does rel. 12 solve global inter-company issues for multiple ledgers, profit in inventory and cogs?...

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

Profit in Inventory and COGS?

Douglas VolzDouglas Volz Consulting

[email protected]

Jerry DevoreCSC

[email protected]

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

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

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

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)

Release 12 Features That Work

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

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

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

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)

Release 12 Inter-Company Challenges

Profit in Inventory

Terms

Current features

Basic business needs and business scenarios

Common solutions to solve the visibility and elimination of profit in inventory

Profit in Inventory - Terms

Two commonly used terms for profit in inventory

ICP – Intercompany Profit

PII – Profit in Inventory

CST: Transfer Pricing Profile Option No

Yes, Price Not as Incoming Cost

Yes, Price as Incoming Cost

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

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

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)

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

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

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

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

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


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

– =

Profit in Inventory – Sample Reports (sample data only)


Monthly Transaction Quantities

ICP Item CostMonthly

Change in ICP Value

X =


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


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


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

Inter-Company Setups are Time Sensitive

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

Time Sensitive Set-Ups – Shipping Network

Time Sensitive Set-Ups – Inter-Co Relationships

Release 12 Inventory Reconciliation

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

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

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

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

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

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

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

Acknowledgements

Oracle Cost Development

Bini Mammen, Next Generation Consultants

Hans Kolbe, lead for OAUG Multi-Org SIG

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 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.

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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does rel. 12 solve global inter-company issues for multiple ledgers, profit in inventory and cogs?...

Documents

workwow r12 features

primary ledgers

multiple ledgers

cogs recognitionin r12

pac countries

inventory termstwo

multiple inventory orgs

background wow r12