Introduction

1. Introduction • Paul Kirch • Specialist in multinational Oracle implementations, multinational tax issues, and globalization • Tel: 408-316-5899 • Paul_Kirch@yahoo.com • Client list: • General Electric Aircraft Engines • Cisco Systems • KLA-Tencor • Genentech • FEI Company

2. Agenda • Introduction • The Company • The Problem • Multi-org Setup • Overview of Intercompany Accounting • “Virtual” Circle of Life • Transaction Mapping • Conclusion

3. FEI Company • Nanotech company engaged in the manufacture of tools used in silicon wafer design (largely design labs) • Spin off from Phillips Semiconductor • $500 MM in sales in FY2004 • Sales offices in 40 countries worldwide • Principal manufacturing in U.S. (Hillsboro, Oregon and Peabody, Massachusetts) and Europe (Brno’ Czech Republic and Acht, the Netherlands) • In process of implementing the full suite of applications (Oracle 11.5.10) over next two years

4. The Problem • Did not want to implement the standard Oracle Multi-org structure • Needed to be able to accommodate a high number of intercompany transactions between European and U.S. manufacturing sites • Short timeline and tight budget

5. Multi-Org Alternatives and Setup

6. FEI “Virtual” Circle of Life Customer Purchases a Manufactured Part. Manufacturing Customer Inventory Manufacturing Inventory transfers a Finished Goods part to Manufacturing Inventory. (MFG  FG inventory) MFG issues a FGI part to Service as a Spare Part. FSE returns Defective Part (RMAs). - buy FSE MFG (PD) Repair . Vendor Service issues a Spare Part to an FSE. Part is send to outsourced repair facility and returned to SSD. Customer sends in part for repair (RMA) Spares Inventory (SSD) Repair vendor returns part to customer. Part is not salvageable and is scrapped. Part is repaired and returned to customer (SSD Customer). Customer Scrap 1 1 1

7. Multi-Org Alternatives A) Standard Model - one SOB per country/currency; one legal entity/operating unit per legal entity. A country/legal based model. B) “Inverted” Model – shared operating unit for shared business processes - local GL SOB for legal/statutory reporting. A business process efficient model.

8. Standard Oracle (“Silo”) Multi-Org Model All Subsidiaries are Parallel Entities Ledger Consolidation Central L1410 Ger 1462 Fra 1475 U.K 1473 Ita 1463 Swe 1444 Den 1432 Hol 1461 Bel 1442 Swi 1465 Aus 1415 Spa 1467 Pol 14xx Spa Fra Swe Den EE Mea Nor Por Fin Inventory Per Operating Unit : One Validation Org for VAT rates , One Planning Org , Global Master.

9. Shared Operating Unit Model General Concept Shared Processes for Sales and Service Entities Global Operating Unit GL, OM, AR, INV Entity Separation by Balancing Segment Local Legal Adjustment Entries are booked at country level Unit A Unit B Unit C Unit D Unit E Unit F Local Processes (AP, FA, Payroll…?)

10. Enterprise Consolidation With FEI “Push Down/Push Up” Model WW Consolidated SoB GL Eliminations and Consolidations Entries Book of Record FEI Company Europe FEI Company Asia and U.S Local Legal Adjustment Entries are booked at country level IT FR DE HK SG

11. Traditional Multi-org Model • Built for separate legal entities and country organizations • Automatic inter-company activities confined to month-end cross charges, consolidation, and special functions. • Essentially all subsidiaries operate as independent units. The “Silo” model is assumed in most of Oracle applications, inter-company, localization and globalization functionality as well implementation and training models.

12. Benefits of Shared OU Model • Simplify maintenance: • Eliminate duplication and synchronization of setups • Simplify implementation process: • Roll-out, CRPs, testing would require only one OU. Operating unit parameter need to be setup only once in all operational modules. GL setup is not simplified, local GL books required. • Easily create shared service centers: • Customer service, AP and Procurement, Accounting and Finance in 1 location, without changing responsibilities • Simplify and speed up monthly closing: • Inverted process means that Corporate SoB closes first.

13. Issues of “Silo” Model • Duplicate setups and maintenance • Customer balance, inventory, and order visibility by subsidiary • Logistics operations (allocations) limited per OU • Global view of business only at high level (financial consolidations) or special tools, such as a DW • Duplicate inter-company transactions without value to the business • Implementation impact (setups, CRPs, configuration, testing)

14. Additional Issues with “Silo” • No standard solution for global standard inventory cost (breakout of standard cost and inter-company “uplift” on Cost of Sales entries). Solution: transfer at cost and bill uplift separately. • No standard solution for Commissionaire Interco-invoice price = Sales price less commission%. Investigate: possible solution for cost-plus inter-co pricing in 11.5.9/11.5.10. Advanced Pricing Module difficult and costly to implement. • Investigate: No complete standard solution for internal supply chain movements across entities and borders (internal sales orders).

15. Benefits of “Silo” Model • VAT calculations and reports can be generated through standard functionality. Oracle VAT Group functionality allows standard compliance in either model. • Country specific accounting regulations, Oracle globalizations. • Sequencing for sub-ledger (VAT Invoices) and accounting entries. Oracle setups provide functions to assign different sequences within the same OU.

16. Additional Design Guidelines: • Business Group is used to segregate HR information. If you request a list of employees in a module, you will only see those employees in that ‘Business Group.’ • Inventory Org defines the level at which you track inventory transactions and balances. The relationship between Inv Org and SoB is used for financial purposes only (creating requisitions and replenishing supplies.) Inventory Org must be below Business Group (Cisco). • Legal Entity represents a company for which you prepare fiscal or tax reports. Generally, the LE is defined at the same level as the Operating Unit. • Operating Unit is an autonomous organization that uses Oracle Receivables, Oracle Payables, Oracle OM, Oracle Purchasing, and Oracle Projects

17. Intercompany Transaction Modeling

18. Types of Intercompany Transactions • Inter-Company Sales (including drop shipments to customer) • Inter-Company Purchases/Sales Orders • Inter-Company Adjustments • Inter-Company Chargebacks • Inter-Company Payments • Inter-Company RMAs • Inter-Company Cross-Charges and Allocations (Marketing, Admin, etc.) • Inter-Company Transfers (Assets) • …. And the return/reversal of each of them • Required: • Transfer Pricing, VAT, EFT Formats • Statutory Reports, Financial Statements and Commercial Invoice

19. Oracle Standard I/C Functionality • Factory Drop-Ship Function (sale from one entity, shipment from another entity): Oracle automatically generates AR invoice at shipping entity, matching AP invoice at selling entity. • Internal Sales Orders: available cross-entities, sets of books. For inventory items, expense items. Allows in-transit visibility. No external invoices provided. • Vendor Drop-Ship Function (shipment from outsource manufacturing vendor directly to customer): AR Invoice to Customer, matching AP Invoice from Vendor. • GIS Intercompany Accounting: Financial only transactions - GL only; no VAT calculation or reporting.

20. FEI “Virtual” Circle of Life Customer Purchases a Manufactured Part. Manufacturing Customer Inventory Manufacturing Inventory transfers a Finished Goods part to Manufacturing Inventory. (MFG  FG inventory) MFG issues a FGI part to Service as a Spare Part. FSE returns Defective Part (RMAs). - buy FSE MFG (PD) Repair . Vendor Service issues a Spare Part to an FSE. Part is send to outsourced repair facility and returned to SSD. Customer sends in part for repair (RMA) Spares Inventory (SSD) Repair vendor returns part to customer. Part is not salvageable and is scrapped. Part is repaired and returned to customer (SSD Customer). Customer Scrap 1 1 1

21. Transaction Mapping

22. Intercompany Accounting: Drop Shipment Factory Drop-Ship: France takes Sales Order. SO is drop-shipped from Acht. • Oracle automatically generates AR invoice at shipping entity, matching AP invoice at selling entity.

23. Intercompany Accounting: Internal SO Internal Sales Orders: U.S. Purchases from Acht/ Sells to End Customer • Available cross-entities, sets of books. For inventory items, expense items. Allows in-transit visibility. No external invoices provided.

24. Intercompany Accounting: RMAs Return Material Authorization: BV customer returns RMA in Acht for material manufactured in U.S

25. Discussion