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

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Does Rel. 12 Solve Global Inter-Company Issues
for Multiple Ledgers, Profit in Inventory and
COGS?
Douglas Volz Douglas Volz Consulting doug_at_volzcons
ulting.com
Jerry DevoreCSC jdevore_at_csc.com
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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

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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

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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
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Sample Financial Entities
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Release 12 Features That Work
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Wow R12 Features that Work!

• SLA for product line accounting, variance
  recognition

Accounting Program
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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
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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

True COGS
Deferred COGS
Inventory
1. Customer Shipment
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10
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2. COGS Recognition
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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

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Release 12 Inter-Company Challenges
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Profit in Inventory

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

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Profit in Inventory - Terms

• Two commonly used terms for profit in inventory
• ICP Intercompany Profit
• PII Profit in Inventory

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CST Transfer Pricing Profile Option

• No
• Yes, Price Not as Incoming Cost
• Yes, Price as Incoming Cost

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Profit in Inventory Current Features (FOB Ship
Example / CST Transfer Price Option Price Not
as Incoming Cost)
Transfer Price 120
Sending Organization O1 Inventory Cost 102
Receiving Organization O2 Standard Cost 120
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
120
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18
120
120
2. Receipt
I/C Receivable (O1)
I/C Revenue (O1)
I/C Payable (O2)
Accrual (O2)
3. I/C AR
120
120
4. I/C AP
120
120
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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 dont have a Profit in Inventory Value
  Report

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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)

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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

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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_acco
  unts) 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

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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 organizations moving
  average item cost
• Accumulate by organization by item for the month
• Store it in a cost type
• Each months average ICP item cost may be
  different

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Profit in Inventory Report in Consolidated Books

• Requirements
• Dont 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

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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 orgs 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

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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

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Profit in Inventory Sample Reports (sample data
only)
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Profit in Inventory Sample Reports (sample data
only)
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Profit in Inventory Sample Reports (sample data
only)
ICP Item Cost
X

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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

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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

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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

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Inter-Company Setups are Time Sensitive
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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

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Time Sensitive Set-Ups Shipping Network
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Time Sensitive Set-Ups Inter-Co Relationships
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Release 12 Inventory Reconciliation
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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 dont 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

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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

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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
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Material and WIP Distribution Inquiries and
Reports

• Release 12 matl 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 dont have the same
detail reporting in SLA
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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
XLA_AE_HEADERS
GL_INTERFACE
Receiving MaterialWIP
GL_JE_HEADERS
XLA_AE_LINES
GL_JE_LINES
XLA_DISTRIBUTION_LINKS
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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

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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

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Acknowledgements

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

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Jerry Devore (Jerry.Devore_at_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

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Douglas Volz (doug_at_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 and Cost 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

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• Thanks for allowing us to discuss these topics
  with you!