1. Douglas Volz Consulting
Does Rel. 12 Solve Global Inter-Company Issues for Multiple Ledgers, Profit in Inventory and COGS?
Douglas Volz
Douglas Volz Consulting
Doug and Jerry worked together at a mutual client, from which this presentation is based upon.
Bini Mammen was not able to attend, his contributions towards this presentation are appreciated
Jerry Devore CSC

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
We will mainly concentrate on the Inventory/Cost Accounting/COGS side of inter-company accounting. Inter-Company Accounting is a HUGE topic to cover in 50 minutes.
Inventory reconciliation issues become amplified with most Global Companies

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

4. Sample Background – Supply Chain
Inter-Org Shipping and Billing
Logical Shipping Transactions
Distribution - Europe
Medical Customers
Logistic Service Providers - Europe
Factory Switzerland
Logistic Service Providers - Americas
Distribution - United States
Medical Customers
Factory Korea
Logistic Service Providers - Asia
Distribution - Asia
Medical Customers

5. Sample Financial Entities
Use of Secondary and Primary Ledgers was specific to client situation with certain currency thresholds.

6. Release 12 Features That Work

7. Wow – R12 Features that Work!
SLA for product line accounting, variance recognition
Transactions
Accounting Events
Cost Management
SLA
Accounting
Configurations
Subledger
Balances
Journal Entries GL
Journal Entries
and Balances
Accounting
Program
Journal Entry Setup

8. Wow – R12 Features that Work!
SLA Basic Architecture
Enter Transaction(s)
One Common Accounting Subledger Table
Same Cost Transaction Accounting Tables
Cost Manager
SLA Accounting Tables
G/L Tables
Transaction Accounting Tables
GL_LEDGERS
XLA_EVENTS
Create
Accounting
GL_JE_BATCHES
XLA_AE_HEADERS
GL_ INTERFACE
GL_JE_HEADERS
XLA_AE_LINES
GL_JE_LINES
XLA_DISTRIBUTION_LINKS

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”
Deferred COGS
“True” COGS
We have had a number of bugs with this functionality, the latest patch is COG REC ERROR as of March 6th, 2010
Inventory
1. Customer Shipment 10 10
2. COGS Recognition 10 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 requirements
Primary to secondary mapping is way more flexible in Release 12, with being able to map the four C’s (not just accounts to accounts as in Release 11i):
Accounting Convention (SLAM), Chart of Accounts and account mapping for transactions may be different
Calendars may have different financial starting and ending periods
Currencies may be different (same in Release 11i)
Ability to use secondary ledgers in this fashion depends on currency thresholds and local regulatory requirements

11. Release 12 Inter-Company Challenges
We don’t have time for all of the issues we faced, however we wanted to concentrate on a few that everyone will face – profit in inventory and inventory reconciliation

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

13. Profit in Inventory - Terms
Two commonly used terms for profit in inventory
ICP – Intercompany Profit
PII – Profit in Inventory

14. CST: Transfer Pricing Profile OptionNo
Yes, Price Not as Incoming Cost
Yes, Price as Incoming Cost
No – works like an Inter-Org Transfer in Release 10 and 11, any difference goes to PPV
Yes, Price Not as Incoming Cost – accrues ICP when received by Receiving ORG
Yes, Price as Incoming Cost – ICP is not accrued, any differences go to PPV, usually the Price is the same as the Receiving Org’s cost

15. Profit In Inventory (O2)
Profit in Inventory – Current Features (FOB Ship Example / CST: Transfer Price Option: Price Not as Incoming Cost)
Transfer Price: $120
Sending Organization O1
Inventory Cost: $102
Receiving Organization O2
Standard Cost: $120
FOB Shipment
INV Valuation (O1)
INV Valuation (O2)
Inter-Org PPV (O2)
Profit In Inventory (O2)
COGS
(O1)
In-transit
(O2)
Accrual
(O2)
Event
1. Shipment
102
102
120 18
120 18
120
120
2. Receipt
Profit in Inventory Account is setup in the Shipping Network
I/C Receivable (O1)
I/C Revenue
(O1)
Accrual
(O2)
I/C Payable
(O2)
3. I/C AR
120
120
4. I/C AP
120
120

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
You can also use Material Overheads for ICP, assuming a given item only comes from one inventory organization, or that the ICP amount is the same across multiple inventory orgs

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)

18. Profit in Inventory – Report in Local Books
Requirements
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

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
This custom solution would add more accounting entries to the same material and WIP transactions.

20. Profit in Inventory – Report in Local Books
More 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

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

22. Profit in Inventory – Report in Consolidated Books
Solutions
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

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 – =

24. Profit in Inventory – Sample Reports (sample data only)

25. Profit in Inventory – Sample Reports (sample data only)

26. Profit in Inventory – Sample Reports (sample data only)
Monthly Transaction Quantities
Monthly Change in ICP Value X
ICP Item Cost =

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

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

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

30. Inter-Company Setups are Time Sensitive

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

32. Time Sensitive Set-Ups – Shipping Network

33. Time Sensitive Set-Ups – Inter-Co Relationships

34. Release 12 Inventory Reconciliation

35. R12 Challenges – 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

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

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
The Inventory Value Report, subinventory sort, summary option has no valuation accounts
The Receiving Value by Destination Account Report has been disabled
Release 12 dropped the valuation accounts on most inventory reports

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

39. Basic Table Structure for SLA
Module Specific Transaction Accounting Tables
Enter Transaction(s)
One Common Accounting Subledger Table
Accounting Processor
SLA Accounting Tables
G/L Tables
Transaction Accounting Tables
GL_LEDGERS
XLA_EVENTS
Create
Accounting
GL_JE_BATCHES
Receiving
Material WIP
XLA_AE_HEADERS
GL_ INTERFACE
GL_JE_HEADERS
XLA_AE_LINES
GL_JE_LINES
XLA_DISTRIBUTION_LINKS

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

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

42. Acknowledgements Oracle Cost Development
Bini Mammen, Next Generation Consultants
Hans Kolbe, lead for OAUG Multi-Org SIG

43. Jerry Devore (Jerry.Devore@csc.com)
Professional Background
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. .
Core Expertise
Experience
Data Conversion – Data Cleansing
Standard and Average Costing
Manufacturing Process
Cost Management
Inventory
WIP
Bills of Material
Supply Chain
Extensive Industry Experience
Oracle Implementation Cycles in Release through Release 12.06
Clients Served:
USG Corp.
Canadian Mining Company
Celgene Corp

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
Experience
Sample of clients served:
Beckman Coulter (US)
Matsushita (UK, Mexico)
NTL (now Virgin Media)
Logitech (US, Taiwan, P.R.C.)
TCI International (US)
Onninen AS (Norway)
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

45. Thanks for allowing us to discuss these topics with you!45