Does Rel. 12 Solve Global Inter-Company Issues for ...mnsig.communities.oaug.org/multisites/mnsig/media/Documents/... · Does Rel. 12 Solve Global Inter-Company Issues for Multiple

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

Inventory and COGS?

Douglas Volz

Douglas Volz [email protected]

Jerry DevoreAccenture

[email protected]

Slide 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

Slide 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

Slide 4

Sample Background – Supply Chain

Factory Switzerland

Factory Korea

Distribution -Europe

Distribution -United States

Logistic Service Providers - Europe

Distribution - Asia

Medical Customers

Medical Customers

Medical Customers

Logistic Service Providers - Americas

Logistic Service Providers - Asia

Inter-Org Shipping and Billing Logical Shipping Transactions

Slide 5

Sample Financial Entities

Corporate

Consolidated

Ledger

Secondary

Ledger

Primary

Ledger

Legal Entity

Operating

Unit

Inventory

Orgs

Corporate Consolidated Ledger

(USD)

USA PL

(USD)

Other

LEs

US OU

CORP

LE

Item

Master

(ZZZ)

Switzerland

Org

Korea OU

Switzerland

(CHE) LSP’sLSP’sEuropean

SLs

ORG

Korea

Switzerland

OU

US Dist.

Centers

US LSP

Orgs

Swiss Dist.

Center

Asia-Pac

OUs

Asia-Pac

Dist. Centers

Europe Dist.

Centers

Europe

LSP Orgs

Other

European

OUs

Korea LE Asia-Pac

LEsSwiss LE

Other

European

LEs

Korea

(KRW)

Asia-Pac

LEs

Swiss PL

(USD)

European PL

(USD)

Slide 6

Release 12 Features That Work

Slide 7

Wow – R12 Features that Work!

� SLA for product line accounting, variance recognition

Transactions

Accounting Events

Cost Management SLA

AccountingConfigurations

SubledgerBalances

SubledgerJournal Entries

AccountingProgram

Journal Entry Setup

GLJournal Entriesand Balances

Slide 8

Wow – R12 Features that Work!

� SLA Basic Architecture

SLA Accounting Tables

Enter Transaction(s)

Transaction Accounting Tables

Cost Manager

XLA_AE_HEADERS

XLA_AE_LINES

XLA_DISTRIBUTION_LINKS

XLA_EVENTS

Same Cost Transaction Accounting

Tables

Create Accounting

GL_INTERFACE

G/L Tables

GL_LEDGERS

GL_JE_HEADERS

GL_JE_LINES

GL_JE_BATCHES

One Common Accounting Subledger

Table

Slide 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”

“True” COGS

1. Customer Shipment 10

102. COGS Recognition

Deferred COGSInventory

1010

Slide 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

Slide 11

Release 12 Inter-Company Challenges

Slide 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

Slide 13

Profit in Inventory - Terms

� Two commonly used terms for profit in inventory

� ICP – Intercompany Profit

� PII – Profit in Inventory

Slide 14

CST: Transfer Pricing Profile Option

� No

� Yes, Price Not as Incoming Cost

� Yes, Price as Incoming Cost

Slide 15

Profit in Inventory – Current Features(FOB Ship Example / CST: Transfer Price Option: Price Not as Incoming Cost)

Event

INV Valuation

(O1)

Sending Organization O1Inventory Cost: $102

Receiving Organization O2Standard Cost: $120

Transfer Price: $120

FOB Shipment

COGS

(O1)

1. Shipment 102 102

In-transit

(O2)

Accrual

(O2)

Inter-OrgPPV(O2)

INV Valuation

(O2)

2. Receipt 120 120

I/C Receivable

(O1)

I/C Revenue

(O1)

3. I/C AR 120 120

I/C Payable

(O2)

4. I/C AP 120 120

Accrual

(O2)

Profit In Inventory

(O2)

120 12018 18

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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 don’t have a Profit in Inventory Value Report

Slide 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)

Slide 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

Slide 19


� 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

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�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

Slide 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

Slide 22


�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

Slide 23


� 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

This Month’s ICP Inventory Value Reports

Last Month’s ICP Inventory Value Reports

Monthly Change in ICP Value

– =

Slide 24

Profit in Inventory – Sample Reports (sample data only)

Slide 25


Slide 26


Monthly Transaction Quantities

ICP Item CostMonthly

Change in ICP Value

X =

Slide 27


� 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

Slide 28


� 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

Slide 29


�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

Slide 30

Inter-Company Setups are Time Sensitive

Slide 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

Slide 32

Time Sensitive Set-Ups – Shipping Network

Slide 33

Time Sensitive Set-Ups – Inter-Co Relationships

Slide 34

Release 12 Inventory Reconciliation

Slide 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

Slide 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

Slide 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

Slide 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

Slide 39

SLA Accounting Tables

Enter Transaction(s)

Basic Table Structure for SLA

Transaction Accounting Tables

AccountingProcessor

XLA_AE_HEADERS

XLA_AE_LINES

XLA_DISTRIBUTION_LINKS

XLA_EVENTS

Module Specific

Transaction Accounting

Tables

Create Accounting

G/L Tables

GL_LEDGERS

GL_JE_HEADERS

GL_JE_LINES

GL_JE_BATCHES

One Common Accounting Subledger

Table

GL_INTERFACE

ReceivingMaterial

WIP

Slide 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

Slide 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

Slide 42

Acknowledgements

� Oracle Cost Development

� Hans Kolbe, lead for OAUG Multi-Org SIG

Slide 43

Jerry Devore ([email protected])

Professional Background

.

Core Expertise� Data Conversion – Data Cleansing� Standard and Average Costing� Manufacturing Process

� Cost Management� Inventory� WIP� Bills of Material� Supply Chain

Experience� Extensive Industry Experience� Oracle Implementation Cycles in Release

11.5.9 through Release 12.06� Clients Served:

� USG Corp.� Canadian Mining Company� Celgene Corp

Jerry DeVore is a Senior Consultant with Accenture. 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.

Slide 44

Douglas Volz ([email protected])

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� 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

ExperienceSample 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)

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