asug user group presentation

AMERICAS’ SAP USERS’ GROUP

Transfer Prices: Transfer Prices: Conceptual Overview Conceptual Overview & Project Report& Project ReportThomas Kaiser, SAP-AG WalldorfRoy Brown, Polaroid Corporation

1999 ANNUAL CONFERENCE & VENDOR FAIR

May 16 - 19, 1999Dallas Convention CenterDallas, Texas

Copyright 1999



Copyright 1999

Polaroid CorporationPolaroid Corporation Global Imaging Company

$2 Billion in Annual Revenue Major Product Lines

Instant Photographic Cameras & Film, Digital Hardware & Software, Conventional Films & Polarizing Filters & Lenses

Key Markets Amateur & Professional Photography, Industry,

Graphic Arts, Science, Medicine, Government & Education



Copyright 1999

Polaroid CorporationPolaroid Corporation To Service these Markets

Sales Offices & Distributors in all Major Regions: Americas, Europe & Asia Pacific

Seven major Manufacturing Centers United States Mexico Europe Asia

Eight Major Distribution Centers Worldwide



Copyright 1999

Polaroid CorporationPolaroid Corporation Operational Characteristics

Make to Stock Inventory Replenishment Drop Shipments to Customers

3 Manufacturing Types Repetitive, Process & Discrete

3 Primary Businesses Commercial: Imaging & Digital Consumer: Film & Cameras New Business: Polarizer, Graphic Imaging, ID



Copyright 1999

Polaroid Profit Center Polaroid Profit Center StructureStructure

Pro-TechPhoto RetailCommercial DigitalBusiness Imaging

CalifTexas

ID

Other Commercial

NegativeChem Ops

Components

Enshede IndUS Indust

Industrial Hardware

Manufacturing

Product Dev

Commercial

Consumer CoreKidsConsumer DigitalOther Consumer

US CameraEnschede

Camera

US IntegralEnshede FilmBattery

Intergral Film

Manufacturing

Product Dev

Consumer

PGIHeliosHolographyTech PolarizerSunglassesOther NBManufacturingProduct Dev

New Business

Corporate G&ACorporate OtherResearchMFG Dev

Other

Polaroid Corp



Copyright 1999

Polaroid SAP Global Polaroid SAP Global ProjectProject SAP 4.0B Module Implementation

PP: Distribution Requirements Planning MM: Manufacturing Planning &

Production and Procurement SD: Order Fulfillment & Logistics Finance

Financial Accounting Controlling

Reporting Special Purpose Ledger, SIS & LIS



Copyright 1999

Polaroid SAP Global Polaroid SAP Global ProjectProject SAP 4.0B Finance Modules

Financial Accounting GL, AR, AP & Asset Accounting

Controlling Cost Center Accounting, Product Costing,

PA, Internal Order Mgmt. Enterprise: PCA

– Future Plans: Consolidation Material Ledger & Parallel Valuations



Copyright 1999

Polaroid SAP Project Polaroid SAP Project TeamTeam Global Structure: 200+ full time members

Product Definition (Material Master) Global Supply Chain- Sales/Distribution Manufacturing Purchasing Finance Reporting Basis RICE Development Group



Copyright 1999

Polaroid SAP Project Polaroid SAP Project ScheduleSchedule Global Phase Implementation

1/99: Global Supply Chain, US Logistics & Finance, Digital & Optics Manufacturing

4/99: Chemical Coating Manufacturing 7/99: Europe Manufacturing &

Sales/Marketing (Commissionaire) 8/99: US Manufacturing Assembly Plants 10/99: Canada, Puerto Rico, Latin America &

Mexico 1/2000: Japan 4/2000: China



Copyright 1999

Polaroid Tax StrategiesPolaroid Tax Strategies Transfer Pricing & Inter-company Processing

Patent & Trademarks owned by Parent Co. Buy & Sell between “unrelated” parties globally

Contracts with foreign manufacturers & distributors Contracts in Europe: Commissionaires, July 1999

Movement of Materials: Invoicing with Transfer Prices using Cost Plus Methods

Use Foreign Tax Credits to maximize Net Income Consolidate Inter-company Profits but eliminate for Financial &

Management Reporting



Copyright 1999

Polaroid Transfer Price Polaroid Transfer Price StrategiesStrategies Materials Shipped between Polaroid Legal

Entities in Different Countries Require TPs Consistent with 3rd Party Pricing Must Meet Arms Length Test Applicable to Materials & Services

Legal Entities Must Earn Reasonable Profits to be Competitive and Achieve Corporate Goals Compliance with Local Tax Laws

Monitor Statutory & Internal Reporting by Business Unit



Copyright 1999

Polaroid Transfer Price Polaroid Transfer Price CharacteristicsCharacteristics Complex Billing Chains

Europe– 3 Manufacturing Sub Contractors for main billing “ HUB ”– Contracting CV, sells onto European Business Center

» CV, a Distribution Center Direct Ships to Customer– International Business Center Sells to European Subs &

these Subs become Commissionaires in July– European Subs sell to their Customers

Non-Europe– Contracting CV Sells to Foreign Subs while their

Manufacturers Direct Ships to Foreign Subs– PolCorp Buys from Manufacturers and Sells to Marketing

Subsidiaries



Copyright 1999

Polaroid European Polaroid European CommissionaireCommissionaire

•

•

Physical Product Flow:Commissionaire

Manufacturing

Plant

(US or Europe)

European Distribution

CenterShip to Europe

D.C.Ship to

CommissionaireHub

HUB

ContractingManufacturing

PlantVale Enschede

Polaroid IBC

Polaroid -Contracting

CV

Commissionaire

Ship to EndCustomer

Third PartyCustomer

I-CTransfer

price

Non Contracting

Manufacturing Plant

Non Europe

Transfer price

Legal Product Flow:

I-CTransfer

price

Customer

I-CTransfer

priceStops at IBC

TransferI-C

Price to CustomerLess

Commission Fee !

Invoice @ SalesPrice



Copyright 1999

Polaroid Inter-company Polaroid Inter-company ProcessesProcesses Business Requirements

Simplify & Standardize the Processes Globally Incorporate Better Controls & Procedures Automate Transactions in the Process Accounts between Supplier & Receiver Always in

Balance– Track & Value In-transit Inventories

Reduce/Eliminate Invoicing Errors Minimize Paper Flow Global Visibility of Transactions, Postings &

Account Balances by Company Code Centralize Operations Where Feasible



Copyright 1999

Polaroid Transfer Price Reporting Polaroid Transfer Price Reporting NeedsNeeds Business Requirements

Include Inter-company Profit for Local Statutory Reporting– Use Actual YTD Variable, Month End Exchange Rate

Exclude Inter-company Profit for Management Reporting– Use Annual Standard Budgeted Exchange Rate

Track & Value Inter-company Profit through the Entire Billing Chain for– Internal & External Reporting Eliminations and – Tax Filings

Automate Management Reporting – Provides “Report Card” Results for GMs and Controllers– Manual eliminations performed today



Copyright 1999

Polaroid Transfer Pricing in Polaroid Transfer Pricing in SAPSAP Two Orders Used in fully Integrated Modules

Stock Transport Orders NB Purchase Orders– Inventory Replenishment at Distribution Centers

Sales Orders– Drop Shipments to Customers

Primary SAP Tools DRP -> Purchase Requisitions MM Procurement SD Logistics Product Costing & Material Ledger Parallel Valuations



Copyright 1999

Polaroid Transfer Pricing in Polaroid Transfer Pricing in SAPSAP

DRP & MRP

Convert PR to PO

Ship Materials

Create Billing

Create ARReceive Goods

Create AP

Net AP & AR

Std Cost & Transfer PricingIn-transit InventoriesManagement ReportingCustoms & DutiesAccount Reconciliations



Copyright 1999

SupplierPolcorp US

ReceiverPolaroid Japan

ManualInvoice Creation:

Db. I-C ARCr. I-C Sales

In-transit: Quantity & $

ManualGoods Receipt:

Db. Inventory (Available)Cr. GR/GI Clearing

Automatic Invoice Verification:

Db. GR/GI ClearingCr. Vendor (IC AP)

PO Invoice Receipt

3 Way Match: Auto Settle

ManualGoods Issue:

Db. COSCr. Invty

Shipment

CC 130 CC 155

EDI-IDOC

New Acctg.Document:(trigger GR > reverse effect)

Db. In-Transit ClearingCr. In-transit

(via batch program)

New Acctg. DocumentDb. In-transit Invty

Cr. In-transit Clearing(via batch program)

Polaroid Model: Inter-company Polaroid Model: Inter-company ProcessingProcessing



Copyright 1999

Polaroid Experiences with Polaroid Experiences with TPTP It Works!!

Use with Stock Transport Order NB Purchase Orders across Company Codes It Simplifies & Automates Inter-company Profit Tracking & Invoice

Verification Use with Sales Orders: Drop Shipments to a 3rd Party Customer

Ship from one CoCd Distribution Center to another CoCd and its Customer Buying CoCd Invoices 3rd Party Customer and is also Inter-company

Invoiced by Selling CoCd Puerto Rico & Europe exclusively use Drop Shipments

LG

US cc130

LG

LG

LG

LG

Raw MaterialLaborO.H.C

Semi-FinishedProduct

FinishedProduct

Shared ServiceCenter- UK

Sales OrderGerman Customer

Enschede cc 110 CV cc 120 IBC cc 125 Subsidiary cc 106

Production Order Production Order DRP Requisition

Mfg.Cost $1.00

Purch TP N/A

Margin $1.27

Sell TP $2.27

Mfg.Cost $1.36

Purch TP $ 2.27

Margin $ 0.09

Sell TP $3.72

Mfg.Cost $N/A

Purch TP $ 3.72

Margin $ 1.88

Sell TP $5.60

Mfg.Cost $N/A

Purch TP $ 5.60

Margin $ 0.85

Sell TP $6.45

Mfg.Cost $N/A

Purch TP $ 6.45

Margin $ N/A

Customer Price.



Copyright 1999

Polaroid Example: Parallel Polaroid Example: Parallel ValuationsValuations

US E’de CV IBC Cust

Mfg. Cost w/o Margin $1.00 $2.36 $2.36 $2.36 $2.36Inter-Co. Profit N/A 1.27 1.36 3.24 4.09Mfg. Cost w/ Margin $1.00 $3.63 $3.72 $5.60 $6.45Freight . 50Landed Cost $6.95

Worldwide Standard Cost:Mfg W/O Profit $2.36Freight .50

$2.86Germany’s P&L Reporting:3rd Party Sale:1 unit =$10.00Expense = $2.00

Group Valuation Legal ValuationSales $10.00 $10.00Cost of Sales 2.86 6.95

Local Margin 7.14 3.05

Expense 2.00 2.00

Local Profit $5.14 $1.05



Copyright 1999

Polaroid: SAP Parallel ValuationsPolaroid: SAP Parallel Valuations

L 0,6.-G 0,6.-

L 1.-G 1.-

L1.-G1.-

2.27.-

1.-

US CC130CCtr 0,4.-

L 2,27.-G 1.-

L 3,63.-G 2,36.-

L3,63.-G2,36.-

Enschede CC110 CCtr 1,36.-

Stock Stock

Stock

StockProd.Order Prod.Order

3,72.-

2,36.-

L 3,72.-G 2,36.-

CV CC120

L 5,60.-G 2,36.-

IBC CC125

5,60.-

2,36.-L 6,45.-G 2,36.-

Germany CC106

6,45.-

2,36.-10.-

10.-

Stock

StockStock



Copyright 1999

Sales revenue

Cost of gds mfd

Prod.variance

Overhead

Polaroid: Inter-company Sales (Enschede Polaroid: Inter-company Sales (Enschede --> CV--> CV))

Legal $3.72

Group 2.36

Legal 3.63

EXAMPLE: Value fields

Group -

Legal -

Group .02

Legal .02

Group $2.36

For both valuation approachesthe cost components are available

Expenses: Assume $.02

Operating Profit

Group $1.34

Legal $ .07



Copyright 1999

Sales revenue

Freight

Cost of gds mfd

Prod.variance

Overhead

Polaroid: Final Sales to German Polaroid: Final Sales to German CustomerCustomer

Legal $10.00

Group 2.36

Legal .50

Legal 6.45

EXAMPLE: Value fields

Group 0

Legal 0

Group 2.00

Legal 2.00

Group $10.00

For both valuation approachesthe cost components are available

Expenses: in our example 2.-

Group .50

Operating Profit

Group $5.14

Legal $1.05



Copyright 1999

Polaroid Experiences with Polaroid Experiences with TPTP A Key Business Requirement

Yet in SAP Invoice Chaining

Polaroid’s Billing Models are different from Shipping Models Invoicing Party or Several Invoicing Parties sit between the

Sending & Receiving Company Codes– Materials do not flow through these billing parties and their plants in SAP



Copyright 1999

Polaroid Next StepsPolaroid Next Steps Pilot Parallel Valuations during 1999

NB Orders Sales Orders Commissionaire

Implement in Fiscal Year 2000 Expand Material Ledger Functionality

Product Costing– Analyze & Track Actual Costs by Production Step

Help Walldorf with Reporting Robustness, Simpler QA checks, Synchronize with Material Master Data Corrections & Price Variance Expansion: Multi-source



Copyright 1999

Polaroid Functionality Polaroid Functionality Needs:Needs:

Invoice Chaining Multi-source Costing Functionality (in 4.6

release) Consolidation: Automatic Inter-company

Profit Elimination (in 4.6 release)



Copyright 1999

FIFI

Sample posting: Sale of products between company codes

KeyL - LegalG - GroupP - PrCtr

Cost of sales

L 50.-G 40.-

Acc. Receiv.L 150.-G 150.-

Revenues

L 130.-G 40.-

Sales taxL 20.-G 20.-

Billing document

Goods issue

Stock

L 50.-G 40.-

Stock

L 80.- G 40.-

GR / IR

L 80.- G 40.-

I/ C Profit L G 90.-

I/C ProfitL G 90.-

Price diff.L 50.-G

Sales taxL 20.- K 20.-

SupplierL 150.-K 150.-

Goods receipt

Invoice receiptGR / IRL 80.- G 40.-

Posting Logic in FIPosting Logic in FI

asug user group presentation

Documents