Make Cost Management Work for You! 17 th January 2008 Douglas A. Volz

1. Make Cost Management Work for You! 17th January 2008 Douglas A. Volz Douglas Volz Consulting, Inc. Helping clients use OracleApplications since 1990 www.volzconsulting.com

2. Introduction – There Has to be a Better Way!

3. Introduction • This presentation is mostly for Release 11i but many topics still apply to Release 12 • Differences between 11i and 12 will be discussed • The objective is to find out about better ways to control cost and inventory and better ways to report profits • Get suggestions on standard features you may not be using • Learn about report and program extensions that add significant value

4. Agenda • Get suggestions on standard features you may not be using: • Currency setup • Period open and close by organization hierarchy • Material overhead absorption rules • Transaction Value Historical Summary Report • Sharing costs (when using Standard Costing) • Data verification audits • Period close snapshots (Release 11.5.10)

5. Agenda (Continued) • Simple reporting extensions that add significant value: • Summarize G/L account activity by journal source and category • Check inventory period close status by operating unit • Margin reporting extensions • Multiple inventory organization reporting for: • Inventory value • Material accounting entries • Purchase price variance reporting – for standard costing • Invoice price variance reporting – for all costing methods • Finding high-value material transaction entries with ease

6. Agenda (Continued) • Solve current problems you may have: • Excess and Obsolete Reporting (Inventory Provision) • Inventory to G/L Reconciliation • Incorrect cost inputs and how to fix “after the fact” • Managing period close interfaces • Common item master & cost data setup issues for the Cost Rollup • Better “what-if” cost simulation capabilities • Cost mass edits

7. Agenda (Continued) • Best implementation and data conversion practices for costing • Conclusions • Appendix • High-Level Review for Oracle Cost Management (R11i) • Release 12 cost enhancements

8. Standard Features You May Not Be Using • Currency setup • Period open and close by organization hierarchy • Material overhead absorption rules • Transaction Value Historical Summary Report • Sharing costs (when using Average Costing) • Data verification audits • Period close snapshots (Release 11.5.10)

9. Standard Features: Currency Setup • You can change your item cost decimal precision at any time • Change the extended precision to your requirements • Used by the Cost Processor and all reports showing item costs

10. Standard Features: Period Open/Close by Org Hierarchy • In Release 11i you can open and close multiple inventory periods by organization hierarchy • Define your organization hierarchy using an Human Resources Responsibility, or, if HRMS is not installed use an Inventory responsibility • Using the Inventory Organization Parameters, Costing tab, make sure your “Transfer to GL” settings are all the same for all orgs in the same organization hierarchy • See the next slides for screen shots

11. Standard Features: Period Open/Close by Org Hierarchy • Define your organization hierarchy:

12. Standard Features: Period Open/Close by Org Hierarchy • Inventory Organization Parameters, Costing tab: Transfer to GL setting has to be the same for all inventory organizations

13. Standard Features: Period Open/Close by Org Hierarchy • Open Period Control request

14. Standard Features: Period Open/Close by Org Hierarchy • Close Period Control request

15. Standard Features: Mat’l Overhead Absorption Rules • Explicitly say which ones do and do not earn material overhead

16. Standard Features: Transaction Value Historical Summary Report • Rollback inventory value to any date you choose • Choose which columns of information to view • You have four columns to select • The fifth column on the report is everything else • Useful as a “roll-forward” audit report • Useful to verify month-end inventory value report balances • Two reports: • Transaction Value Historical Summary (for Standard Costing) • Transaction Value Historical Summary – Average Costing

17. Standard Features: Transaction Value Historical Summary

18. Standard Features: Sharing Costs • Under limited circumstances this feature can be quite useful • Gives you the ability to share standard costs across a network of inventory organizations • Useful if you do not track separate freight and duty costs by inventory organization • You set the Costing Organization on your Organization Parameters screen, Costing Tab, when you define your inventory organization Note: only works for Standard Costing

19. Standard Features: Data Verification Audits • Found under the MRP/MPS/Planning Responsibilities: Useful for general item setup verification

20. Standard Features: Data Verification Audits • Run the “All Audits” to get: • For bills of materials: Components with zero usage quantity • Costed items not assigned to the costing category set • For standard costing: Costed items with no frozen costs • Items that have incorrect summary costs: Identify items whose summary costs do not agree with the detailed cost information • And many more non-costing related data audits

21. Standard Features: Period Close Snapshot • Period close snapshots (Release 11.5.10) • Prior to Release 11.5.10, the inventory period close only stored summary values by inventory organization and subinventory (blank subinventories are for intransit) • In Release 11.5.10, stores period-end inventory values and costs by inventory organization and subinventory for each individual item • Release 11.5.10 also automatically runs at period close a detailed Period Close Reconciliation Report that compares the cumulative onhand values against the cumulative accounting values • Use the Period Close Reconciliation Report to find discrepancies between your onhand perpetual values and your cumulative accounting values

22. Simple Reporting Extensions • Simple reporting extensions that add significant value: • Summarize G/L account activity by journal source and category • Check inventory period close status by operating unit • Margin reporting extensions • Multiple inventory organization reporting for: • Inventory value • Material accounting entries • Purchase price variance reporting – for standard costing • Invoice price variance reporting – for all costing methods • Finding high-value material transaction entries with ease

23. Reporting Extensions: Summarize G/L Account Activity • How to quickly find a summary of monthly activity by G/L journal source? • Use one of the standard G/L journal lines reports • Usually too much information • Or download the G/L Summary by Journal Source and Category Report from www.volzconsulting.com • Tailor it for your requirements, you can use it as a SQL Report, or • Your IT staff could put it in XML Publisher to make it multi-currency and easier to download into Microsoft Excel • Free for use but please acknowledge the author in your documentation

24. Reporting Extensions: Summarize G/L Account Activity • Sample Layout

25. Reporting Extensions: Summarize G/L Account Activity • Other useful ideas for summarizing G/L activity: • You can create Lookup Codes, codes that list your inventory or margin accounts • Take the code example from G/L Summary by Journal Source and Category Report and add logic to it to limit the accounts by lookup code (from mfg_lookups in this example)

26. Reporting Extensions: Check Inventory Period Close Status • Check inventory period close status by operating unit • Useful when you have many inventory orgs to close • No longer need to check each inventory org one-by-one

27. Reporting Extensions: Margin Reporting • In Release 11i you run the Load Margin Analysis program for each month • Puts that month’s sales and COGS into a Margin Summary table • Your IT staff can build queries for custom reporting • The underlying table is: CST_MARGIN_SUMMARY

28. Reporting Extensions: Multiple Inventory Orgs Reports • Multiple inventory organization reporting for: • Inventory value • Material accounting entries • Recommend two custom reports: • Multi-Org All Inventory Value Report • Multi-Org Material Account Distribution Summary Report • The Multi-Org All Inventory Value Report uses the existing Oracle*Reports code, and adds an Operating Unit or Organization Hierarchy Parameter(s) to it • The Multi-Org Material Account Distribution Summary Report can be done either as a SQL Report or an XML Publisher Report

29. Reporting Extensions: Purchase Price Variance • Purchase price variance is the difference between your PO unit prices and your Standard Frozen Costs • However the standard Oracle report is difficult to use • Download the Purchase Price Variance Report from www.volzconsulting.com to get a SQL report version. • Tailor it for your requirements, you can use it as a SQL Report, or • Your IT staff could put it in XML Publisher to make it multi-currency and easier to download into Microsoft Excel • Free for use but please acknowledge the author in your documentation

30. Reporting Extensions: Invoice Price Variance • Invoice price variance is the difference between your PO unit price and your A/P invoice actual cost • However the standard Oracle report is difficult to use • Download the Invoice Price Variance Report from www.volzconsulting.com a SQL report version for your use. • Tailor it for your requirements, you can use it as a SQL Report, or • Your IT staff could put it in XML Publisher to make it multi-currency and easier to download into Microsoft Excel • Free for use but please acknowledge the author in your documentation

31. Reporting Extensions: Find High Value Mat’l Transactions • Finding high-value material transaction entries with ease • Standard report does not exist • Download the Find High Value Mat’l Transactions Report from www.volzconsulting.com a SQL report version for your use. • You select the minimum absolute transaction value to search for • The report brings back the entire material transaction • Tailor it for your requirements, you can keep it as a SQL Report, or • Your IT staff could put it in XML Publisher to make it multi-currency and easier to download into Microsoft Excel • Free for use but please acknowledge the author in your documentation

32. Solve Current Problems You May Have • Solve current problems you may have: • Excess and Obsolete Reporting • Inventory to G/L Reconciliation • Incorrect cost inputs and how to fix “after the fact” • Managing period close interfaces • Common item master and cost data setup issues for Cost Rollup • Better “what-if” cost simulation capabilities • Cost mass edits

33. Current Problems: Excess and Obsolete Reporting • Oracle Inventory only has a Slow Moving Inventory Report • So unfortunately you should consider a custom solution • Parameters and decisions to consider: • What is a new item – so you exclude it from the analysis • Do you want to include your MRP/ASCP planning as a source of future demand? • How many months of transaction history should you consider? • And don’t forget to include your corporate excess and obsolete provision policies (amount to reserve based on forecasted usage) Note: U.S. Sarbanes-Oxley requirements can turn this into a very complex solution!

34. Current Problems: Inventory to G/L Reconciliation • Basic reports to use, when to run, timing considerations • Sample spreadsheet • What to do when you can’t reconcile • Better ways to reconcile multiple inventory organizations

35. General Reconciliation Principles • Use the following formula:Prior cum. balance + monthly accounting activity = month-end cumulative G/L balance • Also compare above formula to cumulative report balances • If you do not balance, check for manual G/L journal entries and entries from other subledgers • In Release 11.5.10, there is a new month-end balances/value table that holds the item quantities and values in detail, thereby eliminating report cut-off issues • This information is populated when you close the inventory accounting period • But there is limited reporting from this information

36. How to Balance the Receiving Valuation Accounts • Use the Receiving Value Reports to get the month-end balances • Use the Receiving Account Distribution Report for monthly increases to the Receiving Valuation Account • Use the Material Distribution Summary Report for monthly decreases to the Receiving Valuation Account • If using outside processing you would also run the WIP Account Summary Report Note: the quantities and values for the Receiving Value Reports are “on demand” – they must be run at the correct time, after the period is closed and before the new accounting period has transactions

37. How to Balance the Inventory (Stores) Valuation Accts. • Use the Inventory Value Reports to get the month-end balances • Use the Transaction Value Historical Summary Report – also called the “Rollback Report” to get a prior balance for subinventories (only) • Use the Period Close Value Summary Report, for a double check • Use the Material Distribution Summary Report for monthly totals Note: the quantities and values for the Inventory Value Reports are “on demand” – they must be run at the correct time, after the period is closed and before the new accounting period has transactions

38. How to Balance the Intransit Valuation Accounts • Use the Intransit Value Reports to get the month-end balances • Choose Yes for the option “Only Display Inventory You Own” • Use the Material Distribution Summary Report for monthly totals Note: the quantities and values for the Intransit Value Reports are “on demand” – they must be run at the correct time, after the period is closed and before the new accounting period has transactions

39. How to Balance the WIP Valuation Accounts • Use the WIP Value Report to get the month-end balances (No cut-off issues) • Choose the option to include closed jobs • Use the WIP Account Summary and Material Distribution Summary Reports for monthly totals Note: the quantities and values for the WIP Value Reports are stored by accounting period, you may run these any time after period close as needed.

40. Sample Reconciliation Spreadsheet and Example

41. What do You do When You Have Many Organizations? • Using standard reports may be too time-consuming • Four or more reports needed to reconcile each inventory organization • Several firms with multiple inventory organizations have created a Multi-Org Inventory Reconciliation Report • Using stored month-end balances available in 11.5.10 (or 11.5.9 plus patches) • Directly compare the General Ledger account balances to the stored month-end perpetual values • Helps to quickly spot problems

42. What do You do When You Can’t Reconcile? • Reasons • Report cut-off issues • Incorrect misc. inventory transactions • Disabling a code combination during the month • Subledger miscodings • Manual GL journal entries • Back-dated transactions from external system feeds • Miscoded purchase orders For a detailed presentation on reconciliation, go to the OAUG Discrete MFG Cost Sub-SIG website (http://discretesig.oaug.org/CostManagement.htm) or to www.volzconsulting.com.

43. Current Problems: Incorrect Cost Inputs • Two issues: • How to prevent incorrect cost inputs • And how to fix “after the fact” • How to prevent incorrect cost inputs • Consider custom reports or alerts to compare current cost with PO unit prices • If using Standard Costing, activate an existing alert for items with no costs (you may have to modify it to ignore old items) • Use item status control to prevent transactions before the item is ready to be used

44. Current Problems: Incorrect Cost Inputs • And how to fix “after the fact” • Consider reporting solutions to fix your COGS • Go to www.volzconsulting.com to download old vs. new comparison reports for COGS and inventory value • You enter the desired new item costs in a simulation cost type • One report compares your “As Booked” COGS against the new COGS and gives you a report you can use as a manual journal entry • The second report requires the Release 11.5.10 month-end inventory snapshot and compares the simulation cost type against the month-end inventory value • More complex solutions have also been done, including: • Creating a program that creates sub-ledger COGS entries to fix the existing COGS transactions • Including the ability to fix transactions as long as the G/L is still open (and inventory is closed)

45. Current Problems: Managing Period Close Interfaces • Until you get to Release 12, Oracle does not provide good overview reporting for your period close interfaces • Consider writing a custom report that reviews your major inventory, WIP and other financial period close interfaces

46. Current Problems: Item Master and Cost Setup Issues • Common item master and cost data setup issues for the Cost Rollup • Make items where the assembly is set to not be rolled up • Buy items that are not included in the cost rollup • Buy items set to be rolled up (may double up your costs) • Bills of materials with no components (will roll up to a zero cost) • Differences between the summary and detail cost table settings for: • Rollup source type (detailed cost table) • Rollup flag (summary cost type) • Go to www.volzconsulting.com to get a SQL query script for cost rollup flags to see if this is an issue • Mistakes happen when you change the item master but not the cost controls for your items

47. Current Problems: Cost Mass Edits • Better “what-if” cost simulation capabilities • Since Release 10 Oracle Cost Management allows you to create custom Cost Mass Edits • Common ones include: • Changing material overheads across multiple inventory orgs • Averaging invoice costs across multiple inventory organizations • Taking the last cost (instead of an average invoice or PO cost) • Standard PL*SQL templates exist, create a PL*SQL new package and register it in: • Concurrent program definitions • CST_MASS_EDITS • It will survive upgrades (but may need revisions)

48. Implementation and Conversion Cost Practices • Use the Cost open interfaces • Essential for Standard Costing • Used for your material overhead rates for other costing methods • Use miscellaneous receipts to bring in your inventory quantities • Do this in the month prior to GoLive • If you use average costing you can also bring in your material costs • And do a Average Cost Update to bring in your material overheads

49. Implementation and Conversion Cost Practices • After conversion, reconcile by inventory organization • For both onhand values and item costs • Convert your year-end Legacy costs into a simulation cost type • Use it at the following year-end to compare inventory values • Excellent baseline for your inventory values – use it to convince management and auditors that the costs are relatively unchanged

50. Conclusions • Adding a few custom reports can save lots of time • Take another look at the standard features listed here • Release 12 has major enhancements to consider (see Appendix) • A/P accrual functionality has been rewritten • All inventory value reports can be run after month-end • Revenue and COGS Matching