Conceptual Enterprise Asset Management for Plant Construction Process

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SAP COMMUNITY NETWORK

2010 SAP AG 1

Conceptual Enterprise AssetManagement for PlantConstruction Process

Applies to:

Document is applicable to all SAP R/3 and ERP6.0 versions.

Summary

This document provides an introductory and conceptual overview of Enterprise Asset Management. It isillustrated using a case study, under the context of production plant construction.

Author(s): Benedict Yong Teng Xiang

Company: LANXESS Chemicals

Created on: 31 December 2012

Author Bio

Benedict Yong is a Certified SAP BI Consultant, and practitioner of Enterprise Asset Management (EAM)and Business Intelligence (BI).

He holds a Bachelor of Management (Australia) and a Diploma in Business InfoTech(Singapore). He is familiar with the Consulting and Support environments, with his variousProject Lead & Consultant roles during his stay in Accenture and IBM.

He is situated in Singapore and is bilingual in English and Mandarin, conversationalGerman. He can be contacted at [email protected].

Note: credits given on the last page.


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Conceptual Enterprise Asset Management for Plant Construction Process


2010 SAP AG 2

Table of Contents

Introduction ......................................................................................................................................................... 3Definitions ........................................................................................................................................................... 4

What is Enterprise Asset Management (EAM)? ............................................................................................. 4What are the benefits of EAM? ....................................................................................................................... 5What are SAP Offerings to EAM? ................................................................................................................... 6What does SAP EAM comprise of? ................................................................................................................ 6What is PM and what is its function? .............................................................................................................. 7What is PS and what is its function? ............................................................................................................... 7 What are the basic EAM terms? ..................................................................................................................... 7What are the latest developments in SAP EAM till date? ............................................................................... 7

Our Case Study: How do we do it? .................................................................................................................... 8Business Requirements .................................................................................................................................. 8System Setup Strategy ................................................................................................................................... 9MasterData Setup ......................................................................................................................................... 11Process View ................................................................................................................................................ 15

Costflow View ................................................................................................................................................ 16

Our Case Study: How do we use it? ................................................................................................................. 17Screen Sequences ........................................................................................................................................ 17Budgeting Screen.......................................................................................................................................... 18Tracking Screen ............................................................................................................................................ 19Settlement Screen ......................................................................................................................................... 21Reporting Screen .......................................................................................................................................... 22

Conclusion ........................................................................................................................................................ 23Appendix ........................................................................................................................................................... 24

Detailed EAM Cycle with Transaction code listings ...................................................................................... 24Integration between Asset Management (Logistics) and Asset Accounting (Finance) ................................ 24

Credits and Content Sources............................................................................................................................ 25


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2010 SAP AG 3

Introduction

In todays business environment, the bottom-line for high system availability, costs reduction, and maximizereturn on assets are becoming more obvious. Hence, an innovative need for an integrated approach toEnterprise Asset Management (EAM) is needed to yield significant savings, improve the operationalperformance and proper cost controlling. The approach should spans all phases of an asset lifecycle,which includes cost planning and budgeting, asset-in-construction and capitalization to final asset,specification and design, operations and maintenance, decommissioning and disposal, and, finally reportingand analytics.

In SAP words: EAM helps companies manage physical assets production plants, capital equipment,vehicle fleets, and facilities complexes over the complete asset life cycle. In conjunction with powerfulreporting and analysis, the SAP solutions EAM capabilities enable you to reduce operating costs, bettermanage capital expenditure, and improve asset utilization."


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2010 SAP AG 4

Definitions

What is Enterprise Asset Management (EAM)?

We shall adopt a neutral definition from WIKI, 2012: Enterprise asset management (EAM) means the wholelife optimal management of the physical assets of an organization to maximize value. It covers such thingsas the design, construction, commissioning, operations, maintenance and decommissioning/replacement of

plant, equipment and facilities. "Enterprise" refers to the management of the assets across departments,locations, facilities and, in some cases, business units. By managing assets across the facility, organizationscan improve utilization and performance, reduce capital costs, reduce asset-related operating costs, extendasset life and subsequently improve ROA (return on assets).

The definition of EAM is constantly evolving depending on vendor offerings, industrial needs, etcs. For thepurpose of this discussion paper, we will focus on applying EAM on plant construction and assetmaintenance, referencing to the SAP flow diagram prior 2012.


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2010 SAP AG 5

What are the benefits of EAM?

This question is perhaps better address by: Asset Visibility: Seeing the Opportunity in Asset Management

EAM can be traced back to the Return on assets (ROA) of an organization. ROA is an effective measure ofthe impact of corporate strategy. However, an organization has to link its corporate goals to it operationalactivity. To understand the ROA metric, we have to decompose it to its component parts:

Each of the three essential elements can be improved with better asset management:

Assets. If a company is using information to optimize utilization, new asset investment can be

avoided or underperforming assets can be decommissioned. Visibility into work in process, qualityyields, emissions, production rates, and so forth also contributes to making good utilization choices.

Revenue. Information regarding operating performance improves productivity and utilization. It canalso be critical for making informed decisions about costs, lead times, and customer service.

Profit. Higher productivity generally means lower costs through more efficient resource consumption(people, materials, energy). And a number of shadow costs, compliance and maintenance, can alsobe significantly improved with better visibility.


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2010 SAP AG 6

What are SAP Offerings to EAM?

The SAP solution for enterprise asset management allows you to manage key asset management activities,including:

Investment planning and asset specification and design Gain control over business planningand simulation, investment management, collaborative specification and design, and collaborativeproject management.

Procurement and asset construction, installation, and implementation Optimise supplierqualification and candidate selection, bidding and contract management, collaborative projectmanagement, collaborative change management, information handover for commissioning andstartup, and project and investment controlling.

Maintenance and operations management Handle technical asset management, maintenanceplanning and execution, preventive and predictive maintenance, reliability-centred maintenance,mobile asset management, MRO parts and services procurement, MRO inventory management,employee and contractor management, asset accounting and maintenance budgeting, and assetperformance analysis.

Decommissioning and disposal Perform asset transfer and disposal, collaborative engineeringand project management, waste management, regulatory compliance management, and assetremarketing.

What does SAP EAM comprise of?

It fundamentally includes Project Systems (PS) and Plant Maintenance (PM) with integration with PurchaseOrders from Material Management (MM-PO), Assets from Finance (FI-AA), and Cost Centers fromControlling (CO-CCA). In advanced cases, Investment Management (IM) and Industry Solution Real-estate(IS-RE) are activated.

EAM can be further divided into the upstream logistics aspect - Asset Management (AM) and thedownstream finance aspect - Asset Accounting (AA). An asset from the point of view of AM can be anequipment.


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2010 SAP AG 7

What is PM and what is its function?

Plant Maintenance (PM) is in-charge of maintenance of plant-related items (ie. repair, overhaul, inspection)but can be customized to go beyond that. A production plant is an asset; PM is used to maintain assets. PMby itself is an area of corporate function. It is typically can be coupled with CS if there is a revenuecomponent. Although maintenance sounds dull, but to Aircraft/Vessels company it is not a laughing matter.You need to have maintenance planning. For instance, for every 25000 miles travelled basic inspection isrequired and every 3-monthly painting. If PM is not tracked well, disruptions and catastrophes happen.

What is PS and what is its function?

Project Systems (PS) provides broader functionality in support of project management requirements beyondcost management. Given the tighter integration with operational aspects of project management (e.g.procurement, detailed cost planning, project scheduling, etc.) that PS provides, it enables more timely andefficient cost capture.

What are the basic EAM terms?

Functional Location (FL) - an organizational unit within Logistics, that structures the maintenance

objects of a company. A functional location represents the place at which a maintenance task is tobe performed

Corrective Maintenance (CM) performing maintenance when a breakdown happens

Preventive Maintenance (PM) scheduling maintenance before breakdown happens

Asset under Construction (AuC) asset with undefined value. For example, building a productionplant, the total cost is not known until its completion

Final Asset (FXA) asset with defined value and should have depreciations

Operating Expenditure (OPEX) cost to be expensed out

Capital Expenditure (CAPEX) cost to be capitalized into an asset eventually

What are the latest developments in SAP EAM till date?


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Our Case Study: How do we do it?

Business Requirements

In our case study, the core requirement can be simplified into:

(1) Budget Control

(2) Order Execution

(3) Asset Settlement


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2010 SAP AG 9

System Setup Strategy

There are many options to setup an EAM system:

(a) Purchase Order with Internal Order

(b) Purchase Order with WBS element

(c) PM Order with Internal Order

(d) PM Order with WBS element

The simplest way for budget controlling is using Purchase Order with account assignment to either a WBSelement or Internal order. However, in the context of EAM, PM Order will be more apt to be the centraltransactional object, due to the greater maintenance flexibility it offers.

Internal Orders is a more direct way to manage cost. But it does not provide hierarchical cost structure foranalysis. PS hierarchical cost listing has synergistic advantage when applied to PM functional location.

We will walkthrough scenario (d) the most complete design!

PM Order with WBS element Option

PM Order will be the primary transaction in any EAM systems, coupled with the budgeting functionality of PSProject. A PM Order (PMWO) should only be raised with a WBS element assigned to it this will ensure thebudget mechanism to be applied more consistently.

When a PMWO is released, a PR will be generated (by customization). The components required by PMWOwill be translated into the PR lines automatically. At the same time, a PR commitment will be created againstthe WBS element budget check. When the PR is approved, a PO can be created. When a PO is created, thePR commitment is closed, but a PO commitment is raised against the budget.

When the PO is fully delivered and/or invoiced, the PO commitment materialized into actual cost. With actualcost on PMWO, cost settlement can start.


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2010 SAP AG 10

In our case study, our EAM process is breakdown into 5 steps (see Process View section for detailed flow).

The process can also be viewed in 4 Object levels: Project (PS), Asset (AA), Order (PM), and Material (MM).


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2010 SAP AG 12

WBS Project is primary master data to the Project System module, and the second most important masterdata for EAM. It is basically an object that SAP uses to manage and structure cost for projects.

Based on experience, it is important to structure a Project into at least 3 sections based on capitalizationtypes:

1) Tangible Capitalization

2) Intangible Capitalization

3) Expense (no capitalization)

One of the core purpose of using EAM is ensuring proper capitalization of cost into the proper assets.

In the realms of finance, assets are broadly characterized either as tangible or intangible.

As the project object holds the budget, it has to create a section for expense apart from having tangibleand intangible class. SAP allow early classification of WBS element under different asset class.

As the project object is also used for operational purposes, the tangible section can be further detailed allows building of more budget control options.


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2010 SAP AG 13

Our case study is designed in such a way that the WBS Project and the Functional Location are mirrored.One WBS element in principle corresponds to one functional location. Equipments in the functional locationsconsumes budget from account-assigned WBS element.


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2010 SAP AG 14

When creating a PM Order, the included functional location and wbs element information should tally

PM Order with properfunctional location

(e.g. SINALL1-T801)

PM Order with properWBS element

(e.g. C30-O0101-D2015-T801)


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2010 SAP AG 15

Process View

Step 1: Project Start

Project Controller create project structure and allocate budget.

Step 2: Order Create

Requester raises the PM Order with the appropriate WBS elements

Step 3: Order Release & Technical Complete

PM Order is released, the procurement cycle starts

Order raiser TECO the PM Order when goods are recevied and time is confirmed

Step 4: Order Close

Finance perform monthly cost settlement

Finance CLSD the PM Order

Step 5: Project Technical Complete and Close

Project Controller TECO the Project when all logistics aspect should be completed

Project Controller CLSD the Project when all finance aspect should be completed

Status

- Released = start reservation / requisition

- TECO = work done (no further commitment can be added)

- CLSD = fully invoiced


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2010 SAP AG 16

Costflow View

In our case study, each account-assigned WBS element will auto-generate an AuC upon release. AuC willbe a placeholder for all cost as per WBS element. When the AuC has come to a completion, we can settle itto one-or-multiple FXA. In the assignment rule screen, we can allocate the cost as per PM Order to FXA.

The flow for cost starts at PM Order. When the PM Order incurs actual cost, and settlement run is done; cost

is moved from the PM Order to its assigned WBS element. And the auto-assigned rule in the WBS elementmoves the cost to its AuC. During the second settlement run, cost is finally moved from AuC to FXA provided allocation rule is made.

PMWO -> (1) WBS Element -> (2) AuC -> (3) FXA


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2010 SAP AG 17

Our Case Study: How do we use it?

Screen Sequences

Based on our system design and requirement areas (Budget Control, Order Execution, Asset Settlement),we will display the SAP screens in the following sequences:

1. Budgeting Screen2. Tracking Screen

3. Settlement Screen

4. Reporting Screen


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2010 SAP AG 18

Budgeting Screen

The first step to EAM is budget management. The function is accessed via transaction CJ30CJ30CJ30CJ30.

The setup will trigger the budget availability check in the PM Order. In the additional data tab of PM Ordermaintenance, we can activate mandatory WBS element.

We have the options to allocate budget at the top most WBS element or at a lower level. For the formerallocation, budget can be freely used by all nodes but there could be a case of overusing budget among the

nodes.


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2010 SAP AG 19

Tracking Screen

The list of PMWO that are linked to WBS elements can be accessed via transaction IW3IW3IW3IW38888.The listing allows

filtering (apart from WBS elements/project) by status, dates, author, plant, functional location, equipment,etcs.


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The list of PMWO generated that is linked to WBS elements can be accessed via transaction CJI3CJI3CJI3CJI3.


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Settlement Screen

Before we can settle the cost from the AuC to FXA, we have to maintain the allocation rule for settlement via

transaction CJICCJICCJICCJIC.

CJIC allows us to allocate cost base on PM Orderlevel.

However, we may choose to break the figure down either by percentage or dollar value. AuC can beallocated to one or many FXA.

The transaction CJ88CJ88CJ88CJ88 (orCJ8GCJ8GCJ8GCJ8G) is the actual execution transaction for cost settlement.


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Reporting Screen

The report S_ALR_87013558S_ALR_87013558S_ALR_87013558S_ALR_87013558 enables us to have a close loop analysis, as the transaction flow from budget

cost to actual cost, and from hierarchical Project level to transactional PM Order level.

Of course there are plenty of other reports that the SAP PS Information System can offers. If not, we can stillusing screen painter / writer.


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Conclusion

The case for better asset management should flow from the corporate level to the ground. Safer, moreproductive assets at an operational level are essential to optimized revenue, profit, and capital use acrossthe network of assets, which, in turn, translates to better ROA performance enterprise wide.

Enterprise Asset Management Strategy cannot be created without the combined efforts of both the

operational and controlling teams. Because it encompasses crucial decisions that impact PM Orders,Purchase Orders, Final Assets and AuC, and Costs and Budgets.

SAP Plant Maintenance is not just a system for maintenance of production plant; it can be scaled up to be acomplete a system to collect, analyze and allocate cost for plant construction; and eventually an enormoussystem to manage the complete lifecycle of asset systems.


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2010 SAP AG 24

Appendix

Detailed EAM Cycle with Transaction code listings

Integration between Asset Management (Logistics) and Asset Accounting (Finance)


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Credits and Content Sources

1. SDN EAM Brief Brochure

http://www.sap.com/cis/industries/millproducts/metallurgy/brochures/Solution_Brief_EAM.pdf

2. SDN Overview of EAM features and functionalities

http://www.sap.com/australia/solutions/sam/featuresfunctions/assetmanagement.epx

3. SAP Roadmap for EAM '11http://www.ps-consulting.de/pdf/vortrag/infotag-2011/EnterpriseAssetManagement-SAP-Roadmap-New-Solution-Features.pdfS

4. SAP EAM Updates on Offerings from SAP '12

http://www.sap.com/campaigns/2012_02_mining-metals/assets/SAP_MiningMetals_Forum_2012_A5_SAP_Enterprise_Asset_Management.pdf

5. Asset Visibility: Seeing the Opportunity in Asset Managementhttp://www.sdn.sap.com/irj/scn/go/portal/prtroot/docs/library/uuid/a038ee55-c513-2d10-33a2-85570032d43a

6. Integrating SAP BPC into SAP Business Intelligence, technically

http://scn.sap.com/docs/DOC-4252 (my other paper in 2010) someday EAM will find its way toBusiness Intelligence, vice versa

Documents

Conceptual Enterprise Asset Management for Plant Construction Process