One of the biggest challenges for a low-margin dairy processing company with highly volatile raw material prices is the transparency of profitability analysis. The existence of contradicting profit drivers and inhomogeneous cost structures can make profitability analysis even more challenging.

When it comes to calculating customer-level profitability, the best place to start is to break it down into tiers. This approach enables the calculation of profitability and analysis at any or all tiers, which gives the ability to drill down or drill up within reports.

Maintaining a single source of truth with real-time data is exhausting due to the continuous collection and collation required from multiple sources, demanding regular and ongoing maintenance. However, optimum profitability analysis can be easily achieved without manual data collation, formulation, and analysis by introducing SAP S/4 Hana, SAP S/4 Dairy Management, and SAP Profitability and Performance Management (SAP PaPM). These solutions work together to provide seamless visibility, calculation, population, and reporting from multiple data sources at each step of the process or for the entire process.

SAP S/4 HANA assembles financial statements, revenue, and direct and indirect costs. SAP S/4 Dairy Management enables the collection of direct production costs, primarily excelling in the costing of milk and milk equivalent subcomponents, e.g., Fat, Protein, Lactose, and other solids, as well as indirect costs that are not directly connected to production, e.g., laboratory analysis.

SAP PaPM directly enriches data from SAP S/4 HANA, SAP Dairy Management, or any other system or file. In SAP PaPM, joining, allocating, and calculating data, including KPIs, becomes straightforward. Once the data is prepared, the previously tedious tasks of reporting, analyzing, and running "what-if" scenarios can be effortlessly executed with a single click.

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Challenge: Multi-Dimensional Profitability Analysis

Solution: SAP Profitability and Performance Management (SAP PaPM) for Dairy Profitability Management

For faster, easier, and more detailed understanding and calculation of the data model, it is split into tiers, each calculating specific sets of data:

• Tier 1 is reserved for Trade terms, which include:
  • Gross Sales Value: uses sales price per item and total items sold from the S/4 Sales and Distribution module.
  • Net sales value: uses gross sales value, then deducts returns, allowances, and discounts.
  • Gross margin: uses net sales value, then deducts costs of goods manufactured.
• Tier 2 is reserved for Product margin, which includes all supply chain costs (inbound logistics, warehousing, logistics, etc.) from SAP Extended Warehouse Management.
• Tier 3 is reserved for calculating incremental sales, including customer activity costs.

The ability to calculate customer margin in SAP PaPM using S/4 HANA and SAP Dairy Management data ensures accurate and timely decisions can be made to maximize profitability.

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Challenge: Customer-Level Profitability Analysis

Solution: SAP Profitability and Performance Management (SAP PaPM) cost-to-serve for Dairy