Example Intercompany Invoice

							11i Cost Cutoff Date to
Retroactively Cost Transactions




                NorCal OAUG 2007 Training Day Event
                                   January 17, 2007

                                       Eric Guether
                                       Opnext, Inc.
                                  eguether@opnext.com
Presentation Agenda

 • Introduction
 • Business Case & Solution: Cost Cutoff Date
 • Transaction Examples
    – Inventory Miscellaneous Receipt
    – Purchasing Receipt into Inventory
    – WIP Workorderless Completion
 • Lessons Learned
Learning Objectives

 • Learn how to defer costing of transactions through
   use of the Cost Cutoff Date (CCD)
 • Realize the importance of CCD when updating
   standard costs
 • Understand lessons learned:
    – Potential temporary adverse effects on Inventory
      balance reports
    – Impact on intercompany A/R invoicing
Today‟s Speaker: Eric Guether

 • IT Director at Opnext in Eatontown, NJ
 • Manages Opnext‟s Oracle EBS 11i system
 • Provides user support for some 11i modules, Oracle
   Alerts and Discoverer 9i Desktop
 • Member of OAUG and NJOAUG
 • Began career as an accountant and then CPA
Who Is Opnext?
 • Lasers!
    – Designer & maker of active fiber optic components
 • Spin-off of 2 Hitachi businesses
    – Headquarters in Eatontown, NJ
    – Manufacturing in Yokohama & Komoro, Japan
 • Global sales to customers such as Lucent, Alcatel,
   Cisco, Siemens, Kodak, NEC, and Hitachi
 • Running multiorg, single global instance of EBS 11i
    – 11.5.10.2 (CU2) American English with Japanese
      national language support (NLS)
    – Financials, OM, Inventory, Purchasing, Cost Mgmt.,
      Discrete MFG & Master Scheduling/MRP
Examples of Opnext Products
   Laser Diode Modules           Transmitters              Receivers




                                            10GbE XENPAK
                  Transceivers                 Modules
Business Case

 • Company practice is to update standard costs every 6
   months as of:
    – October 1st [Cost Period: Oct. 1, 2006 to March 31, 2007]
    – April 1st     [Cost Period: April 1, 2007 to Sept. 30, 2007]
 • New costs not finalized until after April 1st / October 1st
    – Oracle’s Assumption: Most companies have new
      costs finalized before the start of the new cost
      period and just want to defer transaction costing on
      first 1 or 2 days of new cost period
 • At Opnext, standard cost updates typically occur
   around April 10th / October 10th
Dilemma Before Release 11.5.7

 • Standard costs in Oracle do not have effective dates
 • How to value those early April / Oct. transactions at
   the new costs after the standard cost update?
 • Still must value March- / Sept.- dated transactions at
   the old period costs even if created in early April /
   Oct.
 • Cannot simply shut-off the Cost Manager
    – Might stop the costing of March / Sept
      transactions created in early April / Oct, such as
      Pending trx resolved on 1st day of new month
Off-line Workaround in 11.5.3

 • Record early April / October inventory, WIP, shipping,
   and PO receiving transactions off-line (outside of EBS
   11i) until the completion of standard cost updates
 • Retroactively record (enter) early April / October
   transactions in EBS 11i after standard cost updates
 • Issues
    – Extra, unnecessary work to record offline
    – Unreliable / unusable inventory quantities in EBS
      11i for a week or more
    – Shipping and export documents prepared manually
      (not via EBS 11i) for a week or more
    – Violated automated business process controls
Solution: Cost Cutoff Date

 • Inventory organization parameter
 • Introduced in release 11.5.7
 • Entirely met Opnext‟s needs
    – Completely eliminated the need to record
      transactions outside of EBS 11i
 • Controlled by the simple entry of one Cost Cutoff
   Date for the org
Parameter Setup

 • Organization Parameters –> Costing Information tab
Functionality

 • Intended to keep “new period” transactions uncosted
   until you finish your standard cost updates for the org
 • If the Cost Cutoff Date = 01-APR-2007, then
   transactions with G/L Date of:
    – 01-APR-2007 or later will not be costed
    – 31-MAR-2007 or earlier will be costed, even if
       created on or after April 1st
Cost Update Sequence

 • Complete all March trx by early April
    – Valued at current frozen costs = “old” costs
 • Begin entry of April-dated trx on 01-APR
 • Close the March period in early April
 • Perform std. cost updates (early/mid April)
    – Uncosted transactions are not revalued
 • Change the CCD to a later date
    – Example: 01-OCT-2007
 • Cost Manager then costs all existing April- dated
   transactions at updated frozen costs
Database Perspective

 • When the CCD is deferring the cost of a transaction,
   the transaction has:
    – A record on the MTL_MATERIAL_TRANSACTIONS
      table
        • Allows the transaction quantities to be
          recognized by the EBS 11i modules
    – Its COSTED_FLAG = „N‟
        • Indicates the record has not yet been costed
        • As long as the flag = „N‟, no accounting entries
          [“distributions”] have been created yet
Example # 1: INV Misc. Receipt

 • Scenario where CCD will defer costing
 • Receive 5 units of item LASER123
 • Standard Cost
    – $1,200 per unit through end of March
    – $1,000 starting April 1st (updated on 04-APR)
 • Transaction date, 01-APR-2007, is equal the cutoff
   date of 01-APR-2007
 • Creation date = 01-APR-2007
Example # 1 Transaction
Example # 1 Cost Update

• To change the unit cost on 04-APR from $1,200 to $1,000
Example # 1 Change Cutoff Date

• Change CCD on April 6th to 01-OCT-2007
Example # 1 Distributions
Example # 1 Chart

• Costing deferred until 06-APR
• Valued at new cost of $1,000
INV Trx Affected by CCD

                  partial list; not complete
 •   Miscellaneous / Account Alias Transactions
 •   Subinventory Transfer
 •   Interorg Transfer
 •   Receiving
 •   Pick Confirm
 •   Ship Confirm / Sales Order Issue
 •   Create Intercompany AR Invoices
Other Trx Affected by CCD

               partial list; not complete
 • Purchasing module
    – PO Receiving (including PPV)
    – Returns to Supplier
 • WIP module
    – Discrete WIP assembly completion
    – Discrete WIP component issue
    – Work order-less completion
Example # 2: PO Receiving

 • Receive & deliver to Inventory (no inspection)
 • Receive 200 units of item DIODE-5002
 • PO Unit Price = $0.90
 • Standard Cost
    – $1.25 per unit through end of March
    – $1.00 starting April 1st (updated on 04-APR)
 • Transaction date, 02-APR-2007, is after the cutoff date
   of 01-APR-2007
 • Using the CCD, the receipt is costed at $1.00 per unit,
   triggering a purchase price variance (PPV) of $-0.10
   per unit [PO price $0.90 - $1.00 cost]
Example # 2 Transaction
Example # 2 Chart
Example # 3: Work Order-less Completion

 • Work Order-less Completion (WOC)
    – Transaction Type = WIP Assembly Completion
 • Three Transactions in One
    – Receive 10 units of final product TRM999 into
      inventory
    – Consume 10 units of component LASER123 from
      inventory
    – Create accrual distribution for Outside Processing
      (OSP) resource charge
 • Transaction date 03-APR-2007 > CCD
WOC: Three Transactions in One


                      Final Product
                    Added to Inventory




                       WORK ORDER-LESS
                         COMPLETION
      Liability Accrued
                                       Component
         for Outside
                                      Consumed from
         Processing
                                        Inventory
           Charge
Example # 3 Costs

 • Component Standard Cost
    – $1,200 per unit through end of March
    – $1,000 starting April 1st (updated on 04-APR)
 • Outside Processing Charge
    – $50 per unit through end of March
    – $30 starting April 1st (updated on 04-APR)
 • Final Product Standard Cost
    – Derived from Assembly Cost Rollup
    – $1,250 through end of March [$1,200 + $50]
    – $1,030 starting April 1st [$1,000 + $30]
Example # 3 Transaction
Example # 3 Cost Rollup
Example # 3 Results

 • Transaction costing is deferred in:
    – INV module for final product completion
    – INV module for component consumption
    – WIP module for OSP routing resource charge
 • Final product costed at new period cost of $1,030
Lessons Learned: Reports

 • Opnext Warning!
   – When so many transactions are uncosted for days
     or weeks, some INV reports might show inaccurate
     historical balances:
       • Transaction Value Historical Summary
       • Transaction Balance Historical Summary
   – Cause: Reports fail to estimate cost of some
     uncosted WIP and PO Receipt transactions when
     backing into historical balance
   – Issue resolves itself as soon as CCD changes and
     uncosted transactions become costed
 • Oracle Support never acknowledged this
Report With Error




• Uncosted WIP component issue of LASER7777 for
  $480,000 is missing from Job or Schedule column
• 28-FEB value of $-480,000 is incorrect; should be zero
Lessons Learned: Intercompany Invoicing

 • The “Create Intercompany AR Invoices” program
   does not create a record until its parent record has
   been costed
    – Parent record = “Sales order issue” material
      transaction type [action = “Issue from stores”]
 • The CCD indirectly defers creation of intercompany
   A/R invoices in the new cost period when it directly
   defers the costing of the parent record
 • Deferring of I/C A/R invoice creation allows Opnext to
   update the price list used for I/C invoicing in early
   April or October
Intercompany Invoicing Example
                 Intercompany Invoicing Process Flow For
            Japan Customer Sale Sourced from U.S. Inventory Org

                                                                              Parent Record:
                                                                             Trx type = “Sales
                                     Japan                                     order issue”
                                    Customer                                  Action = “Issue
                                                       2. Product Shipment     from stores”
    1. Japan Customer
        Sales Order                                         [global drop
       sourced from                                         shipment to
       U.S. "BEI" Org 6. Customer                         customer from
                        Payment         3. Customer       U.S. "BEI" Org]
                                        OM Invoice


                                5. I/C A/P Invoice
                                     created in             US
         JAPAN SALES             JAPAN SALES          MANUFACTURING
         Operating Unit
                                                       Operating Unit
                                    7. Payment or
                                      I/C Netting

                               4. I/C A/R Invoice
                              created in U.S. MFG
Price List for I/C A/R Invoices
Additional Resources

 • Metalink note # 213628.1: “What is the Cost Cutoff
   Date?”
 • Metalink bug # 3585271: “INVTRHAN: HISTORICAL DATA
   QTY=0 BUT THE VALUE IS > 0”
 • Metalink bug # 3480557: “11I INCIAR GETS APP-5706 WHEN
   RUN ON END DATE OF PRICES APP-05706”
 • ORAtips October 2005 Article: 11i Inventory’s Cost
   Cutoff Date – Defer Costing Until Your Standard Costs
   Have Been Updated! by Eric Guether
 • OAUG Connection Point 2004 presentation:
   Workorderless Completion for Simple Outside
   Processing in 11i WIP by Eric Guether