oracle 11 : drop shipment

Intercompany Functions for the Enterprise and Oracles New Intercompany Functionality 11.5.9 and 11.5.10 Internal Sales OrdersHans Kolbe, Celantra Systems Inc.

NorCal GEO Training Day January 2006 - Copyright Celantra Systems

Help Oracle Users and Managers to achieve a basic understanding of the scope, issues, objectives for enterprise wide intercompany functions and the main intercompany tools within Oracle applications. Our detail training focus will be on internal sales orders and the resulting intercompany invoices. Goal of this Session:


1. Overview of Intercompany Challenges and Oracle Functionality2. New Accounting for Internal Orders and IC Invoices 3. Process Steps4. Setups Structure of the Session


About Us: Celantra Systems provides international program management services with a strong focus on multi-org, inter-company, and global compliance and implementation issues. Celantra Systems also offers specialized software tools to augment application functionality in global implementations. Celantras consulting and technical services can add valuable impact in the integration of Oracle Apps with boundary systems such as SAP, People Soft, trade and customs compliance systems and others. Former and current clients include Xerox, Tektronix, British Telecom, Assa Abloy, Yahoo, Texas Instruments, PPG, Dionex and others.

Hans Kolbe has managed and advised software implementation projects for over 15, global projects for over 8 years. His extensive knowledge on Oracle applications is combined with a formal background as a German attorney, trained in international and comparative law.


Intercompany Transactions

Overview


I. Oracle application users operate in a multi-entity environment within their corporate enterprise. Intercompany relationships and transactions are core functions of those enterprises. Only through IC transactions can the organization contribute its resources efficiently.

II. Correct processing of IC transactions is required for internal and external compliance and reporting.

III. Intercompany transactions always need to be addressed from at least two perspectives: Generating correct transactions for each entity and Eliminating the intercompany transactions for enterprise consolidations. IC Transactions are a Core Part of Our Business


We need to differentiate between Legal entities, i.e. separate legal establishments and Operational entities. These are operationally separated.

Operational Entities may be complex: Multiple operational entities may reside within one legal entity. However, one operational entity may also cross both legal and country boundaries and extend to corresponding parts of other legal entities.

Both of these entity types have reporting and audit requirements. What are these multiple entities?


Specialized Entities in particular lines of business or operations, such as service providers, treasury and currency trading entities, billing intermediaries, or leasing, selling, manufacturing, purchasing, payroll entities,Acquisitions either in the process of being merged into existing entities or staying separately for management, financial or legal reasons or future divesture, Non-Operational Companies: Holding entities, entities owning intellectual property rights or real-estate, entities owning high-risk equipment (vehicles in operation, mining equipment etc.). Associated Entities partly owned by the enterprise.

All of these entities may operate in one and the same country. In the multi-national environment we need to add Foreign subsidiaries and Foreign Branches registered in other jurisdictions in any of the categories.

Common Types of Legal Entities


Business Groups, Divisions or Product Lines. These entities regularly have at least internal trial balance reporting requirements, sometimes these apply externally also. They often cross legal entity and country boundaries.

Shared Service Organizations providing back office processing, collections, logistics operations, IT support etc. These entities have at least budget and performance reporting requirements. They also often cross legal entity and country boundaries.

Cost Centers with budget and performance reporting requirements. Regularly they are limited to one country and legal entity. Operational Entities


Examples from IndustriesIn the telecommunications industry, most of the countries stipulate mandatory domestic company partnership.Most of the steel and aluminum companies in Asia sell their entire output to another marketing company.Automobile industries are increasingly centralizing their sourcing activities globally to leverage their combined volumes for a better price from their suppliers.Trading companies are setup in tax haven nations to take advantage of bilateral and multi-lateral trade agreements to minimize the tax.Shared centers for AR Collections or AP invoice processing across 15-20 companies with one bank account owned by treasury, while Sales and Order Management are managed independently by each company. Shared specialized technical support centers servicing products across many entities


Legal IC Transactions: Processes involving more than one legal entity require legal IC transactions. When goods or services are provided from one to the other invoices are needed. These may be taxable under VAT, sales tax or other tax regimes. In addition, the pricing of these transactions is controlled as Transfer Pricing. IC documents may be required for each transaction or be summarized periodically.

Operational IC Transactions: Processes involving more than one operational entity. Business structure often imposes rules on cross-charging, inter-divisional markups and other parameters.

Matching up Legal and Operational Entities for IC Transactions


Business Group Employees, ApprovalsSet of Books - GLBalancing Segment - GLLegal Entity few functionalityOperating Unit most sub-ledgers (AR, OM, AP, PO, PA, CM, OPM)Inventory Org INV, WIP, part of POOracle Multi-Org Concepts and terms very quickly


Operating Unit Driven IC Functionality: Oracles Operating Unit is designed to hold an operational entity and its transactions separate from others OUs. Oracles key IC functionality works around this structure, OM, INV, PA , AR, AP functions.

Balancing Segment Driven IC Functionality: The GL Balancing Segment is designed to hold an entitys financial information. With its automatic balancing of IC journals Oracles GL module provides IC functions independently from the OU concept. Oracles GIS functions extends these functions and supports automatic IC GL journals, cross-SOB and even cross-instance. The relationship and entries between Sender and Receiver can be defined based on the Balancing and IC Segment relationship.

All is fine if the operational entity is contained within one external legal entity and one balancing segment corresponds to one OU. In other cases careful investigation and discussion is needed in order to best accommodate the business priorities.For more information, discussions, and sample solutions please join the Multi-National Interest Group of the OAUG.Oracles IC functionality designed for matching Legal and Operational Entities


Functionality is dispersed and not yet integrated: Product related IC transactions are the most developed (Customer drop-ship since Version 10.7). Missing many elements of operational flexibility. OPM (Process Manufacturing not included)GL Global Intercompany System provides facilities for GL intercompany journals with automated off-sets and predefined accounting. Missing sub-ledger integration and connection to IC pricing models as well as formal invoice transactions. PA has its own IC transactions model Global Accounting Engine (with Dual Posting) is not integrated with intercompany transactionsFixed Asset transfers in separate model (some integration with OM and INV is planned)However, integrated IC functionality has not come through yet


Supported Transactions flows: (from Oracle White Paper)External Drop-Ship: (released in 11.5.3) Internal Drop-Ship: (older functionality 10.7): Internal Fulfillment: released in 11.5.9 External Drop-Ship: (released in 11.5.3)Central Procurement (11.5.10)Supported Business Processes Product related


Internal Drop-ShipCustomerEntity ASelling EntityINV-Org ABill-toShip-toEntity BShipping EntityINV-Org BOM: Book Sales Order - Reserve with Ship-From Warehouse of Inv Org BAR: Trade Invoice To CustomerOM: Pick Release, Ship-Confirm, Inv Interface, CostingAR: Create IC Invoice To Entity AAP: Create IC AP Invoice from Entity BSale and InvoiceShipmentIC Invoice


Internal FulfillmentCustomerEntity ASelling EntityINV-Org ABill-toShip-toINV-Org BPO: Internal RequisitionPO: Create Internal Order OM: Import Internal Sales OrderOM: Reserve, Pick Release, Ship-Confirm, Inv Interface, CostingAR: Create IC Invoice To Entity AAP: Create IC AP Invoice from Entity BSale and Invoice not directly relatedShipment and IC InvoicingEntity BShipping Entity


External Drop-ShipCustomerEntity ASelling EntityINV-Org ABill-toShip-toEntity BShipping EntityINV-Org BOM: Book/Reserve to Vendor Site of Entity BAR: Trade Invoice To CustomerPO: Supplier Ship - Receipt of POAR: Create IC Invoice To Entity AAP: Create IC AP Invoice from Entity BSale and InvoiceShipmentVendor of Entity BPurchase Order, AP InvoiceIC InvoicePO: Import Requisition, Create POINV: Create Logical Transactions in A and B (Sales Order Issue and IC Receipts) and Costing


Client Scenarios - Business Processes Product only


Not supported transaction flows: (from Oracle White Paper)Internal Drop-Ship to an internal organizationNon-Shippable ItemsNon-Invoiced ItemsInternal Fulfillment returnsGlobal Procurement with shop floor destinations and transfer pricingConsigned inventory for Global Procurement flowsRetroactive pricing in Global ProcurementAdvanced Sales functionality between operating units(From my own experience) No COGS accounting on internal drop-shipInternal requisitions and fulfillment Sales Order documents show incorrect transfer priceTransfer pricing setups are rigidOn internal fulfillments the COGS at receiving org need to be manually adjustedNo ship-to driven tax functionality Product Related Business Process Issues and Challenges


Break Discussion


Oracles version 11.5.9 Patch Set H provides functionality to automate intercompany invoicing for internal sales order shipments. Previously Internal Sales Order shipments only generate accounting entries to balance sheet account (IC Receivable, IC Payable). No COGS or IC Revenue accounting was provided. Also invoices needed to be made manually on both sending and receiving side and reconciled. Internal Sales Order Intercompany Invoicing


Two new enhancements to Oracle Inventorys Intercompany Invoicing functionality were released as part of patch set H features. The new features are :1. Invoicing Internal Orders - Type In-Transit Shipments - as a part ofIntercompany invoicing.2. Using Advance Pricing (QP) setup and Engine to derive invoice pricefor items to generate Intercompany Invoices.

Before patch set H of inventory, inter-company invoices were created for internal drop-ship scenarios only. Now users can set up a profile options and systems configuration to create inter company invoices for Internal Orders also. Release 11.5.9 Patch Set H


Internal Fulfillment (Order) Intercompany Invoicing

- New Accounting - Transaction Steps- Elements of Setup


New Accounting


The New Transfer Price Accounting Internal sales order shipments generate accounting on both sides the shipping and the receiving entity. The accounting can be configured to accommodate different INCO terms, such as in-transit owned by shipped or receiver.

In addition, the intercompany transfer markup can be accounted separately on the receiving side (Profit in Inventory). The shipment accounting is done through the INV: COGS and OM: COGS workflows, the invoicing accounting through the auto-invoice parameters.

The Intercompany AR Invoice will generate the IC Receivable debit and IC Revenue credit entries.

The Intercompany AP Invoice will generate the IC Payable Credit and debits to AP accrual and freight accounts.


Profile OptionsCST: Transfer Price Option - Site Level Only Options: Yes, Price as Incoming Cost = complete IC price will be directly applied against cost base in receiving org, either as Purchase Price Variance (if Standard Cost) or updating the average cost. Yes, Price not as Incoming Cost = the intercompany markup will be booked to the new profit-in-inventory account on the receiving sideNo = old accounting continuesCST: Intercompany Invoicing for internal orders site level: YES/No (user option does not work?)CST: Advanced Pricing for internal orders - Site Level, (Does user option work?)

Other important options: Tax: Invoice Freight as Revenue Tax: Inventory Item for Freight


The Accounts


Process Steps Rec. Org: Internal Requisition Ship Org: Process Sales Order Ship Org: Shipping Ship Org: Intercompany AR Rec. Org: Intercompany AP Invoices


Detail Process Steps Receiving org - Internal Requisition:Enter Requisition, Approve: Will show cost of shipping org as informational price of requisition, not IC price Receiving org Create Internal Orders (request)

Shipping Org: Import Sales Order parameter by requisition (menu option) price is informational only, not IC price.Reserve sales order and pick release (after other required steps)Ship-Confirm (add freight if needed)Run Costing Manager Shipping Org: Create intercompany AR Invoices (request)Run Auto-Invoice (request source: internal)Receiving Org: Create intercompany AP Invoices (request)Payables Invoice Import (request)


The Scenario: German Distributor (EUR) orders from Swiss Factory (CHF)


Receiving OU: Internal Requisition enter and save


Internal Requisition Approval


Internal Requisition: Create Internal Orders, Reports, Run; View Log (no output)


Shipping OU: Import Sales OrdersMenu path: OM, Order Management, Orders/Return, Import Orders, Import RequestSelect Source: Internal; Requisition No. can be entered in Order Reference. Otherwise all internal sources will be imported


Shipping OU: Confirm import - View OutputOrder Import output is confusingChild Import Child Request gives detail message with reference to Requisition No. separate Child request for each requisition


Shipping OU: View and Process Sales OrdersFind Sales Order by Requisition NumberInternal Sales Orders are immediately booked, not entered status


Shipping OU: Order HeaderRequisition Number in Order Source Reference on Other tab from Order Header


Shipping OU: Order LineSales Order Price is NOT from price list, but cost of shipping org without transfer credit. ISSUE for documents and reports! Puzzler: Price is: 0.50576 per unit; on Requisition it was 0.32568Hint: The price is shown in CHF, the functional currency of shipping organization versus while the receiving organization has a functional currency of EUR.


Shipping OU: Order LineTax Code shown here defaults from Internal Customer Ship-to Site; it will not be used for IC Invoicing; only Bill-to Site tax will be used. Watch out when printing documents!Order Quantities cannot be changed, lines can not be split various other restrictions remain.


Menu path: INV, Transactions, Material Transactions, DistributionsPick Release, Ship-Confirm


Create Intercompany AR InvoicesMenu path: AR, Requests, Create Intercompany AR Invoices, View Log


The IC AR Invoice InterfaceCreate Intercompany AR Invoices (after ship-confirm): Revenue and Freight Line are created


The IC AR InvoiceAfter Run Master Auto-Invoice Program: Invoice is created


The IC AR Invoice Lines


Create Intercompany AP invoices, Then Payables Invoice ImportFrom Receiving Organization, AP, Other, Requests


The IC AP InvoiceLines


Break Discussion


Setup ElementsProfile Options and New Accounting OptionsIntercompany RelationshipsCustomers and Vendors, AddressesOrganizations and Locations Price ListSources and Transaction Types Item Setup Currency SetupsAccounting SetupsSecurity Rules


Internal Order Intercompany Detail Setup Check List Profile Options: CST: Transfer Price Option - Site Level Incoming Price, No/YesIntercompany Invoicing for internal orders YESAdvanced Pricing for internal orders?? Shipping NetworkDefine Profit in inventory account, AP accrual accountIntercompany Relationships: Check Customer/Vendor Header and SiteCheck Customer LocationsInventory Organization and Location: Check Location record is internalAR Setup: AR Intercompany Transaction TypeIC Customer and Vendor Setup Check header and site, accounting setups on Bill-to SiteCheck Customer locations, Check Price List (OM Tab) on ship to and Bill toSetup bill-to and ship-to customer site for Receiving Entity within Receiving OUPrice List: check item is on list, Check pricing precedence is not duplicatedItem Setup: Check item parameters for internal requisitions and ordersResponsibility Access: Costing Processor needs have rights across both organizations and balancing segments.


Menu path: INV, Setup, Organizations, Shipping NetworkSetup Steps Shipping NetworkIf Direct then no IC invoicingNot Used when IC Invoicing, IC Price List insteadNot Used when IC Invoicing, OM: COGS workflow instead Not Used when IC Invoicing, IC Invoice Revenue insteadUsed as IC AP Accrual New Account for Transfer Pricing Option = YES, Used on Receiving Org Same UsageSame Usage(wrong account entered)


Setup Steps Intercompany RelationshipThis is a customer location, not inventory or shipping location


Inventory Org with Location - Shipping Org:This is the inventory and shipping locationThe Location Record is critical: Internal Site enabled, Inventory Org link entered


Inventory Org with Location - Receiving Org:This is the inventory and receiving locationThe Location Record is critical: Internal Site enabled, Inventory Org link entered


Item Setup in Shipping Org:Internal Ordered and Internal Order Enabled checked


Item Setup in Receiving Org:Internal Ordered and Internal Order Enabled checked


Shipping OU: Internal Customer and Sites - AddressesCustomer Bill-to Site Location matches with Intercompany Relationship SetupSame Customer No. from IC Relationship


Shipping OU: Internal Customer, Bill-to Address, Accounting TabIntercompany Receivable and Revenue accounts, with IC Segment value


Shipping OU: Internal Customer Ship-to Site, Detail Tab, LocationsThis is the shipping location connected to the receiving site inventory organization. Must be filled in on internal section This is the customer location, not inventory location


Shipping OU: Internal Customer Ship-to Site, Order Management Tab, Price List Warehouse is default ship-from warehouse in shipping organizationThis Price List is used for IC Invoicing


Receiving OU: Internal Customer and Sites - AddressesSame Customer No. from IC RelationshipNOTE: We have to create customer bill-to and ship-to sites for the receiving entity within the receiving operating unit. It must be tied to the inventory location and inventory organization. This bill-to and ship-to site is used for the processing of the internal order


Receiving OU: Internal Customer Ship-to SiteThis is the shipping location connected to the receiving site inventory organization. Must be filled in on internal section


Receiving OU: Internal Customer Ship-to Site, OM TabThis Price List is used for Internal Sales Order Processing


Receiving OU: Internal Vendor SiteShipping Network Location=Shipping Inventory OrgAccounting Tab for IC liability account


Issues and Action Items - Internal Order Intercompany -Profile Option CST: Transfer Price should be set for entity to entity pair. If different intercompany policies current setting is impractical Sales Order Price is not IC Price: needs customization of external documents, Ship-to Address is not printed on invoice: needs customization of external documents,Duplicate IC Invoices for old internal shipments resolved (needs patch)Tax functionality: only based on Bill-to account; no ship-to account available. Needs review. May be sufficient.Accounting Definition: Profit-In-Inventory account needed, IC COGS accounts (changes in workflow?); (client extension).Freight on IC Invoices: Tar outstanding with development Resolved. User needs to manually unfreeze pricing on each internal sales order and set to partial calculate. Accounting IC AP Invoice: Accrual debit cannot be configured to match shipping network detail (IC Relationship). Implementation: only big bang with site wide profile option. Can we continue half-manual internal sales order invoicing? IC invoicing for internal sales orders needs to be switched globally. However, the invoices are selectively generated by shipping organization. Therefore specific shipping organizations do not need to participate. However the shipment accounting will change for all organization across the Oracle instance. Client extensions can be made to Costing workflows: Appendix C in Costing Manual R11.5.10; h


CST: Transfer Price Option, No: will leave old accounting with balancing sheet accrual entries. Set at Site Level, i.e. for all entities.INV Intercompany invoicing for internal orders = YES at User Level. Automatic IC Invoicing from Price List can be activated where needed. Manual invoices can continue where desired.Additional restriction is possible by leaving IC relationship blank. Then no IC invoices are generated. Automatic IC AR and AP invoice works with accounting from Shipping Network mapping IC AR account and Transfer Credit account to COGS. Incoming markup can be booked either to PPV account or matched up with Material overhead account on receiving side. Alternative Step-by-Step Implementation


Shipping Network Setup for IC Invoicing without Transfer Pricing (Receivable + Transfer Credit=COGS)


Example Alternative Distribution


Thank you ! Hans Kolbe, Celantra Systems [email protected] + 1 (415) 730 - 1131


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oracle 11 : drop shipment