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Does Rel. 12 Solve Global Inter-Company Issues for Multiple Ledgers,
Profit in Inventory and COGS?
Douglas VolzDouglas Volz Consulting
doug@volzconsulting.com
Jerry DevoreCSC
jdevore@csc.com
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 EntitiesCorporate ConsolidatedLedger
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’s
European SLs
ORG Korea
SwitzerlandOU
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 LEs
Swiss LEOther
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
10
10
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 requirementsCorporate ConsolidatedLedger
Secondary Ledger
Corporate Consolidated Ledger(USD)
USA PL(USD)
Switzerland(CHE) LSP’sLSP’s
European SLs
Korea(KRW)
Asia-Pac LEs
Swiss PL (USD)
European PL(USD)
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 O1 Inventory Cost: $102
Receiving Organization O2 Standard 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
Slide 16
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 BooksRequirements
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
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_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
Slide 20
Profit in Inventory – Report in Local BooksMore 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
Profit in Inventory – Report in Consolidated BooksSolutions
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
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
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
Profit in Inventory – Sample Reports (sample data only)
Slide 26
Profit in Inventory – Sample Reports (sample data only)
Monthly Transaction Quantities
ICP Item CostMonthly
Change in ICP Value
X =
Slide 27
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
Slide 28
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
Slide 29
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
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
Bini Mammen, Next Generation Consultants
Hans Kolbe, lead for OAUG Multi-Org SIG
Slide 43
Jerry Devore (Jerry.Devore@csc.com)
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 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.
Slide 44
Douglas Volz (doug@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 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)
Slide 45
Thanks for allowing us to discuss these topics with you!
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