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
 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
Slide 2
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
Slide 3
Sample Background – Supply Chain
Logical Shipping Transactions
Inter-Org Shipping and Billing
Distribution Europe
Logistic Service
Providers - Europe
Medical
Customers
Distribution United States
Logistic Service
Providers - Americas
Medical
Customers
Logistic Service
Providers - Asia
Medical
Customers
Factory
Switzerland
Factory
Korea
Distribution - Asia
Slide 4
Sample Financial Entities
Corporate
Consolidated
Ledger
Corporate Consolidated Ledger
(USD)
Secondary
Ledger
Switzerland
(CHE)
European
LSP’s
SLs
LSP’s
Korea
(KRW)
Asia-Pac
LEs
Swiss PL
(USD)
European PL
(USD)
Legal Entity
Korea LE
Asia-Pac
LEs
Swiss LE
Other
European
LEs
Operating
Unit
Korea OU
Asia-Pac
OUs
Switzerland
OU
Other
European
OUs
US OU
Asia-Pac
Dist. Centers
Swiss Dist.
Center
Europe
LSP Orgs
US LSP
Orgs
Switzerland
Org
Europe Dist.
Centers
US Dist.
Centers
Primary
Ledger
Inventory
Orgs
ORG
Korea
Item
Master
(ZZZ)
Slide 5
USA PL
(USD)
CORP
LE
Other
LEs
Release 12 Features That Work
Slide 6
Wow – R12 Features that Work!
 SLA for product line accounting, variance recognition
Accounting
Configurations
Subledger
Journal Entries
Transactions
GL
Journal Entries
and Balances
Accounting
Program
Subledger
Balances
Accounting Events
Journal Entry Setup
SLA
Cost Management
Slide 7
Wow – R12 Features that Work!
 SLA Basic Architecture
Enter Transaction(s)
Cost Manager
Transaction
Accounting Tables
Create
Accounting
One Common
Accounting
Subledger
Table
Same Cost
Transaction
Accounting
Tables
SLA Accounting Tables
G/L Tables
XLA_EVENTS
GL_LEDGERS
XLA_AE_HEADERS
GL_
INTERFACE
GL_JE_BATCHES
XLA_AE_LINES
GL_JE_HEADERS
XLA_DISTRIBUTION
_LINKS
GL_JE_LINES
Slide 8
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”
Inventory
1. Customer Shipment
10
Deferred
COGS
10
10
2. COGS Recognition
Slide 9
“True”
COGS
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
Corporate
Consolidated
Ledger
Corporate Consolidated Ledger
(USD)
Secondary
Ledger
Switzerland
(CHE)
Korea
(KRW)
Asia-Pac
LEs
Swiss PL
(USD)
Slide 10
European
LSP’s
SLs
LSP’s
European PL
(USD)
USA PL
(USD)
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
Price: $120
Sending Organization O1
Inventory Cost: $102
Event
INV
Valuation
(O1)
1. Shipment
102
FOB
Shipment
COGS
In-transit
(O1)
(O2)
102
120
Inter-Org
PPV
(O2)
Accrual
(O2)
18
120
I/C
Receivable
(O1)
INV
Valuation
(O2)
120
2. Receipt
3. I/C AR
Receiving Organization O2
Standard Cost: $120
120
Profit In
Inventory
(O2)
18
120
I/C Revenue
Accrual
I/C Payable
(O1)
(O2)
(O2)
120
4. I/C AP
120
Slide 15
120
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
 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
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
Slide 18
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
Slide 19
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
Slide 20
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
Slide 21
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
Slide 22
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
Slide 23
=
Monthly
Change in
ICP Value
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
Transaction
Quantities
X
ICP Item Cost
Slide 26
=
Monthly
Change in
ICP Value
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
Slide 27
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
Slide 28
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
Slide 29
Inter-Company Setups are Time Sensitive
Slide 30
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
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
 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
 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
Enter Transaction(s)
Accounting
Processor
Transaction
Accounting Tables
Receiving
Material
WIP
Create
Accounting
Module
Specific
Transaction
Accounting
Tables
One Common
Accounting
Subledger
Table
SLA Accounting Tables
G/L Tables
XLA_EVENTS
GL_LEDGERS
XLA_AE_HEADERS
GL_
INTERFACE
GL_JE_BATCHES
XLA_AE_LINES
GL_JE_HEADERS
XLA_DISTRIBUTION
_LINKS
GL_JE_LINES
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



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
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
 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
Sample 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)
Slide 44
Thanks for allowing us to discuss these topics with you!
Slide 45