors.

SC Stocks per Vendor report

Transaction: ME2O

To be sent to Vendor

Still at Vendor

Materials returned from Vendor do not show on report.

Goods Receipt
Note goods receipt of Refurbished material (mvt type 101)
and simultaneous consumption of REPAIRABLE material
sent to vendor (mvt type 543).

Subcontract PO Cost Flow Situation

Valuation Type

Total
Stock

Price
Control

Moving Avg
Price

NEW

750.00

REFURBISHD

200.00

REPAIRABLE

Standard Price

0.00
0.00

PO net price

Vendor labor added 130.00

Vendor supplied parts 40.00
REPAIRABLE part
0.00
170.00

Subcontract PO Cost Flow

Goods Issue to Vendor

Storeroom Inventory
GI to Vendor
REPAIRABLE $0.00

GI to Vendor (PO)

Vendor
1234

REPAIRABLE $0.00

Subcontract PO
GI to vendor
REPAIRABLE $0.00

GR from Vendor
REFURBISHD $200.00

Invoice
Adjustment ($30.00)

Net price
REFURBISHD $200.00

Invoice
REPAIRABLE $170.00

Refurbishment
REPAIRABLE $0.00
Labor $130.00
Parts $40.00

Subcontract PO Cost Flow

Goods Receipt from Vendor

Storeroom Inventory
GI to Vendor
REPAIRABLE $0.00

GI to Vendor (PO)

Vendor
1234

REPAIRABLE $0.00

Subcontract PO
GI to vendor
REPAIRABLE $0.00

GR from Vendor
REFURBISHD $200.00

Invoice
Adjustment ($30.00)

GR from Vendor
REFURBISHD $200.00

Net price
REFURBISHD $200.00

Invoice
REPAIRABLE $170.00

Refurbishment
REPAIRABLE $0.00
Labor $130.00
Parts $40.00

Subcontract PO Cost Flow

Invoice posting

Storeroom Inventory
GI to Vendor
REPAIRABLE $0.00

GI to Vendor (PO)

Vendor
1234

REPAIRABLE $0.00

Subcontract PO
Refurbishment
REPAIRABLE $0.00
Labor $130.00
Parts $40.00

GI to vendor
REPAIRABLE $0.00
GR from Vendor
REFURBISHD $200.00

Invoice
Adjustment ($30.00)

GR from Vendor
REFURBISHD $200.00

Net price
REFURBISHD $200.00

Invoice adjustment ($30.00)

Net cost: $170

Invoice
REPAIRABLE $170.00

Invoice
$170.00

Invoice
$170.00

External Refurbishment of
Capital materials
Similar to Internal refurbishment of Capital material
except:
o
o

Account assignment of Expense repair is Cost Center

Account assignment of Capital repair is WBS element

Learnings
Thinking about refurbishment of repair parts
How refurbishment orders can be used for the internal

refurbishment of repair parts

How subcontract purchase orders can be used for the
external refurbishment of repair parts
How costs flow when refurbishment orders and subcontract
purchase orders are used to refurbish repair parts

Pam Hendrickson
Procter & Gamble
hendrickson.pe@pg.com

Mark W Scott
Vesta Partners LLC
mscott@vestapartners.com

Premier Sponsor

Platinum Sponsor

Produced by:

March 27 30, 2011

Hyatt Regency Huntington Beach Resort and Spa
Huntington Beach, California

Premier Sponsor

Platinum Sponsor

Produced by: