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Product Hierarchy Design

How to Design Your Product Hierarchy in SAP [Consultation]

Do You Know The SAP Product Hierarchy Purpose

Many companies fail to take into consideration all of the elements of a robust product hierarchy design early enough in their implementation process.

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Product Hierarchy Design

Sketch: A Typical Product Hierarchy Example

As a result, they have problems or concerns with: 

  • Ensuring the Profit Center, Division and Product Hierarchy fields are aligned conceptually.  They will typically need to be arranged into various levels, each with a distinct level number, and will possibly need to have one or more table modifications.

  • Providing accurate profit center reporting

  • Ensuring the Marketing view of the Product Hierarchy is correct for their required marketing activities

  • Misallocating marketing spend dollars due to incomplete information at all hierarchy levels

  • Ensuring that organizational elements are reflected as needed in the product hierarchy and other key elements and  to support all business requirements

  • Deriving the right profit center from sales order items

  • Simplify pricing  of materials and services, e.g. service contract pricing
  • Performing periodical Backflushing and thus alignment with production planning

  • Extending materials to the correct SAP Sales Area in support of correct reporting using the SAP product hierarchy configuration tool

  • Properly classifying materials for reporting purposes and for grouping materials for even better reporting

  • Aligning GLNs (Global Location Numbers) properly for Supply Chain Planning purposes and other related forecasting tasks

  • Introducing new products and retiring old products

  • Track and Trace, and especially with product recalls

  • Batch management activities, with severe impacts in highly regulated industries, such as pharmaceutical, automotive, medical device and aerospace & defense (A&D) industries

  • Finding products and sub-products by validity dates, especially important for complying with Engineering Change Orders within the Aviation Industry

  • Determining their current warranty obligations and exposure accurately

How to Create Product Hierarchy in SAP

One key issue with regards to Product Hierarchy in SAP ECC or SAP HANA is how to realign a product hierarchy retroactively. An existing product hierarchy needs to be periodically updated. This leads to huge effort as we have to make sure that all the objects such as the material master, sales orders, profit centers, condition records based on Product Hierarchies, etc. have been updated with the correct Product Hierarchy.  When it comes to knowing how to check product hierarchy in SAP we have a tool called Product Hierarchy Re-alignment and also Profit Center Realignment which allows you to assign the product hierarchy and profit center to all objects that have already been processed. If interested, a demo is available.

How Do You Address these Business-Critical Issues? 

As you can see from what is an admittedly limited list of problems with improper product hierarchy design or a failure to follow SAP product hierarchy best practices, there needs to be a lot of effort put into getting this right. In our experience, we have found that it takes a 4-phase approach to getting this right, whether you’re doing a greenfield SAP implementation, a SAP upgrade, setting up a product hierarchy in SAP S4 HANA or an additional functionality rollout:

  • Phase One – Assessment

    During the assessment phase, we gather the ‘As-Is’ information. Though most manufacturing concerns have a product catalog, they may not have a well thought out product hierarchy.

  • Phase Two – Diagnostic

    During the diagnostic phase, we will determine whether the current design supports the business and management reporting requirements. It is in this phase where we uncover whether the existing design is already causing problems. Using the techniques from Lean Six Sigma and our proprietary approach, we benchmark your existing approach against best-in-class and provide objective performance measurements.

  • Phase Three – Prescription

    Using the PDCA (Plan, Do, Check, Act) approach, we design a product hierarchy that addresses the issues uncovered and provides a roadmap for continuous improvement. Each client is different but by using our productized service approach, each client can benefit from what we have learned from other clients and incorporated into our proven methodology.

  • Phase Four – Implementation and Support

    Finally, we help you implement the design. Given that new products and product variants are continuously introduced into the market, we find that on-going support is usually required by our clients in their product hierarchy design. Our support teams use advanced systems and practices to ensure you’re operating at optimal efficiency at all times. 

SAP Product Hierarchy Design Consultation

Whether you need expert advice with your product hierarchy or you need someone to take on the complete problem, we can help. We offer a highly refined SAP Product Hierarchy design methodology, based on SAP product hierarchy best practices, successfully used by enterprises around the world. 


Request My Free  Product Hierarchy Consultation


Topics from this blog:
Product Hierarchy

Soren Detering

My name is Soren. I am the founder of Detering Consulting. I began the company in 2003 because I wanted to provide more value for SAP customers. I knew that many of them were missing out on all the great benefits that could be obtained from the software. Before establishing Detering Consulting, I completed my education by obtaining a Master’s in Computer Science. After that, I worked at SAP in Germany and SAP Labs in North America for 10 years. My extensive background in solution management, project planning and -management, implementation services and leadership includes experience in: Automotive, A&D, High Tech, Medical Equipment, and Manufacturing Industries.
Me and my teams have successfully assisted many customers with their SAP ERP software, completed several full life cycle implementation projects, and carried out over 30 projects in SAP ECC and S/4 Hana. My experience has given me the unique ability to scope out ERP solutions in a very short amount of time. I have a knack for finding untapped money-making opportunities and discovering areas where customers could be saving money. I currently live and work in Palo Alto, CA just 10 minutes away from the SAP office. I dedicate myself to helping our clients with our SAP consulting services. In my spare time, I enjoy sailing, kickboxing, and spending time with my family and our two Taiwanese Mountain dogs.

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