intercompany training oaug jan06 vers6

NorCal GEO Training Day January 2006 - Copyright Celantra Systems

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Intercompany Functions for Intercompany Functions for the Enterprise the Enterprise

and Oracle’s New and Oracle’s New Intercompany Functionality – Intercompany Functionality –

11.5.9 and 11.5.10 11.5.9 and 11.5.10 Internal Sales OrdersInternal Sales Orders

Hans Kolbe, Celantra Systems Inc.


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Help Oracle Users and Managers to achieve a basic understanding of the scope, issues,

objectives for enterprise wide intercompany functions and the main intercompany tools

within Oracle applications. Our detail training focus will be on internal sales orders and the resulting intercompany

invoices.

Goal of this Session:


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1. Overview of Intercompany 1. Overview of Intercompany Challenges and Oracle FunctionalityChallenges and Oracle Functionality2. New Accounting for Internal 2. New Accounting for Internal Orders and IC Invoices Orders and IC Invoices 3. Process Steps3. Process Steps4. Setups 4. Setups

Structure of the Session


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About Us: About Us: Celantra Systems provides international program management services with a strong focus on multi-org, inter-company, and global compliance and implementation issues. Celantra Systems also offers specialized software tools to augment application functionality in global implementations. Celantra’s consulting and technical services can add valuable impact in the integration of Oracle Apps with boundary systems such as SAP, People Soft, trade and customs compliance systems and others. Former and current clients include Xerox, Tektronix, British Telecom, Assa Abloy, Yahoo, Texas Instruments, PPG, Dionex and others.

Hans Kolbe has managed and advised software implementation projects for over 15, global projects for over 8 years. His extensive knowledge on Oracle applications is combined with a formal background as a German attorney, trained in international and comparative law.


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Intercompany TransactionsIntercompany Transactions

OverviewOverview


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I. Oracle application users operate in a multi-entity environment within their corporate enterprise. Intercompany relationships and transactions are

core functions of those enterprises. Only through IC transactions can the organization contribute its resources efficiently.

II. Correct processing of IC transactions is required for internal and external compliance and reporting.

III. Intercompany transactions always need to be addressed from at least two perspectives:

a) Generating correct transactions for each entity and b) Eliminating the intercompany transactions for enterprise consolidations.

IC Transactions are a Core Part of Our Business


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We need to differentiate between Legal entities, i.e. separate legal establishments and

Operational entities. These are operationally separated.

Operational Entities may be complex: Multiple operational entities may reside within one legal entity. However, one operational entity may also cross both legal and country boundaries and

extend to corresponding parts of other legal entities.

Both of these entity types have reporting and audit requirements.

What are these multiple entities?


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• Specialized Entities in particular lines of business or operations, such as service providers, treasury and currency trading entities, billing intermediaries, or leasing, selling, manufacturing, purchasing, payroll entities,

• Acquisitions – either in the process of being merged into existing entities or staying separately for management, financial or legal reasons or future divesture,

• Non-Operational Companies: Holding entities, entities owning intellectual property rights or real-estate, entities owning high-risk equipment (vehicles in operation, mining equipment etc.).

• Associated Entities – partly owned by the enterprise.

All of these entities may operate in one and the same country. In the multi-national environment we need to add Foreign subsidiaries and

Foreign Branches registered in other jurisdictions in any of the categories.

Common Types of Legal Entities


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• Business Groups, Divisions or Product Lines. These entities regularly have at least internal trial balance reporting requirements, sometimes these apply externally also. They often cross legal entity and country boundaries.

• Shared Service Organizations – providing back office processing, collections, logistics operations, IT support etc. These entities have at least budget and performance reporting requirements. They also often cross legal entity and country boundaries.

• Cost Centers with budget and performance reporting requirements. Regularly they are limited to one country and legal entity.

Operational Entities


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• In the telecommunications industry, most of the countries stipulate mandatory domestic company partnership.

• Most of the steel and aluminum companies in Asia sell their entire output to another marketing company.

• Automobile industries are increasingly centralizing their sourcing activities globally to leverage their combined volumes for a better price from their suppliers.

• Trading companies are setup in tax haven nations to take advantage of bilateral and multi-lateral trade agreements to minimize the tax.

• Shared centers for AR Collections or AP invoice processing across 15-20 companies with one bank account owned by treasury, while Sales and Order Management are managed independently by each company.

• Shared specialized technical support centers servicing products across many entities

Examples from IndustriesExamples from Industries


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Legal IC Transactions: Processes involving more than one legal entity require legal IC transactions. When goods or services are provided from one to the other invoices are needed. These may be taxable under VAT, sales tax or other tax regimes. In addition, the pricing of these transactions is controlled as “Transfer Pricing”. IC documents may be required for each transaction or be summarized periodically.

Operational IC Transactions: Processes involving more than one operational entity. Business structure often imposes rules on cross-charging, inter-divisional markups and other parameters.

Matching up Legal and Operational Entities for IC Transactions


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• Business Group – Employees, Approvals• Set of Books - GL

• Balancing Segment - GL• Legal Entity – few functionality

• Operating Unit – most sub-ledgers (AR, OM, AP, PO, PA, CM, OPM…)

• Inventory Org – INV, WIP, part of PO

Oracle Multi-Org Concepts and terms – very quickly


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Operating Unit Driven IC Functionality: Oracle’s Operating Unit is designed to hold an operational entity and its transactions separate from others OUs. Oracle’s key IC functionality works around this structure, OM, INV, PA , AR, AP functions.

Balancing Segment Driven IC Functionality: The GL Balancing Segment is designed to hold an entity’s financial information. With its automatic balancing of IC journals Oracle’s GL module provides IC functions independently from the OU concept. Oracle’s GIS functions extends these functions and supports automatic IC GL journals, cross-SOB and even cross-instance. The relationship and entries between Sender and Receiver can be defined based on the Balancing and IC Segment relationship.

All is fine if the operational entity is contained within one external legal entity and one balancing segment corresponds to one OU. In other cases careful

investigation and discussion is needed in order to best accommodate the business priorities.

For more information, discussions, and sample solutions please join the Multi-National Interest Group of the OAUG.

Oracle’s IC functionality – designed for matching Legal and Operational Entities


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Functionality is dispersed and not yet integrated: • Product related IC transactions are the most developed (Customer

drop-ship since Version 10.7). Missing many elements of operational flexibility. OPM (Process Manufacturing not included)

• GL Global Intercompany System provides facilities for GL intercompany journals with automated off-sets and predefined accounting. Missing sub-ledger integration and connection to IC pricing models as well as formal invoice transactions.

• PA has its own IC transactions model • Global Accounting Engine (with Dual Posting) is not integrated

with intercompany transactions• Fixed Asset transfers in separate model (some integration with

OM and INV is planned)

However, integrated IC functionality has not come through yet


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• Supported Transactions flows: (from Oracle White Paper)

• External Drop-Ship: (released in 11.5.3) • Internal Drop-Ship: (older functionality – 10.7): • Internal Fulfillment: released in 11.5.9 • External Drop-Ship: (released in 11.5.3)• Central Procurement (11.5.10)

Supported Business Processes – Product related


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Internal Drop-ShipCustomer

Entity ASelling Entity

INV-Org A

Bill-to Ship-to

Entity BShipping Entity

INV-Org B

OM: Book Sales Order - Reserve with Ship-From

Warehouse of Inv Org B

AR: Trade Invoice To Customer

OM: Pick Release, Ship-Confirm, Inv Interface, Costing

AR: Create IC Invoice To Entity A

AP: Create IC AP Invoice from Entity B

Sale and Invoice Shipment

IC Invoice


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Internal FulfillmentCustomer

Entity A“Selling Entity”

INV-Org A

Bill-to Ship-to

INV-Org B

PO: Internal RequisitionPO: Create Internal Order

OM: Import Internal Sales OrderOM: Reserve, Pick Release, Ship-

Confirm, Inv Interface, Costing

AR: Create IC Invoice To Entity AAP: Create IC AP Invoice from Entity B

Sale and Invoice – not directly related

Shipment and IC Invoicing



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External Drop-ShipCustomer

Entity ASelling Entity

INV-Org A

Bill-to Ship-to


INV-Org B

OM: Book/Reserve to Vendor Site of Entity B

AR: Trade Invoice To Customer PO: Supplier Ship - “Receipt of PO”

AR: Create IC Invoice To Entity A

AP: Create IC AP Invoice from Entity B

Sale and Invoice

Shipment Vendor of Entity B

Purchase Order, AP Invoice

IC Invoice

PO: Import Requisition, Create PO

INV: Create Logical Transactions in A and B (Sales Order Issue and IC Receipts)

and Costing


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Client Scenarios - Business Processes – Product only


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• Not supported transaction flows: (from Oracle White Paper)• Internal Drop-Ship to an internal organization• Non-Shippable Items• Non-Invoiced Items• Internal Fulfillment returns• Global Procurement with shop floor destinations and transfer pricing• Consigned inventory for Global Procurement flows• Retroactive pricing in Global Procurement• Advanced Sales functionality between operating units(From my own experience) • No COGS accounting on internal drop-ship• Internal requisitions and fulfillment Sales Order documents show incorrect transfer

price• Transfer pricing setups are rigid• On internal fulfillments the COGS at receiving org need to be manually adjusted• No ship-to driven tax functionality

Product Related Business Process – Issues and Challenges


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Break – Discussion


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Oracle’s version 11.5.9 Patch Set H provides functionality to automate intercompany invoicing for internal sales order shipments. Previously Internal Sales Order shipments only generate accounting entries to balance sheet account (IC Receivable, IC Payable). No COGS or IC Revenue accounting was provided. Also invoices needed to be made manually on both sending and receiving side and reconciled.

Internal Sales Order – Intercompany Invoicing


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Two new enhancements to Oracle Inventory’s Intercompany Invoicing functionality were released as part of patch set H

features. The new features are :1. Invoicing Internal Orders - Type In-Transit Shipments - as a part of

Intercompany invoicing.2. Using Advance Pricing (QP) setup and Engine to derive invoice

pricefor items to generate Intercompany Invoices.

Before patch set H of inventory, inter-company invoices were created for internal drop-ship scenarios only. Now users can set up a profile options and systems configuration to create inter company invoices for Internal Orders also.

Release 11.5.9 Patch Set H


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Internal Fulfillment (Order) Internal Fulfillment (Order) Intercompany InvoicingIntercompany Invoicing

- New Accounting - New Accounting - Transaction Steps- Transaction Steps- Elements of Setup- Elements of Setup


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New Accounting


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The New Transfer Price Accounting Internal sales order shipments generate accounting on both sides – the

shipping and the receiving entity. The accounting can be configured to accommodate different INCO terms, such as in-transit owned by shipped or receiver.

In addition, the intercompany transfer markup can be accounted separately on the receiving side (“Profit in Inventory”). The shipment accounting is done through the INV: COGS and OM: COGS workflows, the invoicing accounting through the auto-invoice parameters.

The Intercompany AR Invoice will generate the IC Receivable debit and IC Revenue credit entries.

The Intercompany AP Invoice will generate the IC Payable Credit and debits to AP accrual and freight accounts.


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Profile OptionsCST: Transfer Price Option - Site Level Only Options: “Yes, Price as Incoming Cost” = complete IC price will be directly applied

against cost base in receiving org, either as Purchase Price Variance (if Standard Cost) or updating the average cost.

“Yes, Price not as Incoming Cost” = the intercompany markup will be booked to the new “profit-in-inventory” account on the receiving side

“No” = old accounting continuesINV: Intercompany Invoicing for internal orders – site level: YES/No (user

option does not work?)CST: Advanced Pricing for internal orders - Site Level, (Does user option

work?)

Other important options: Tax: Invoice Freight as Revenue Tax: Inventory Item for Freight


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The Accounts


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Process Steps

- Rec. Org: Internal Requisition- Ship Org: Process Sales Order

- Ship Org: Shipping - Ship Org: Intercompany AR

- Rec. Org: Intercompany AP Invoices


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Detail Process Steps Receiving org - Internal Requisition:- Enter Requisition, Approve: Will show cost of shipping

org as informational price of requisition, not IC price Receiving org – Create Internal Orders (request)

Shipping Org: - Import Sales Order – parameter by requisition (menu

option) – price is informational only, not IC price.- Reserve sales order and pick release (after other required

steps)- Ship-Confirm (add freight if needed)- Run Costing Manager Shipping Org: - Create intercompany AR Invoices (request)- Run Auto-Invoice (request – source: internal)Receiving Org: - Create intercompany AP Invoices (request)- Payables Invoice Import (request)


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The Scenario: German Distributor (EUR) orders from Swiss Factory (CHF)


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Receiving OU: Internal Requisition – enter and save


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Internal Requisition – Approval


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Internal Requisition: Create Internal Orders, Reports, Run; View Log (no output)


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Shipping OU: Import Sales Orders

Menu path: OM, Order Management, Orders/Return, Import Orders, Import Request

Select Source: Internal; Requisition No. can be entered in “Order Reference”. Otherwise all internal sources will be

imported


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Shipping OU: Confirm import - View Output

Order Import output is confusing

Child Import Child Request gives detail

message with reference to

Requisition No. – separate Child

request for each requisition


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Shipping OU: View and Process Sales Orders

Find Sales Order by Requisition Number

Internal Sales Orders are

immediately booked, not

“entered” status


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Shipping OU: Order Header

Requisition Number in “Order Source Reference” on “Other”

tab from Order Header


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Shipping OU: Order Line

Sales Order Price is NOT from price list, but cost of shipping org without transfer credit. ISSUE for documents and reports!

Puzzler: Price is: 0.50576 per unit; on Requisition it was 0.32568Hint: The price is shown in CHF, the functional currency of shipping organization versus while the

receiving organization has a functional currency of EUR.


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Shipping OU: Order Line

Tax Code shown here defaults from Internal Customer Ship-to Site; it will not be used for IC Invoicing; only Bill-to Site tax will be used. Watch out when printing documents!

Order Quantities cannot be changed, lines can not be split

– various other restrictions remain.


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Menu path: INV, Transactions, Material Transactions, Distributions

Pick Release, Ship-Confirm


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Create Intercompany AR Invoices

Menu path: AR, Requests, “Create Intercompany AR Invoices”, View Log


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The IC AR Invoice InterfaceCreate Intercompany AR Invoices – (after ship-confirm):

Revenue and Freight Line are created


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The IC AR InvoiceAfter Run Master Auto-Invoice Program: Invoice is created


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The IC AR Invoice Lines


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Create Intercompany AP invoices, Then Payables Invoice Import

From Receiving Organization, AP, Other, Requests


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The IC AP InvoiceLines


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Break – Discussion


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Setup Elements- Profile Options and New Accounting

Options- Intercompany Relationships- Customers and Vendors, Addresses- Organizations and Locations - Price List- Sources and Transaction Types - Item Setup - Currency Setups- Accounting Setups- Security Rules


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Internal Order Intercompany – Detail Setup Check List Profile Options: - CST: Transfer Price Option - Site Level – Incoming Price, No/Yes- Intercompany Invoicing for internal orders YES- Advanced Pricing for internal orders?? Shipping Network- Define Profit in inventory account, AP accrual accountIntercompany Relationships: - Check Customer/Vendor Header and Site- Check Customer LocationsInventory Organization and Location: Check Location record is “internal”AR Setup: AR Intercompany Transaction TypeIC Customer and Vendor Setup - Check header and site, accounting setups on Bill-to Site- Check Customer locations, Check Price List (OM Tab) on ship to and Bill to- Setup bill-to and ship-to customer site for Receiving Entity within Receiving OUPrice List: check item is on list, Check pricing precedence is not duplicatedItem Setup: Check item parameters for internal requisitions and ordersResponsibility Access: Costing Processor needs have rights across both organizations

and balancing segments.


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Menu path: INV, Setup, Organizations, Shipping Network

Setup Steps – Shipping Network

If “Direct” then no IC invoicing

Not Used when IC Invoicing, IC Price List instead

Not Used when IC Invoicing, OM: COGS workflow instead

Not Used when IC Invoicing, IC Invoice Revenue instead

Not Used when CST: Transfer Pricing Option=YES, INV: COGS workflow to generate

AP Accrual account

New Account for Transfer Pricing Option = YES, Used on Receiving Org

Same Usage

Same Usage(wrong account

entered)


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Setup Steps – Intercompany Relationship

This is a customer location, not inventory or shipping location


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Inventory Org with Location - Shipping Org:

This is the inventory and shipping location

The Location Record is critical: Internal Site enabled, Inventory Org link entered


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Inventory Org with Location - Receiving Org:

This is the inventory and receiving location

The Location Record is critical: Internal Site enabled, Inventory Org link entered


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Item Setup in Shipping Org:

Internal Ordered and Internal Order Enabled checked


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Item Setup in Receiving Org:

Internal Ordered and Internal Order Enabled checked


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Shipping OU: Internal Customer and Sites - Addresses

Customer Bill-to Site Location matches with Intercompany Relationship Setup

Same Customer No. from IC Relationship


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Shipping OU: Internal Customer, Bill-to Address, Accounting Tab

Intercompany Receivable and Revenue accounts, with IC Segment value


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Shipping OU: Internal Customer – Ship-to Site, Detail Tab, Locations

This is the shipping location connected to the receiving site inventory organization. Must be filled in on internal section

This is the customer location, not inventory location


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Shipping OU: Internal Customer – Ship-to Site, Order Management Tab, Price List

Warehouse is default ship-from warehouse in shipping organizationThis Price List is used for IC Invoicing


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Receiving OU: Internal “Customer” and Sites - Addresses

Same Customer No. from IC Relationship

NOTE: We have to create customer bill-to and ship-to sites for the receiving entity within the receiving operating unit. It must be tied to the inventory location and inventory

organization. This bill-to and ship-to site is used for the processing of the internal order


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Receiving OU: Internal “Customer” Ship-to Site

This is the shipping location connected to the receiving site inventory organization. Must be filled in on internal section


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Receiving OU: Internal “Customer” Ship-to Site, OM Tab

This Price List is used for Internal Sales Order Processing


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Receiving OU: Internal Vendor Site

Shipping Network Location=Shipping Inventory OrgAccounting Tab for IC liability account


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Issues and Action Items - Internal Order Intercompany -- Profile Option CST: Transfer Price should be set for entity to entity pair. If different

intercompany policies current setting is impractical - Sales Order Price is not IC Price: needs customization of external documents, - Ship-to Address is not printed on invoice: needs customization of external

documents,- Duplicate IC Invoices for old internal shipments – resolved (needs patch)- Tax functionality: only based on Bill-to account; no ship-to account available.

Needs review. May be sufficient.- Accounting Definition: Profit-In-Inventory – account needed, IC COGS accounts

(changes in workflow?); (client extension).- Freight on IC Invoices: Tar outstanding with development – Resolved. User needs

to manually “unfreeze pricing” on each internal sales order and set to “partial calculate”.

- Accounting IC AP Invoice: Accrual debit cannot be configured to specific IC Relationship (should use shipping network detail (IC Relationship).

- Implementation: only big bang with site wide profile option. Can we continue half-manual internal sales order invoicing? IC invoicing for internal sales orders needs to be switched globally. However, the invoices are selectively generated by shipping organization. Therefore specific shipping organizations do not need to participate. However the shipment accounting will change for all organization across the Oracle instance.

- Client extensions can be made to Costing workflows: Appendix C in Costing Manual R11.5.10; h


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1. CST: Transfer Price Option, No: will leave old accounting with balancing sheet accrual entries. Set at Site Level, i.e. for all entities.

2. INV Intercompany invoicing for internal orders = YES at User Level. 3. Automatic IC Invoicing from Price List can be activated where needed.

Manual invoices can continue where desired.4. Additional restriction is possible by leaving IC relationship blank. Then

no IC invoices are generated. 5. Automatic IC AR and AP invoice works with accounting from Shipping

Network – mapping IC AR account and Transfer Credit account to COGS.

6. Incoming markup can be booked either to PPV account or matched up with Material overhead account on receiving side.

Alternative Step-by-Step Implementation


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Shipping Network Setup for IC Invoicing without Transfer Pricing (Receivable + Transfer Credit=COGS)


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Example Alternative Distribution


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Thank you ! Thank you !

Hans Kolbe, Celantra Systems [email protected] + 1 (415) 730 - 1131

mailto:[email protected]

intercompany training oaug jan06 vers6

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