Profit Center Design in SAP

What is an intelligent enterprise? It's much more than just technology.

Profit Centers are those management oriented organisation (responsibility center) which are responsible for

  • Earning Revenues for organization
  • Incurring costs during the course of business
  • Owning assets, on behalf of the organization
  • Return on capital employed (ROCE) – enabling the management to assess / evaluate on ROCE at profit center level

Profit Centers may be rolled up to Operating Segments within the Group.

Profit Center Hierarchy

In SAP. while Profit Center is reckoned as Master Data, the Profit Center Hierarchy is reckoned as an Enterprise Structure. An Illustrative Profit Center Hierarchy for an enterprise in Automotive Industry depicts profit centers across different operating segments and roll up of such profit centers to an entity level.
Typically, a profit center Hierarchy for an automotive enterprise could resemble as tabled below

What is unique in Profit Center Design in SAP?

The unique aspects for the profit center design in SAP are as follows
Enterprise Structure values like Company Code, Purchase Org., Sales Org. are configured together with inter relationships in SAP. While performing transaction, one or more enterprise values may be populated by user, the remaining organization values are derived based on configuration set up.
The Profit Center is assigned in all the master data across modules. When the user carries out transaction with reference to master data, the profit center is derived from various masters and hence profit center is more granular in nature. Hence, It is important to optimize the Profit Center Design at Legal entity level, reckoning processes across modules and relevant master data and integration aspects.

2. Criteria for Profit Center Design

While the profit center definition remains common, different enterprises evaluate the profit center design based different criteria to either manage their day to day business or to meet their management reporting.

  • Physical Locations: Manufacturing, Logistics locations, Project Sites, Branches, Special Economic Zones, Regional Sales offices
  • Business divisions: Divisions or Strategic Business Units or sub-units
  • Product attributes like Brands, Revenue classes, product groups
3. Industry wide Profit Center Design

The table below summarizes the profit center design for various industries, reckoned based on different rationale or criteria

Industry Criteria: Rationale for Profit Center Design
Automotive Divisions of business or Product Attributes: Investments and revenue drivers are on the basis of divisions and related product attributes.
Consumer Products Brands or Product Attributes: Investments and revenue drivers are on the basis of Brands and related product attributes.
Energy / Wind Mills Project Sites or Locations: Investments and revenue drivers are defined on the basis of sites or physical locations.
Healthcare / Hospitality Locations: Investments and revenue drivers are defined on the basis of sites or physical locations.
Industry Criteria: Rationale for Profit Center Design
Logistics Divisions: Investments and revenue drivers are on the basis of divisions or sub-divisions.
Pharma Brands or Product Attributes: Investments and revenue drivers are on the basis of Brands and related product attributes.
Real Estate Project Sites or Locations: Investments and revenue drivers are defined on the basis of sites or physical locations.
Supply Chain Locations: Investments and revenue drivers are defined on the basis of physical locations.
Software / High Tech Divisions or Product / Service Attributes: Investments and revenue drivers are on the basis of divisions and related Product or Service attributes.
Telecommunications or Services Divisions: Investments and revenue drivers are on the basis of divisions or sub-divisions.
4. Pros and Cons of different Profit Center Design

In this section, we shall understand the Pros and Cons of different profit center design

Divisions as Profit Centers

Brands as Profit Centers

Locations as Profit Centers

Combination of Location and Brands as Profit Centers

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