1 Manufacturing Accounting by Product Line For Release 11 Peggy McNamara & Douglas A. Volz Logitech Inc. & KPMG LLP April 1999

2 Update as of May 2007 n Doug wrote this presentation while at KPMG, based on his extensive development and architecture experience. n Note that many changes have enhanced the Release 11i product line capabilities, however this document is still useful as background to understand how the manufacturing transactions work. In addition, the sql examples (and in the word document, the sql for interfacing to the General Ledger) will still work with only minor changes.

3 Agenda n Why is product line accounting important? n Underlying business requirements n Oracle Release 10 and 11 product line capabilities n Affected subledgers n Potential solutions and custom approaches

4 Agenda n How did Logitech and KPMG solve this issue? n Fundamentals of manufacturing transactions Receiving transactionsReceiving transactions Inventory transactionsInventory transactions WIP transactionsWIP transactions Accounting line typesAccounting line types

5 Agenda n Logitech example - which entries to reclassify? n How frequently to reclassify? n Program logic steps n Other design decisions n Design analysis example

6 Agenda n Gotchas to avoid n Enhancements for Oracle to consider n Conclusions

7 Why is Product Line Accounting so Important? n Better management visibility over profits and inventory levels n Improve your ability to manage your bottom line n Find out which products are winners and losers n Helps to identify necessary corrective actions

8 Underlying Business Requirements n Understand financial results by product line, including sales, cost of goods sold, gross margins, other cost of sales, and inventory values n Another driving business requirement is a quick 3 day close cycle for all operating subsidiaries

9 Desired Product Line Transactions  Receiving valuation entries  Subinventory/Stores valuation entries for all material movement  Material overhead absorption  Work in process valuation entries  WIP resource, outside processing, and overhead transactions  Cost of goods sold

10 Desired Product Line Transactions (Contd)  Purchase price variances  Cycle count variances  Physical inventory variances  Standard cost revaluation variances  Manufacturing variances for closed WIP jobs  WIP period close variances, for expense work orders

11 Release 10 and 11 Oracle Capabilities n You can build up product costs by category n Your costing category set is usually your product line n Sales and COGS may be recorded by product line n But limited capabilities for the other transactions

12 Reporting by Product Line for Release 10 and 11 n Receiving and Inventory Value Reports sort by category set n Reports that do not sort by product line: WIP Value ReportWIP Value Report Material Account Distribution ReportsMaterial Account Distribution Reports WIP Account Distribution ReportsWIP Account Distribution Reports Receiving Account Distribution ReportReceiving Account Distribution Report Purchase Price Variance ReportPurchase Price Variance Report Invoice Price Variance ReportInvoice Price Variance Report

13 New Release 11 Product Line Features n Category Accounts Only available for the Material and Resource Cost ProcessorOnly available for the Material and Resource Cost Processor Not available for the Standard Cost UpdateNot available for the Standard Cost Update Need custom “hook” to make the Material Cost Processor use the new category accountsNeed custom “hook” to make the Material Cost Processor use the new category accounts But even then, the Material Cost Processor records by category account, not by subinventory and category accountsBut even then, the Material Cost Processor records by category account, not by subinventory and category accounts

14 New Release 11 Product Line Features (Contd) n Category Accounts Does not need a custom “hook” for the WIP Resource Cost ProcessorDoes not need a custom “hook” for the WIP Resource Cost Processor But even then, the Resource Cost Processor records by category account, not by WIP class and category accountsBut even then, the Resource Cost Processor records by category account, not by WIP class and category accounts

15 Verdict on Oracle Standard Functionality n Not sufficient for Product Line Reporting and Accounting n Not practical to setup subinventories and WIP classes by product line n However, Oracle Cost Development team is aware of these limitations n And the limited new functionality in Release 11 is a positive sign that the functionality will increase in the future

16 Affected Subledgers n Oracle Purchasing n Oracle Inventory n Oracle Work in Process

17 Potential Solutions and Custom Approaches n Create the required reporting for manually reclassifying valuation and variance entries by product line n Create the required programs to alter the accounting entries directly, in the respective purchasing, inventory and work in process subledgers n Reclassify the accounting entries automatically in the General Ledger

18 How Did Logitech and KPMG Solve This Issue? n Reclassify the accounting entries automatically in the General Ledger, why? It is the least invasive approachIt is the least invasive approach More likely to survive an upgrade without modificationMore likely to survive an upgrade without modification Still offers the speed of a automated approachStill offers the speed of a automated approach And alternate three is the easiest to code, test and support in ProductionAnd alternate three is the easiest to code, test and support in Production

19 Fundamentals of Manufacturing Transactions n Standard Costing Receiving Transaction Programs Material Cost Processor   Resource Cost Processor   WIP Variance Cost Program   Standard Cost Update Program

20 Fundamentals of Manufacturing Transactions n Average Costing Material Cost Processor for Release 10 Average Costing   New Release 11 Average Cost Processors for material and WIP transactions

21 Underlying Transaction Tables

22 Receiving Transaction Types

23 Material Transactions n Transaction Sources Identify the source of the information for the transaction n Transaction Actions Type of material movement, issue, receipt, update, etc. n Transaction Types Defined by the combination of transaction sources and actions

24 User Defined Material Transactions n Using a combination of transaction sources and actions, you can define new: Miscellaneous issue/receipt transactions Inter–organization transfers Subinventory transfers Release 10 average cost update transactions

25 Material Transaction Sources

26 Material Transaction Actions

27 Material Transaction Types

28 Material Transaction Types (Contd)

29 WIP Transactions

30 Accounting Line Types

31 Caution – Bug on Accounting Line Types n The WIP outside processing PO delivery transaction incorrectly uses accounting line type 4, resource absorption, instead of 5, receiving inspection. Logitech and KPMG have logged a Release 11 Technical Assistance Request (TAR) with Oracle Support, but it is unresolved as of March 1, 1999.

32 Logitech Example - Which Entries to Reclassify? n Storeroom and WIP inventory valuation n Purchase price variance n Cycle count and physical inventory variances n Mfg variances (material usage, resource, overhead, outside processing efficiency)

33 Logitech Example - Which Entries to Reclassify? (Contd) n Standard cost update variances for storerooms and WIP n Specified account alias n Material overhead absorption n Receiving inspection n Intransit valuation

34 Program Logic Steps n Verify that the Inventory Org accounting period is closed n Reverse the purchasing receipt entries n Reclassify the purchasing receipts n Reverse the material accounting entries n Reclassify the material accounting n Reverse the WIP accounting entries n Reclassify the WIP accounting entries

35 Other Design Decisions n Get the product line from the cost of goods sold account in the item master n Write the entries in summary n Reclassify once at month-end, by inventory organization n Normal setup setups, program registration, menu path, parameters, etc.

36 Design Analysis Example – PO Receiving Entries n RCV_RECEIVING_SUBLEDGER Ignore the A/P accrual account for the receiving entriesIgnore the A/P accrual account for the receiving entries Join to RCV_PARAMETERS. receiving_account_id to limit the entries for the RCV_RECEIVING_ SUBLEDGER tableJoin to RCV_PARAMETERS. receiving_account_id to limit the entries for the RCV_RECEIVING_ SUBLEDGER table

37 Design Analysis Example – PO Delivery Entries n Transaction_source_type_id = 1 Usually reclassify all of these entriesUsually reclassify all of these entries n You may decide to not reclassify material overhead absorption Accounting_line_type = 3 and the transaction_source_type_id = 1Accounting_line_type = 3 and the transaction_source_type_id = 1

38 Design Analysis Example – Sales Orders/RMAs n Transaction_source_type_id = 2 & 12 Usually reclassify only the inventory valuation entry, flexbuilder (Release 10) or account generator (Release 11) record by product lineUsually reclassify only the inventory valuation entry, flexbuilder (Release 10) or account generator (Release 11) record by product line Usually handle the COGS and RMA entries in a separate insert statementUsually handle the COGS and RMA entries in a separate insert statement

39 Design Analysis Example – Account Issue/Receipt n Transaction_source_type_id = 3 and some 13 ids Exclude the accounting entry where the accounting_line_type = 2, usually don’t want to reclassify miscellaneous transactionsExclude the accounting entry where the accounting_line_type = 2, usually don’t want to reclassify miscellaneous transactions

40 Design Analysis Example – WIP n Transaction_source_type_id = 5 Ignore the transaction_type_id = 25, a Release 9 cost update transaction for work in process – valuation changes for componentsIgnore the transaction_type_id = 25, a Release 9 cost update transaction for work in process – valuation changes for components

41 Design Analysis Example – Account Alias Issue/Receipts n Transaction_source_type_id = 6 Exclude the accounting entry where the accounting_line_type = 2, usually don’t want to reclassify miscellaneous transactionsExclude the accounting entry where the accounting_line_type = 2, usually don’t want to reclassify miscellaneous transactions However you may wish to enable a descriptive flexfield, so you can designate specified account alias to reclassifyHowever you may wish to enable a descriptive flexfield, so you can designate specified account alias to reclassify

42 Design Analysis Example – Inter- Org Transfers n Transaction_source_type_id = 7,8, and some 13 ids Exclude the accounting entry where the accounting_line_type in (9,10,11,12)Exclude the accounting entry where the accounting_line_type in (9,10,11,12) Don’t want to reclassify the various inter-org transfer accounting entries unless for inventory valuationDon’t want to reclassify the various inter-org transfer accounting entries unless for inventory valuation

43 Design Analysis Example – PIV, Cycle Count & Update Variances n Physical inventory variances, cycle count, and standard cost update variances are usually all reclassified n Transaction_source_type_id = 9, 10, 11

44 Gotchas to Avoid n Bug mentioned for WIP OSP accounting_line_type, for the receiving entry n Defining new material transactions (user-defined) n Need to be careful with cost update, WIP scrap and inter-org transfers, these transactions do not always reference a subinventory

45 More Gotchas to Avoid – Joining to Subinventory Information Select msub.attribute1 From MTL_SECONDARY_INVENTORIES msub, MTL_MATERIAL_TRANSACTIONS mmt MTL_MATERIAL_TRANSACTIONS mmt Where msub.secondary_inventory_name = decode(mmt.transaction_action_id, 3,decode(mmt.organization_id,mta.organization_id, mmt.subinventory_code, mmt.transfer_subinventory), decode(mmt.transaction_action_id, 3,decode(mmt.organization_id,mta.organization_id, mmt.subinventory_code, mmt.transfer_subinventory), 2,decode(sign(mta.primary_quantity), 2,decode(sign(mta.primary_quantity), -1,mmt.subinventory_code, -1,mmt.subinventory_code, 1,mmt.transfer_subinventory, 1,mmt.transfer_subinventory, mmt.subinventory_code) mmt.subinventory_code), mmt.subinventory_code), mmt.subinventory_code) andmsub.organization_id = mmt.organization_id; andmsub.organization_id = mmt.organization_id;

46 Enhancements for Oracle to consider n Consistent use of the new category accounts by all cost programs n Recording entries by subinventory and category accounts n Recording entries by WIP class and category accounts n Better product line reporting

47 Conclusions n Release 11 functionality is not ready for product line accounting requirements n You have numerous ways to customize n In the future the new category accounts may offer better functionality n Oracle development is aware of these limitations

48 Where to get more information n The OAUG paper that this presentation is based upon n Oracle Technical Reference Manuals Oracle Bills of Material (for cost processors)Oracle Bills of Material (for cost processors) Oracle InventoryOracle Inventory Oracle Purchasing (for receiving tables and processors)Oracle Purchasing (for receiving tables and processors) Oracle Work in ProcessOracle Work in Process

49 Thank You for Your Attendance and Participation Peggy McNamara & Douglas A. Volz