Profitability questions and market segments

Profit center reports tell Contoso Motor Co. how the Fleet and Aftermarket businesses are doing. They do not answer the questions sales leaders ask every week: Which customers make us money? Which products carry the margin? Is the Midwest more profitable than the South? Did the price increase stick? Those are profitability questions, and in SAP S/4HANA they are answered by margin analysis, the account-based form of Profitability Analysis (CO-PA).

Characteristics: the dimensions of a question

Every profitability question has dimensions: customer, product, region, sales organization, distribution channel, customer group. In margin analysis these are called characteristics. A specific combination of values, for example customer Great Lakes Fleet Services, product CMC-ALT-100, sales organization 1710, distribution channel 10, is a market segment (SAP also uses the term profitability segment). Revenue and costs are posted to market segments, and reports slice them by any characteristic.

The operating concern

Characteristics are defined in an operating concern, the organizational unit of Profitability Analysis. One or more controlling areas are assigned to it; Contoso's controlling area A000 belongs to one operating concern. SAP's learning material explains that some characteristics are fixed and present in every operating concern, such as company code, controlling area, plant, product and customer. Up to 50 further characteristics can be added; those created by the customer start with WW. In SAP S/4HANA each characteristic you add becomes a column of the Universal Journal (ACDOCA) and of the related plan and CO tables, so adding one is a structural change: it is maintained in Customizing (the operating concern data structure, transaction KEA0 in Private Edition), generated, and transported through CMD and CMQ like any other change, never created directly in production.

Choosing characteristics

Characteristics are cheap to report on and expensive to get wrong. Each one must be filled reliably on every relevant line, or the report shows a large "not assigned" row. A good test for a candidate characteristic: can you name the source of its value for a billing document, a goods issue, a settled production order and a manual adjustment? If not, it will be incomplete. Contoso's design team, led by Dan with Maria representing order-to-cash, kept the list short and tied each characteristic to a decision someone makes.

Profit centers and market segments together

Margin analysis does not replace profit centers. A profit center is a responsibility unit with an income statement and, with document splitting, a balance sheet. A market segment is a multidimensional cut of revenue and cost that nobody is "responsible" for as a whole. The two meet on the same journal entry line: a revenue line carries profit center CMC-FLEET and the customer, product and sales district of the sale. That is why a controller can start in a profit center report, notice an odd number and continue the analysis by customer without switching systems.