Paul Kirch

1
Introduction

• Paul Kirch
• Specialist in multinational Oracle
  implementations, multinational tax issues, and
  globalization
• Tel [phone]
• Paul_Kirch_at_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
Repair
MFG (PD)
.
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
Por
Nor
EE
Mea
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
Repair
MFG (PD)
.
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
Transaction Sales Organization MFG and Shipping Organization Transfer Price Oracle Treatment Std./ Gap?
France customer purchases mfg part from Acht. Acht drop ships part to customer in France. (1 SOB, 2 OUs) France SSD Acht StandardCost? Trading Networks No gap.
U.S customer purchases part manufactured in Acht. (Mfg ? Mfg) U.S. Hillsboro Acht Standard Cost Internal Sales Orders No gap.
Customer returns part manufactured in Acht in the United States. (RMA) (Ser ? Mfg) Original N/A RMA US Original Acht RMA US Standard Cost Process Solution No gap.
US service inventory purchases part from Acht manufacturing (Ser ? Mfg) Purchasing Org US Service Org Acht Manufacture Standard Cost Internal PO/ Sales Order No gap.
Service in U.S. purchases part from services in Europe BV Purchasing Org US Service Org Acht Services Org Standard Cost Internal PO/ Sales Order No gap.
22
Intercompany Accounting Drop Shipment
Acht Mfg (Ship Org) Acht Mfg (Ship Org) Acht Mfg (Ship Org) France SD (Sale Org) France SD (Sale Org) France SD (Sale Org) Consolidated Consolidated Consolidated
I/C Rec   DR 200 AR Customer   DR 200 AR - Customer   DR 200
  I/C Revenue CR 200 Revenue - Trade DR 200   Revenue - Trade CR 200
 I/C COGS DR 200 Inventory   DR 200 COGS   DR 200
Inventory CR 200 I/C Pay CR 200 Inventory CR 200

• 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
Acht (Ship Org) Acht (Ship Org) Acht (Ship Org) Hillsboro (Sales Org) Hillsboro (Sales Org) Hillsboro (Sales Org) Consolidated Consolidated Consolidated
I/C Rec   DR 160 AR - Customer   DR 200 AR- Custom   DR 200
  I/C Rev CR 160 Revenue-Trade CR 200 Revenue CR 200
 IC COGS DR 160 Inventory DR 160 COGS DR 160
Inventory CR 160 I/C AP CR 160 Inventory CR 160

• 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
Acht (Sales Org) Acht (Sales Org) Acht (Sales Org) Hillsboro (Ship Org) Hillsboro (Ship Org) Hillsboro (Ship Org) Consolidated Consolidated Consolidated
Inventory   DR 200 Inventory DR 200
Inv. Reserves CR 200 Spares Reserves CR 200
Inventory DR 200 Spares Reserves DR 200
Spares Reserves CR 200 Inventory CR 200
I/C COGS DR 200 I/C AR DR 200
IC AP CR 200 I/C Sales Revenue CR 200

• Return Material Authorization
• BV customer returns RMA in Acht for material
  manufactured in U.S

25
Discussion