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Preference in SAP GTS for
NET COST Method
Author:
Karthik Gunda
Solution Architect, SAP SD & GTS
YASH Technologies Pvt. Ltd.
Technical White Paper
In today’s global markets, outbound shipments
have to clear customs fast. That means ensuring
that products are correctly classified and have the
required complete and accurate documentation.
For a business with partners overseas, it’s critical
to ensure that it’s dealing with the right people,
countries, and products. Business must identify
restrictions on specific items, countries of
destination, and business partners, and there is
host of regulations to comply with – and severe
penalties for noncompliance. Also, to survive
in today’s fiercely contested global markets, a
business cannot afford to let go the opportunities
offered by trade preference agreements.
Businesses need to provide detailed certification
of the origin of goods to their overseas customers.
Preferential Trade Agreements exists among the
countries, where they provide exemptions on
certain goods upon the customs duty, based on
a criterion. NAFTA is the North American Free
trade agreement, covering US, Mexico, Canada &
Puerto Rico as member countries.
Preference Calculation for NAFTA agreement:
To conduct business in other countries,
Business must comply with local laws, adhere to
documentation requirements and understand
complex tariffs and duties. Failure to do so can be
costly so, and GTS helps automate these processes
to ensure compliances. SAP GTS is an ERP Based
solution meant for companies which are mainly
into Global Operation. Corporations which have
trading contracts with an extensive network of
partners across the world with operations in
different countries are likely to use this application.
GTS architecture how it communicates to Feeder
System, all the master data like Material, customer-
vendor and all the transaction data like sales order
delivery billing doc get pushed to GTS through
RFC Call. And any message back to Feeder system
flows through RFC call.
There will be an exemption from customs duty or
a reduced customs duty rate on the products that
are sold among these member countries when
the respective product qualifies for preference.
How does a product qualify for preference?
Product will qualify for preferential treatment
when it meets one among the following criterion:
1	 When majority of the content in a finished
Product is Originating, this is determined
based on Regional Value Content(RVC)
calculated on that product.
A brief about Preference determination (NAFTA):
Originating – Raw material/ Sub-Assemblies
which are Produced or procured or certified for
preference from one among US, Mexico & Canada
that go into the finished product in question.
Usually, the rule against the classification of the
final product specifies how much RVC is expected
(50%, 55%, 60%, etc.,) in the product to be
qualified. The percentage will be different for Net
Cost method and Transaction Value Method on
the same product.
a) NET COST Method:
RVC = NC – VNM x 100 NC
RVC – Regional Value Content
NC – Net Cost of that product
VNM – Value of
nonoriginating material
b) Transaction Value Method:
RVC = TV – VNM x 100 TV
TV – Transaction Value
/ value as per invoice
	 There are two ways to calculate
the RVC:
The preference calculation using
a Net Cost method depends on
the following factors in SAP GTS:
	 1)	 Classification
	 2)	 Rules of preference
	 3)	BOM
	 4)	 Procurement Indicators
	 5)	Price
	 6)	 Vendor Declarations
2.	 Tariff Shift Method:
	 These rules are defined by a change in tariff
classification of the non-originating materials.
	 This is dependent on what all components
that fall under specific list of classifications
have transformed into a certain Classification
in the production process to form the final
product.
Case in point
A company has its manufacturing spread across
multiple plants in the US and needs to calculate
NAFTA preference on their products. Let’s Say
there are 2 Plants within the US.
SAP GTS recommends using a plant group
comprising these plants if the parts are in
common.
In the event of calculating the RVC by NETCOST
Method on a Static BOM, through a TOP Down
Approach.
There are two important factors offered in
SAP GTS:
1)	 The cost of a component which is lowest
among the two plants will be considered
for 	 Preference.
2)	 The BOM will be regarded as from other
plants based on the alternative BOM
explosion. And its related configuration.
Business Requirement:
The Components belonging to other plants
needs to be considered, however, the price needs
to be taken only from individual plants. The
Cross Plant BOM needs to be triggered based on
special procurement indicators mentioned in the
Material Master of the Feeder and should apply
to the cases where there is a stock transfer as the
procurement value.
GAP:
1)	 The process as per standard SAP cannot be
considered based on individual plant level
prices in a plant group based BOM
2)	 The BOMs from other plants cannot be
considered for the procurement values
where there is a stock transfer defined
SAP Global Trade
Services provides
one of the most
comprehensive
import
management
solutions in the
industry.
Why is SAP PLM a fantasy for the SME’s?
Solution:
Necessary changes in Feeder System
In Feeder system, there is scope to define the
configuration, for transferring the BOM in the
following path.
IMG-> Sales & Distribution-> Foreign Trade/
Customs->SAP GTS-Plugin-> “Control Transfer of
Bills of Product for preference and Re-export”
However, in the section above only those types of
BOMs that are selected would transfer into GTS.
This is the first step to consider while enabling
the Cross plant BOM’s. Alternative BOM’s section
per each Plant offers more scope to refine the
cross plant explosion further. The control related
to cross plant BOM explosion based on special
procurement still do not exist in this above
configuration transaction.
For this to happen, in the Transfer routine
program, the changes will need to be made in the
function Module CS_BOM_EXPL_MAT_V2, which is
used in the transaction SAPSLL/BOMMAT_DIRR3.
The custom Logic needs to be based according
to Configuration entries defined in Table T460A.
Against the Special Procurement type(SOBSL) and
Special Procurement-External Display(SOBES).
One can control the BOM transfer with the options provided as follows:
Impact of above custom approach changes:
•	 Ensures LTVD’s are maintained for all external procured components in all the
relevant plants of that plant group
•	 Allows plant-specific prices, providing greater accuracy in calculation
•	 The Tariff shift results are more accurate, enabling to identify those classifications
that may be defined in the “Exclusion” or “Inclusion” list in a few rules
Necessary Changes in GTS System:
The Plants have to be defined as individual Legal Units; the price transferred from Feeder to the product
master in GTS would be recorded as per individual plants in that case. Material Transfer, Price transfer,
Procurement Indicator transfer has to be done from Feeder into GTS system; Further, the classifications
need to be maintained against all components as well as the headers.
A Comparision of the RVC (NET COST)calculation according to Both Approaches:
YASH-SAP-GTS-WP-1117
© 2017 YASH Technologies. All rights reserved. Referred products/ services may be registered trademarks of belonging companies.
About YASH Technologies
YASH Technologies focuses on customer success. As a leading technology services and outsourcing partner for large and fast growing
global customers, the company leverages technology and flexible business models to drive innovation and value throughout its customer’s
enterprise. YASH customer centric engagement and delivery framework integrates specialized domain and consulting capabilities with
proprietary methodologies and solution offerings to provision application, infrastructure and end user focused Right-Sourcing services.
YASH is a SEI CMMI (Level 5) and an ISO 9001:2015 certified company with U.S. and India headquarters and regional sales and development
offices globally with customers spread across 6 continents.
.
YASH Technologies Global Presence	 www.yash.com/contactus
AMERICAS | EUROPE | APAC | MEA
World HQ: 605-17th Avenue East Moline IL 61244 USA | Toll Free: 877-766-8934 | Tel: 309-755-0433 | Fax: 309-796-1242
For more information contact YASH today
at info@yash.com or visit www.yash.com
Recommendation:
Logic needs to be coded in a way that control
can be maintained through a table entry so that
this custom transfer feature for BOMs can work
in specific cases where the entry is maintained.
When this feature is turned off on the table and
run the transaction, original BOM shall replace
the custom BOM in GTS.
Conclusion:
By allowing the explosion to more levels (inclusive
of other plants with stock transfer procurements),
more control and accuracy is possible. The
NAFTA preference module within GTS provides
an automated means for managing your NAFTA
preference determination.
Reference:
www.sapgtsonlinetraitning.net/
sap-gts-overview

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Why is SAP PLM a fantasy for the SME’s?

  • 1. . Preference in SAP GTS for NET COST Method Author: Karthik Gunda Solution Architect, SAP SD & GTS YASH Technologies Pvt. Ltd. Technical White Paper
  • 2. In today’s global markets, outbound shipments have to clear customs fast. That means ensuring that products are correctly classified and have the required complete and accurate documentation. For a business with partners overseas, it’s critical to ensure that it’s dealing with the right people, countries, and products. Business must identify restrictions on specific items, countries of destination, and business partners, and there is host of regulations to comply with – and severe penalties for noncompliance. Also, to survive in today’s fiercely contested global markets, a business cannot afford to let go the opportunities offered by trade preference agreements. Businesses need to provide detailed certification of the origin of goods to their overseas customers. Preferential Trade Agreements exists among the countries, where they provide exemptions on certain goods upon the customs duty, based on a criterion. NAFTA is the North American Free trade agreement, covering US, Mexico, Canada & Puerto Rico as member countries. Preference Calculation for NAFTA agreement: To conduct business in other countries, Business must comply with local laws, adhere to documentation requirements and understand complex tariffs and duties. Failure to do so can be costly so, and GTS helps automate these processes to ensure compliances. SAP GTS is an ERP Based solution meant for companies which are mainly into Global Operation. Corporations which have trading contracts with an extensive network of partners across the world with operations in different countries are likely to use this application. GTS architecture how it communicates to Feeder System, all the master data like Material, customer- vendor and all the transaction data like sales order delivery billing doc get pushed to GTS through RFC Call. And any message back to Feeder system flows through RFC call. There will be an exemption from customs duty or a reduced customs duty rate on the products that are sold among these member countries when the respective product qualifies for preference. How does a product qualify for preference? Product will qualify for preferential treatment when it meets one among the following criterion: 1 When majority of the content in a finished Product is Originating, this is determined based on Regional Value Content(RVC) calculated on that product. A brief about Preference determination (NAFTA): Originating – Raw material/ Sub-Assemblies which are Produced or procured or certified for preference from one among US, Mexico & Canada that go into the finished product in question. Usually, the rule against the classification of the final product specifies how much RVC is expected (50%, 55%, 60%, etc.,) in the product to be qualified. The percentage will be different for Net Cost method and Transaction Value Method on the same product. a) NET COST Method: RVC = NC – VNM x 100 NC RVC – Regional Value Content NC – Net Cost of that product VNM – Value of nonoriginating material b) Transaction Value Method: RVC = TV – VNM x 100 TV TV – Transaction Value / value as per invoice There are two ways to calculate the RVC:
  • 3. The preference calculation using a Net Cost method depends on the following factors in SAP GTS: 1) Classification 2) Rules of preference 3) BOM 4) Procurement Indicators 5) Price 6) Vendor Declarations 2. Tariff Shift Method: These rules are defined by a change in tariff classification of the non-originating materials. This is dependent on what all components that fall under specific list of classifications have transformed into a certain Classification in the production process to form the final product. Case in point A company has its manufacturing spread across multiple plants in the US and needs to calculate NAFTA preference on their products. Let’s Say there are 2 Plants within the US. SAP GTS recommends using a plant group comprising these plants if the parts are in common. In the event of calculating the RVC by NETCOST Method on a Static BOM, through a TOP Down Approach. There are two important factors offered in SAP GTS: 1) The cost of a component which is lowest among the two plants will be considered for Preference. 2) The BOM will be regarded as from other plants based on the alternative BOM explosion. And its related configuration. Business Requirement: The Components belonging to other plants needs to be considered, however, the price needs to be taken only from individual plants. The Cross Plant BOM needs to be triggered based on special procurement indicators mentioned in the Material Master of the Feeder and should apply to the cases where there is a stock transfer as the procurement value. GAP: 1) The process as per standard SAP cannot be considered based on individual plant level prices in a plant group based BOM 2) The BOMs from other plants cannot be considered for the procurement values where there is a stock transfer defined SAP Global Trade Services provides one of the most comprehensive import management solutions in the industry.
  • 5. Solution: Necessary changes in Feeder System In Feeder system, there is scope to define the configuration, for transferring the BOM in the following path. IMG-> Sales & Distribution-> Foreign Trade/ Customs->SAP GTS-Plugin-> “Control Transfer of Bills of Product for preference and Re-export” However, in the section above only those types of BOMs that are selected would transfer into GTS. This is the first step to consider while enabling the Cross plant BOM’s. Alternative BOM’s section per each Plant offers more scope to refine the cross plant explosion further. The control related to cross plant BOM explosion based on special procurement still do not exist in this above configuration transaction. For this to happen, in the Transfer routine program, the changes will need to be made in the function Module CS_BOM_EXPL_MAT_V2, which is used in the transaction SAPSLL/BOMMAT_DIRR3. The custom Logic needs to be based according to Configuration entries defined in Table T460A. Against the Special Procurement type(SOBSL) and Special Procurement-External Display(SOBES). One can control the BOM transfer with the options provided as follows:
  • 6. Impact of above custom approach changes: • Ensures LTVD’s are maintained for all external procured components in all the relevant plants of that plant group • Allows plant-specific prices, providing greater accuracy in calculation • The Tariff shift results are more accurate, enabling to identify those classifications that may be defined in the “Exclusion” or “Inclusion” list in a few rules Necessary Changes in GTS System: The Plants have to be defined as individual Legal Units; the price transferred from Feeder to the product master in GTS would be recorded as per individual plants in that case. Material Transfer, Price transfer, Procurement Indicator transfer has to be done from Feeder into GTS system; Further, the classifications need to be maintained against all components as well as the headers. A Comparision of the RVC (NET COST)calculation according to Both Approaches:
  • 7. YASH-SAP-GTS-WP-1117 © 2017 YASH Technologies. All rights reserved. Referred products/ services may be registered trademarks of belonging companies. About YASH Technologies YASH Technologies focuses on customer success. As a leading technology services and outsourcing partner for large and fast growing global customers, the company leverages technology and flexible business models to drive innovation and value throughout its customer’s enterprise. YASH customer centric engagement and delivery framework integrates specialized domain and consulting capabilities with proprietary methodologies and solution offerings to provision application, infrastructure and end user focused Right-Sourcing services. YASH is a SEI CMMI (Level 5) and an ISO 9001:2015 certified company with U.S. and India headquarters and regional sales and development offices globally with customers spread across 6 continents. . YASH Technologies Global Presence www.yash.com/contactus AMERICAS | EUROPE | APAC | MEA World HQ: 605-17th Avenue East Moline IL 61244 USA | Toll Free: 877-766-8934 | Tel: 309-755-0433 | Fax: 309-796-1242 For more information contact YASH today at info@yash.com or visit www.yash.com Recommendation: Logic needs to be coded in a way that control can be maintained through a table entry so that this custom transfer feature for BOMs can work in specific cases where the entry is maintained. When this feature is turned off on the table and run the transaction, original BOM shall replace the custom BOM in GTS. Conclusion: By allowing the explosion to more levels (inclusive of other plants with stock transfer procurements), more control and accuracy is possible. The NAFTA preference module within GTS provides an automated means for managing your NAFTA preference determination. Reference: www.sapgtsonlinetraitning.net/ sap-gts-overview