Does Rel.

12 Solve Global Inter-Company

Issues for Multiple Ledgers, Profit in
Inventory and COGS?

Douglas Volz
Douglas Volz Consulting
doug@volzconsulting.com

Jerry Devore
CSC
jdevore@csc.com
 Agenda
p Example / Background

p Wow – R12 Features That Work

§ Subledger Accounting
§ Local vs. Corporate Reporting with SLA
§ COGS Recognition

p R12 Intercompany Challenges

§ SLA Inquiries and Reporting
§ Profit in Inventory
§ Time Sensitive Setups
§ Multi-Org Inventory Reconciliation

Slide 2
 Background
p Using Release 12.06 at a global pharmaceutical company

p Discrete costing with multiple inventory orgs, currencies,

operating units and ledgers

p With internal transfers across most organizations, using

multiple primary and secondary ledgers

p Inter-company pricing with profit in inventory and

month-end elimination issues

Slide 3
Sample Background – Supply Chain
Inter-Org Shipping and Billing Logical Shipping Transactions

Distribution - Logistic Service Medical

Europe Providers - Europe Customers

Factory
Switzerland

Distribution - Logistic Service Medical

United States Providers - Americas Customers

Factory
Korea Distribution - Asia Logistic Service Medical
Providers - Asia Customers
Slide 4
Sample Financial Entities

Slide 5
Release 12 Features That Work

Slide 6
 Wow – R12 Features that Work!
p SLA for product line accounting, variance recognition

Accounting
Configurations
Subledger
Transactions Journal Entries

GL
Accounting Journal Entries
Program and Balances

Accounting Events Subledger

Balances
Journal Entry Setup

Cost Management SLA

Slide 7
 Wow – R12 Features that Work!
p SLA Basic Architecture

Enter Transaction(s) Same Cost One Common

Transaction Accounting
Accounting Subledger
Tables Table
Cost Manager

SLA Accounting Tables G/L Tables

Transaction
Accounting Tables
XLA_EVENTS GL_LEDGERS

XLA_AE_HEADERS GL_JE_BATCHES
Create GL_
Accounting INTERFACE

XLA_AE_LINES GL_JE_HEADERS

XLA_DISTRIBUTION GL_JE_LINES
_LINKS

Slide 8
More R12 Features that Work!
p 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 “True”
Inventory COGS COGS
1. Customer Shipment 10 10 10
2. COGS Recognition 10

Slide 9
 More R12 Features that Work!
p 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

Slide 10
Release 12 Inter-Company Challenges

Slide 11
Profit in Inventory

§ Terms

§ Current features

§ Basic business needs and business scenarios

§ Common solutions to solve the visibility and elimination of profit

in inventory

Slide 12
Profit in Inventory - Terms

§ Two commonly used terms for profit in inventory

§ ICP – Intercompany Profit

§ PII – Profit in Inventory

Slide 13
CST: Transfer Pricing Profile Option
§ No

§ Yes, Price Not as Incoming Cost

§ Yes, Price as Incoming Cost

Slide 14
 Profit in Inventory – Current Features
(FOB Ship Example / CST: Transfer Price Option: Price Not as Incoming Cost)
Transfer
Sending Organization O1 Price: $120 Receiving Organization O2
Inventory Cost: $102 Standard Cost: $120
FOB
Shipment
INV INV Inter-Org Profit In
COGS In-transit Accrual
Valuation Valuation PPV Inventory
Event (O1) (O1) (O2) (O2) (O2) (O2) (O2)

1. Shipment 102 102 120 18 120 18

2. Receipt 120 120

I/C
I/C Revenue Accrual I/C Payable
Receivable
(O1) (O1) (O2) (O2)
3. I/C AR 120 120
4. I/C AP 120 120

Slide 15
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

Slide 16
 Profit in Inventory – Basic Business Needs

p 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)

Slide 17
Profit in Inventory – Report in Local Books
pRequirements
§ 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

Slide 18
 Profit in Inventory – Report in Local Books
p 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

p 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

Slide 19
Profit in Inventory – Report in Local Books
pMore 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

Slide 20
Profit in Inventory – Report in Consolidated Books
pRequirements
§ 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

Slide 21
Profit in Inventory – Report in Consolidated Books
pSolutions
§ 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
receiving 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
Slide 22
Profit in Inventory – Report in Consolidated Books
p 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 Last Month’s Monthly

ICP Inventory – ICP Inventory = Change in
Value Reports Value Reports ICP Value

Slide 23
Profit in Inventory – Sample Reports (sample data only)

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

Slide 25
Profit in Inventory – Sample Reports (sample data only)
Monthly Monthly
Transaction X ICP Item Cost = Change in
Quantities ICP Value

Slide 26
Profit in Inventory – Sample Reports (sample data only)
p 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

Slide 27
Profit in Inventory – Sample Reports (sample data only)
p 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

Slide 28
Profit in Inventory – Report in Consolidated Books
pCaveats
§ 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

Slide 29
Inter-Company Setups are Time Sensitive

Slide 30
Time Sensitive Set-Ups
pSetups 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

Slide 31
Time Sensitive Set-Ups – Shipping Network

Slide 32
Time Sensitive Set-Ups – Inter-Co Relationships

Slide 33
Release 12 Inventory Reconciliation

Slide 34
 R12 Challenges – Inventory Reconciliation

p 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

Slide 35
 R12 Challenges – Inventory Reconciliation

p 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

Slide 36
 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

Slide 37
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

Slide 38
 Basic Table Structure for SLA

Module
Enter Transaction(s) Specific One Common
Transaction Accounting
Accounting Subledger
Tables Table
Accounting
Processor

SLA Accounting Tables G/L Tables

Transaction
Accounting Tables
XLA_EVENTS GL_LEDGERS

Receiving XLA_AE_HEADERS GL_JE_BATCHES

Create GL_
Material Accounting INTERFACE
WIP
XLA_AE_LINES GL_JE_HEADERS

XLA_DISTRIBUTION GL_JE_LINES
_LINKS

Slide 39
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

Slide 40
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

Slide 41
Acknowledgements

§ Oracle Cost Development

§ Bini Mammen, Next Generation Consultants

§ Hans Kolbe, lead for OAUG Multi-Org SIG

Slide 42
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

p Data Conversion – Data Cleansing p Extensive Industry Experience
p Standard and Average Costing p Oracle Implementation Cycles in Release
p Manufacturing Process 11.5.9 through Release 12.06
Ø Cost Management p Clients Served:
Ø Inventory Ø USG Corp.
Ø WIP Ø Canadian Mining Company
Ø Bills of Material Ø Celgene Corp
Ø Supply Chain

Slide 43
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

p Multi-organization, Multi-currency ERP Sample of clients served:
Implementations p Beckman Coulter (US)
p Project Management and Senior Project Advisor p Matsushita (UK, Mexico)
p Core manufacturing processes p NTL (now Virgin Media)
4 Cost Management p Logitech (US, Taiwan, P.R.C.)
4 Inventory
4 Bills of Material p Matsushita (UK, Mexico)
4 WIP p NTL (now Virgin Media)
p Systems Integration and Data Conversions p TCI International (US)
p Onninen AS (Norway)

Slide 44
Thanks for allowing us to discuss these topics with you!

Slide 45