Landed Cost Management Update Erin Johansson, Global Trade Management Strategy

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Agenda Landed Cost Management Overview 12.1.1 Solution Demo (Discrete) 12.1.2 Highlights (OPM) Roadmap

Oracle’s Landed Cost Management Solution Planning and Tracking Transportation Spend Related Components of Landed Costs Coming Soon – Duties and Tax estimation and calculation as well as preferential trade schema analysis Transportation Management Global Trade Management Oracle Landed Cost Management Total Landed Cost tracking and accounting application

Landed Cost Calculations Inbound Shipment Transaction Issue Purchase Order Vessel Carrier Kansas City Shipment to HK HK Port US Port Customer China Manufacturing Buyer Duties Broker Fees $5 $5 So what are we talking about when we talk about “landed costs”. Let’s use a quick example to baseline our discussion of the topic. For many companies the first challenge is gaining internal information visibility. Companies with a high number of purchases and sales involving great distances and cross-border transactions involving many hand-offs, Experience challenges trying to obtain accurate, timely and complete information. The total landed cost of merchandise is more than what is typically displayed on a trade document, like an invoice, and it can surprise a company to realize what exactly constitutes a "total landed cost." The major cost elements include items such as: the price of merchandise, shipping and handling fees, duties, taxes and other government charges. In this example, the PO Item cost was $100. The real cost of the item was $140. An additional 40% is added to the cost of the item due to extended supply chain costs. In many cases, organizations report and make decisions on the base item cost without visibility to the real costs of product acquisition. Organizations make decisions from Inventory valuations Profitability reports Are now making them based on total landed cost rather than PO item cost $100 $2 $3 $20 $3 $2 $140 Total Landed Cost An additional 40% is added on to the purchase price 6

Oracle Landed Cost Management Oracle’s Landed Cost Management application is a new product released on E-Business Suite r.12.1. Oracle Landed Cost Management captures extended supply chain costs (freight, insurance, duties, taxes, etc.) and attributes them back to the products which incurred them Costs can be estimated during receiving Actual costs calculated when invoices arrive to identify variances Receiving estimates and any variances automatically update inventory valuation and accounting

<Product Name> <TOI Functional> - 8 Value Proposition Pain Points  Features  Benefits Pain Points LCM Provides Benefits Financial visibility into supply chain costs Captures all acquisition costs Maximize Profits More accurate product profitability reporting Known costs reduces exposure Strict Regulatory Requirements / Accounting Accuracy Updates financial systems with costs as soon as they are incurred for the most accurate picture of outstanding liabilities Ensure Compliance Understand taxes & recovery Confidence in financial reports and cost declarations Global Sourcing Calculates extended cost for use in sourcing and procurement decisions Increase Competitiveness More accurate total cost comparisons Better contract negotiations Oracle’s Landed Cost Management helps organizations: Maximize Profits. By illuminating “real” product costs, organizations have the opportunity to identify areas for potential cost reduction. It also helps managers more accurately monitor product performance against profitability targets and ensure estimated costs are in line with actual costs by providing visibility into SC costs. Ensure Compliance. Companies can feel more confident in their financial reports and their cost declarations. This includes accurately calculated taxes and consideration of those taxes whose recovery should be excluded from total cost calculations. Additionally, organizations will adhere to country specific requirements for product specific profitability documentation and income tax calculations Increase Competitiveness. When all of the charges, fees, duties and taxes are known, companies can more strategically source products and components from lower cost foreign locations. This also allows them to better justify contracts with vendors or potential customers. Ultimately, they can price goods with the full understanding of the charges associated with bringing an item to market. 8 <Product Name> <TOI Functional> - 8

<Insert Picture Here> Solution Demo (12.1.1) 9

Oracle Landed Cost Management Product Map & Information Flow Charge Mgt. LC Calculator Product Cost Dashboard Payables Purchasing PO Information Invoices Advanced Pricing Charges, Freight, Insurance Actual Variances Estimated Landed Cost Oracle Landed Cost Management is integrated with several modules in Oracle E-Business Suite. Oracle Landed Cost Management consists of Charge Management, where users can defines the charges and proration methods Landed Cost Calculator, which performs estimated and actual cost calculations Cost Repository, which consists of estimated and actual cost information corresponding to each receipt in Oracle Receiving. Users can use this information to analyze trends happening to the various cost buckets. Purchase Order, tax and charge information flows from Purchasing, EB Tax and Advanced Pricing respectively. This information is used by Oracle Landed Cost Management to calculate the estimated landed cost. Invoice information flows from Accounts Payable to Oracle Landed Cost Management for actual cost calculations. Estimated and actual cost information flows from Oracle Landed Cost Management to receiving and costing for costing and accrual accounting. Receipts Receiving Costing Estimated Landed Cost 10

Landed Cost Management Version 12.1 Flow Actual Landed Cost Estimated Landed Cost Receive Goods & Calculate Estimated Landed Cost Create Inventory Valuation & Accruals Receive Invoices (Trade Documents) Update Inventory Valuation & Accounting Calculate Actual Landed Cost Create PO Landed costs can be initially estimated, either manually or through Oracle Advanced Pricing Costs are updated when actual invoices are received Support for costing at the time of goods receipt as well as within a “pre-receiving” process From a flow standpoint, there are two components to the Oracle LCM flow. First, costs are initially estimated at the time of goods receipt or, potentially, PO creation. Then, once invoices are received for the products and services, actual landed cost is calculated. The left portion of the slide illustrates the Estimation flow where a PO is created, goods are received and charges are either estimated using Oracle Advanced Pricing (for automated rules-based charge creation) or manually entered. After calculating the landed cost , the landed cost information is passed back to receiving and receiving carries out the accrual accounting and updates the inventory valuation to be based on the landed cost. The second portion of the slide depicts the Actual Landed Cost flow:. The suppliers sends in their various invoices. This includes invoices for the goods as well as separate charge invoices for things such as freight of insurance. These invoices get matched to landed cost receipts and are interfaced to Oracle Landed Cost Management for actual cost calculation. Oracle Landed Cost Management calculates the actual landed cost and updates the item cost to Oracle Costing. Oracle Landed Cost Management’s calculator replaces the estimated item price with the item invoice price. It then prorates charge invoice amounts to the item and calculates the actual landed cost. The new Landed Cost Adjustment Manager picks up these records and then corrects Oracle Receiving’s accounts with any variances. This updates the costs based on the on-hand inventory. Actual cost updates can be carried out in near real time by configuring a set of concurrent managers. PLEASE NOTE: There are two flows supported by LCM a “Receipts or LCM as a Service” flow and a “Pre-receiving” flow. These flows are described at a high level in the next two slides.

Receipts - Estimated Landed Cost Advanced Shipping Notice or Receipt Create PO Purchasing Receive Goods Receiving LCM Calculate Estimated LC Calculate Actual LC Update Item Cost Process Cost Adjustments Costing In this “LCM as a Service” (Blackbox) flow, goods are received in the Oracle Receiving application, which calls out and interfaces with the LCM application in the background to pass receipt information for Landed Cost calculations. Process Description PO Created in Oracle Purchasing Goods Received in Oracle Inventory/Receiving Receiving interfaces with the LCM application Advanced Pricing can be used for charge creation Landed costs estimated then updated when actuals are captured in AP Inventory valuation and accounting updated Receive/Enter Invoices Update Accounting Payables

Demonstration What You Are About to See Review Charge Setup Create PO for Two Toys Receive Items Review Estimated Landed Cost Enter Item and Charge Invoices Review Actual Landed Cost 13

Automated Charge Setup Freight: 10% of shipment line Insurance: $200 for entire shipment 14

Review Purchase Order 2 PO Schedules 15

Enter Receipt 16

Enter Receipt 17

Landed Cost Management Enter the receipt number and search 18

Review Estimated Landed Cost Line Item Unit Landed Cost Cost Components Here we see the LCM Estimated Landed Cost screen. In this case this information is provided once a user has queried on a receipt transaction to view the associated items. Please note the following key areas: The LC components of Goods, Freight, and Insurance The line items of DT1 and DT2 The Estimated Landed Cost column, which shows a breakdown of estimated charges The two extended cost components (I.e., non product-related charges) of Freight and Insurance based on different charge rules. Freight is based on 10% of the product value and Insurance is a flat charge of $200 allocated across the shipment based on quantity Finally, please note the unit LC for item DT1 of 12.00 A user may select the Unit Landed Cost hyperlink to drill down to additional details and views Insurance: Flat fee - $200 prorated by quantity Freight: 10% of value of the item

Review Estimated Landed Cost Here is a screenshot of that breakdown clearly showing the different proportional components of the landed cost for the DT1. Alternatively, the same information could be viewed as a bar chart as well. 20

Enter and Match Product Invoice Original PO Price: $1,000 $1,500 21

Enter and Match Freight Invoice Original Amount: $250 ($100 + $150) 22

Enter and Match Insurance Invoice Original Amount: $200 per shipment 23

Review Actual Landed Cost The impacts to actual LC from, Products, Freight and Insurance Invoices Now, let’s fast forward to a point where we have received actual invoices for products and services in AP and they have been passed to Oracle LCM. You will now see a new “Actuals” column that lists the costs based on actual invoices. The unit landed cost is now updated.

Financial Updates Expense charges or track as liability LCM program sends variances to Oracle Cost Management to update Inventory Valuation and General Ledger Variances applied to portion of receipt quantity still on hand Remainder updates Landed Cost Variance account 25

Summary and Highlights Single Integrated LCM Solution - Logistics, Financials, Procurement Automatic Update of Variances - Actual vs. Estimates Flexible Charge Allocation Shipment line, group of lines, or an entire shipment Prorated based on weight, volume, quantity, or value Advanced Pricing – rules engine for applying charges Charge Estimates and Variances Update: Inventory Valuation General Ledger Existing financial reports/statements Consideration of VAT recovery Multiple currencies and multiple units of measure Expense charges or accrue as liability

Alternative Estimation Flow Pre-receiving Estimated Shipment Entry Create PO Purchasing Calculate Estimated LC LCM Calculate Actual LC Receive Goods Receiving Update Item Cost Process Cost Adjustments Costing In this Pre-receiving flow, a purchase order is created and sent to a vendor similar to the Oracle Landed Cost Management as a service flow. However goods are received into the Oracle Landed Cost Management application screens themselves. These screens default all the charges for a specific Landed Cost Management shipment. A user can optionally edit charges, prorate charges to items in the shipment, calculate estimated landed costs, and interface this information into Inventory Receiving as a Oracle Landed Cost Management shipment. Now goods are received in the Inventory Receiving module with reference to the Oracle Landed Cost Management shipment. The estimated landed cost is used for accounting accruals and inventory cost valuation just as it was in the previous receiving flow. The major advantage of this flow is the ability to override any predefined charges . If the Invoices are available at the time of receipt (as is common in geographies such as Brazil), the pre-receiving flow allows you take the actual amounts at the time of receiving for your inventory valuation cost calculation to help to take the advantage of this information for all subsequent manufacturing or sales transactions . Users can also add, modify, or delete charges which one discovers to be incorrect at the time of receiving. For example you need to air freight the goods from a vendor facility to your factory to take care of emergency production requirement. Normally, these goods would have been shipped by ground freight. In this situation you can edit the freight charges from road to air to reflect the most accurate cost picture. Process Description PO Created in Oracle Purchasing Receipts entered in LCM for LC estimation or actual costing if known (Advanced Pricing can be used for charge creation or users can manually enter) Landed costs estimated then updated when actuals are captured in AP Goods are received in the Inventory Receiving module, referencing the LCM shipment Inventory valuation and accounting updated Receive/Enter Invoices Update Accounting Payables

<Insert Picture Here> 12.1.2 Highlights 28

Landed Cost Management 12.1.2 Integrate to OPM Costing UI Enhancements Visibility into Matched Invoice Amounts Landed Cost Calculation History Landed Cost Visualization by Purchasing

Visibility into Matched Invoice Amounts Included new column Matched Amount to display the total invoiced amount Included new Actual History button

Visibility into Matched Invoice Amounts Displays the detailed Invoicing history

Landed Cost Calculation History

Landed Cost Calculation History

View Acquisition Costs from Purchasing Acquisition Cost view pages shows also data from LCM information

<Insert Picture Here> Roadmap 35

Comprehensive Solution Oracle LCM Roadmap v.2 v.3 Future Functionality/ Features Ensure Early Adopter Success Support for OPM LC Analysis Enhancements EBS PO Estimation Cookbook or Integration with OTM Commodity & Quality Based Pricing Tolerance & Validation GTM Import Process GTM Duties Calculator Localization Support Outbound LC Calculation Comprehensive Solution Theme Componentization GTM Import Industries – Broad; Particularly Process Industries – Broad; Particularly Retail and Distribution OTM/EBS Customers Target

Additional Resources Oracle.com Metalink Solution Factory http://www.oracle.com/applications/scm/landed-cost-management.html Datasheet Metalink 781061.1 - Landed Cost Management Process Guide Customer Webinar https://conference.oracle.com/imtapp/app/arc_pb_hub.uix?mID=145576051&src=app/arc_pub&action=pb conference key = advisor Solution Factory http://launch.oracle.com/?landedcost