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Does Rel. 12 Solve Global Inter-Company Issues for Multiple Ledgers, Profit in Inventory and COGS?

Does Rel. 12 Solve Global Inter-Company Issues for Multiple Ledgers, Profit in Inventory and COGS?. Douglas Volz Douglas Volz Consulting doug@volzconsulting.com. Jerry Devore CSC jdevore@csc.com. Agenda. Example / Background Wow – R12 Features That Work Subledger Accounting

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Does Rel. 12 Solve Global Inter-Company Issues for Multiple Ledgers, Profit in Inventory and COGS?

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  1. Does Rel. 12 Solve Global Inter-Company Issues for Multiple Ledgers, Profit in Inventory and COGS? Douglas Volz Douglas Volz Consulting doug@volzconsulting.com Jerry DevoreCSC jdevore@csc.com

  2. Agenda • Example / Background • Wow – R12 Features That Work • Subledger Accounting • Local vs. Corporate Reporting with SLA • COGS Recognition • R12 Intercompany Challenges • SLA Inquiries and Reporting • Profit in Inventory • Time Sensitive Setups • Multi-Org Inventory Reconciliation

  3. Background • Using Release 12.06 at a global pharmaceutical company • Discrete costing with multiple inventory orgs, currencies, operating units and ledgers • With internal transfers across most organizations, using multiple primary and secondary ledgers • Inter-company pricing with profit in inventory and month-end elimination issues

  4. Sample Background – Supply Chain Logical Shipping Transactions Inter-Org Shipping and Billing Medical Customers Distribution - Europe Logistic Service Providers - Europe Factory Switzerland Logistic Service Providers - Americas Distribution - United States Medical Customers Factory Korea Logistic Service Providers - Asia Distribution - Asia Medical Customers

  5. Sample Financial Entities

  6. Release 12 Features That Work

  7. GL Journal Entries and Balances Transactions Accounting Events Accounting Configurations Subledger Journal Entries Journal Entry Setup Subledger Balances SLA Cost Management Wow – R12 Features that Work! • SLA for product line accounting, variance recognition Accounting Program

  8. Wow – R12 Features that Work! • SLA Basic Architecture Enter Transaction(s) One Common Accounting Subledger Table Same Cost Transaction Accounting Tables Cost Manager SLA Accounting Tables G/L Tables Transaction Accounting Tables GL_LEDGERS XLA_EVENTS Create Accounting GL_JE_BATCHES XLA_AE_HEADERS GL_INTERFACE GL_JE_HEADERS XLA_AE_LINES GL_JE_LINES XLA_DISTRIBUTION_LINKS

  9. More R12 Features that Work! • COGS Recognition • In R12 the customer shipment entries go to deferred COGS • Run “Autoinvoice” & “Revenue Recognition Master Program” • Run the “Inventory Cost Processor” or “Record Order Management” • Run “Collect Revenue Recognition Information” • Then run “Generate COGS Recognition Events” Deferred COGS “True” COGS Inventory 1. Customer Shipment 10 10 10 10 2. COGS Recognition

  10. More R12 Features that Work! • Primary and Secondary Ledgers • In Release 12 Subledger Accounting replaced Global AX • Primary to secondary ledger mapping is much better • Outside of Asia-Pac countries, all primary ledgers are in USD • Every month the primary ledgers are translated into the secondary ledgers for local reporting requirements

  11. Release 12 Inter-Company Challenges

  12. Profit in Inventory • Terms • Current features • Basic business needs and business scenarios • Common solutions to solve the visibility and elimination of profit in inventory

  13. Profit in Inventory - Terms • Two commonly used terms for profit in inventory • ICP – Intercompany Profit • PII – Profit in Inventory

  14. CST: Transfer Pricing Profile Option • No • Yes, Price Not as Incoming Cost • Yes, Price as Incoming Cost

  15. Profit in Inventory – Current Features(FOB Ship Example / CST: Transfer Price Option: Price Not as Incoming Cost) Transfer Price: $120 Receiving Organization O2 Standard Cost: $120 Sending Organization O1 Inventory Cost: $102 FOB Shipment INV Valuation (O1) Inter-OrgPPV(O2) INV Valuation (O2) Profit In Inventory (O2) COGS (O1) Accrual (O2) In-transit (O2) Event 1. Shipment 102 102 120 18 120 18 120 120 2. Receipt I/C Receivable (O1) I/C Revenue (O1) Accrual (O2) I/C Payable (O2) 3. I/C AR 120 120 4. I/C AP 120 120

  16. Profit in Inventory – Current Features • By using “Price Not as Incoming Cost” profit in inventory is earned with the intransit shipment or receipt transaction (depending on FOB setting) • But it is never relieved during subsequent transfers • And you don’t have a Profit in Inventory Value Report

  17. Profit in Inventory – Basic Business Needs • Two overall scenarios: • Profit in inventory adjusted in local books(eliminate in local books) • Profit in inventory adjusted in consolidation ledger(eliminate in consolidation books)

  18. Profit in Inventory – Report in Local Books • Requirements • Profit in inventory recorded at a transactional level • Need profit in inventory adjusted out of detailed margin analysis • Accrued when receiving goods from source internal organization • Relieved whenever the goods are consumed: • Misc. issue • COGS • Interco-COGS • WIP Scrap, WIP Variances, PPV, etc. Cost Margin Reporting drives this requirement

  19. Profit in Inventory – Report in Local Books • Solutions • Use a material overhead sub-element in the Frozen or Average costs • Allows you to earn ICP on PO and inter-org receipt transactions • Add additional custom transactions to the material distributions layer (mtl_transaction_accounts) for the relief of profit in inventory • Create custom profit in inventory and WIP valuation reports • Create custom material and WIP distribution accounting reports to use the accounts from Subledger Accounting • Caveats • Customize the Margin Analysis Report to pick up the new COGS entries • Potential throwaway if major changes are made to the business model • Time-consuming and potentially expensive customization

  20. Profit in Inventory – Report in Local Books • More Caveats with Average Costing • For the end-of-month profit in inventory value report you need to calculate the average ICP item cost for each month • This calculation has to compare the transactional selling price with the organization’s moving average item cost • Accumulate by organization by item for the month • Store it in a cost type • Each month’s average ICP item cost may be different

  21. Profit in Inventory – Report in Consolidated Books • Requirements • Don’t want local tax authorities to see “real” margins • Keep profit in inventory in the Margin Analysis Report • Need to eliminate in the consolidated ledger (not in detail) • Requires end of month Profit in Inventory Value Reports • Require the ability to support the consolidated entry with material transaction history or month-end inventory value reporting

  22. Profit in Inventory – Report in Consolidated Books • Solutions • Create an item cost report to show the frozen costs in the source organization and compare it to the target organization standard costs, based on the Sourcing rules • Use this intercompany item cost report to derive the intercompany profit for your items, for input into your intercompany profit cost type • Conversely you could compare the transfer price list to the sending org’s standard cost • For Average Costing you would have to calculate the end of period intercompany profit per item and put it into the respective cost type • For Standard Costing you set the amount of intercompany profit per item and not recalculate until you change your transfer prices or your standard costs

  23. This Month’s ICP Inventory Value Reports Last Month’s ICP Inventory Value Reports Monthly Change in ICP Value Profit in Inventory – Report in Consolidated Books • Solutions • Store your ICP values in a non-Frozen cost type • Add ability to calculate Receiving quantities at month-end • Add ability to calculate ICP Value in WIP at month-end • Report intercompany profit in inventory value at month-end for Receiving, Subinventories, WIP and Intransit • Multiply the non-Frozen cost type by the stored quantities in the Costing Snapshot table (CST_PERIOD_CLOSE_SUMMARY) • Multiply the non-Frozen cost type by the calculated quantities for Receiving and WIP components in inventory – =

  24. Profit in Inventory – Sample Reports (sample data only)

  25. Profit in Inventory – Sample Reports (sample data only)

  26. Monthly Transaction Quantities Monthly Change in ICP Value Profit in Inventory – Sample Reports (sample data only) ICP Item Cost X =

  27. Profit in Inventory – Sample Reports (sample data only) • Solutions • Use this transaction offset report to get the offset accounts: • Most ICP is offset by Inter-Company COGS, but you also have • Misc. account issues/receipts, scrap and other transactions

  28. Profit in Inventory – Sample Reports (sample data only) • Solutions • Use this WIP Component ICP Variance report to estimate the amount of ICP included in your WIP Variances • Your WIP variances may be overstated by the ICP

  29. Profit in Inventory – Report in Consolidated Books • Caveats • Wise to use 3rd party tools to speed ICP item cost data entry • Currency changes will cause inaccuracies • (i.e. Standard cost based on 1.3 USD/Euro, but inter-org transfers use the current daily transaction rate of 1.5) • Transfer price changes will cause inaccuracies • The weighted average ICP has to be kept by organization, or, • Revalue your ICP amounts with transfer price changes • In the ideal world, store the ICP item costs: • by item, org • and keep track of the average ICP item costs to accurately relieve profit in inventory and keep track of the original currency rate and ICP amounts in use

  30. Inter-Company Setups are Time Sensitive

  31. Time Sensitive Set-Ups • Setups Effective When Entered • Shipping Network • Inter-Company Relationships • If missing a portion of the setup • Transactions will not play correctly • No way to fix • i.e. you might relieve inventory but not create the A/R invoice

  32. Time Sensitive Set-Ups – Shipping Network

  33. Time Sensitive Set-Ups – Inter-Co Relationships

  34. Release 12 Inventory Reconciliation

  35. R12 Challenges – Inventory Reconciliation • Inventory Reconciliation • Typically more inventory reconciliation issues • The differences between the perpetual and accounted-for inventory balances are trapped in a table the users cannot see • Limited use for the Period Close Reconciliation Report • Most users and analysts don’t know about it • Limited to a single warehouse • Shows zero quantity items – which is not efficient • Need a Multi-Org Perpetual vs. Accounted-For Report

  36. R12 Challenges – Inventory Reconciliation • Sample Period Close Variances Report • From the CST_PERIOD_CLOSE_SUMMARY table You can also use this information to get your month-end perpetual quantities and values for intransit and subinventories

  37. New Reconciliation Challenges in R12 Subledger Accounting and Inventory Reconciliation • Which accounts represent inventory and WIP valuation? • Harder to reconcile manually with no valuation accounts on the Inventory Value Reports • Receiving Value by Destination Account Report is disabled Release 12 dropped the valuation accounts on most inventory reports

  38. Material and WIP Distribution Inquiries and Reports • Release 12 mat’l and WIP distribution inquiries & reports do not reflect the SLA results • SLA Journal Reports do not show operational information • Release 12 records the material accounting and WIP accounting entries by cost element – rendering these inquiries and reports more difficult to use, especially for Standard Costing. Release 12 forces Standard Costing to record WIP & Material entries by Cost Element / you can summarize in SLA but you don’t have the same detail reporting in SLA

  39. Basic Table Structure for SLA Module Specific Transaction Accounting Tables Enter Transaction(s) One Common Accounting Subledger Table AccountingProcessor SLA Accounting Tables G/L Tables Transaction Accounting Tables GL_LEDGERS XLA_EVENTS Create Accounting GL_JE_BATCHES Receiving MaterialWIP XLA_AE_HEADERS GL_INTERFACE GL_JE_HEADERS XLA_AE_LINES GL_JE_LINES XLA_DISTRIBUTION_LINKS

  40. Summary • Subledger Accounting solves many account classification issues • Still have same inter-company accounting challenges as Rel. 11i, examples: • Non-Shippable Items • Non-Invoiced Items • Internal Fulfillment returns • External reporting issues in Release 11i still exist in Release 12 • Invoice dates should be customer acceptance dates, not ship dates

  41. Summary (continued) • Inter-company profit solutions are not standard functionality • Need to plan ahead for workable solutions • Inventory reconciliation issues are amplified in Release 12 • Inventory value reports have as “as of date” • But most reports have no valuation accounts • Still only single warehouse • Period Close Reconciliation Report not well used

  42. Acknowledgements • Oracle Cost Development • Bini Mammen, Next Generation Consultants • Hans Kolbe, lead for OAUG Multi-Org SIG

  43. Jerry Devore (Jerry.Devore@csc.com) Professional Background . Jerry DeVore is a Senior Consultant with CSC. His 25 years of industry experience as a plant controller and Supply Chain manager make him uniquely aware of requirements in Manufacturing Cost and Supply Chain. He has been involved with the conversion of multiple legacy systems both peer to peer and to Oracle ERP solutions. Jerry has implemented and converted into Oracle for the last seven years. These implementations included a variety of manufacturing operations from continuous process manufacturing to batch operations to large distribution and inventory management solutions. Most recently he was the Manufacturing Cost/Supply Chain lead for an Oracle Release 12 implementation, with a global footprint, having multiple currencies, ledgers, operating units and inventory organizations. Core Expertise Experience • Data Conversion – Data Cleansing • Standard and Average Costing • Manufacturing Process • Cost Management • Inventory • WIP • Bills of Material • Supply Chain • Extensive Industry Experience • Oracle Implementation Cycles in Release 11.5.9 through Release 12.06 • Clients Served: • USG Corp. • Canadian Mining Company • Celgene Corp

  44. Douglas Volz (doug@volzconsulting.com) Professional Background Doug Volz is a Senior Architect and Advisor for Oracle Application projects, with a particular interest in Project and Cost Management. He has 30 years accumulated experience, including 5 years in Oracle Development (co-designing Oracle Cost Management) and 12 years in industry in Cost and Accounting Management positions. His Manufacturing andCost systems experience covers project management, software design/development, delivery and consulting services, for both Oracle Corporation, and multiple international consulting firms. Prior to his systems career, Mr. Volz also held numerous management accounting positions for telecommunications, defense, and electronics companies. In his consulting roles, Doug has served over 100 clients. Many of these were multi-org, multi-currency with global footprints. Countries include US, Mexico, UK, Netherlands, Belgium, Taiwan, P.R.O.C., Norway, Japan, Italy and Germany. Doug leads the Cost Sub-Committee, for the OAUG Discrete Manufacturing Special Interest Group. He also advises and participates on the Oracle Customer Advisory Board for Fusion Costing. Core Expertise Experience Sample of clients served: • Beckman Coulter (US) • Matsushita (UK, Mexico) • NTL (now Virgin Media) • Logitech (US, Taiwan, P.R.C.) • Matsushita (UK, Mexico) • NTL (now Virgin Media) • TCI International (US) • Onninen AS (Norway) • Multi-organization, Multi-currency ERP Implementations • Project Management and Senior Project Advisor • Core manufacturing processes • Cost Management • Inventory • Bills of Material • WIP • Systems Integration and Data Conversions

  45. Thanks for allowing us to discuss these topics with you!

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