Hans Kolbe s Presentation On Intercompany Transactions Currency Pair

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					 Intercompany Functions for
         the Enterprise
       and Oracle’s New
Intercompany Functionality –
       11.5.9 and 11.5.10
     Internal Sales Orders
     Hans Kolbe, Celantra Systems Inc.



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      Goal of this Session:
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.

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Structure of the Session
1. Overview of Intercompany
Challenges and Oracle Functionality
2. New Accounting for Internal
Orders and IC Invoices
3. Process Steps
4. Setups


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                    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 Transactions

        Overview




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IC Transactions are a Core Part of
         Our Business
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.




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     What are these multiple entities?
               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.




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       Common Types of Legal Entities
•   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.

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                  Operational Entities

•   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.



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                Examples from Industries
•   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

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     Matching up Legal and Operational
        Entities for IC Transactions
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.




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    Oracle Multi-Org Concepts and terms                   –
                            very quickly



           •   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




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

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 However, integrated IC functionality has
          not come through yet
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)

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      Supported Business Processes –
              Product related

•   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)




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                   Internal Drop-Ship
                                Customer
                          Bill-to      Ship-to

 Sale and Invoice                                      Shipment


       Entity A                                             Entity B
     Selling Entity                                     Shipping Entity
                                 IC Invoice
       INV-Org A                                            INV-Org B

OM: Book Sales Order - Reserve                    OM: Pick Release, Ship-Confirm,
         with Ship-From                                  Inv Interface, Costing
     Warehouse of Inv Org B                       AR: Create IC Invoice To Entity A
AR: Trade Invoice To Customer

AP: Create IC AP Invoice from
              Entity B

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                                  Internal Fulfillment
       Customer

 Bill-to        Ship-to

Sale and Invoice – not directly
              related


                      Entity A                                            Entity B
                                           Shipment and IC
                                                                      Shipping Entity
                  “Selling Entity”              Invoicing
                                                                          INV-Org B
                      INV-Org A

               PO: Internal Requisition                           OM: Import Internal Sales Order
              PO: Create Internal Order                           OM: Reserve, Pick Release, Ship-
                                                                    Confirm, Inv Interface, Costing
           AP: Create IC AP Invoice from                         AR: Create IC Invoice To Entity A
                         Entity B




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                            External Drop-Ship
                               Customer
                                                                Shipment                   Vendor
                          Bill-to        Ship-to
                                                                                          of Entity B
     Sale and Invoice
                                                                               Purchase Order, AP
                                                                                       Invoice

                Entity A                                                Entity B
              Selling Entity                                        Shipping Entity
                                            IC Invoice
                INV-Org A                                               INV-Org B

OM: Book/Reserve to Vendor Site of Entity B                       PO: Import Requisition, Create PO

      AR: Trade Invoice To Customer                              PO: Supplier Ship - “Receipt of PO”
                                                             INV: Create Logical Transactions in A and B
  AP: Create IC AP Invoice from Entity B                            (Sales Order Issue and IC Receipts)
                                                                               and Costing
                                                                  AR: Create IC Invoice To Entity A

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Client Scenarios - Business Processes –
              Product only




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    Product Related Business Process –
          Issues and Challenges
•   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

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Break – Discussion




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   Internal Sales Order – Intercompany
                 Invoicing


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.



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             Release 11.5.9 Patch Set H
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
                                    price
             for 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.


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Internal Fulfillment (Order)
  Intercompany Invoicing

       - New Accounting
      - Transaction Steps
      - 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 Options
CST: 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 continues
INV: 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




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




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

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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 0.32568
Hint: 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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       Pick Release, Ship-Confirm




Menu path: INV, Transactions, Material Transactions, Distributions


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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 Interface
Create Intercompany AR Invoices – (after ship-confirm):
         Revenue and Freight Line are created




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        The IC AR Invoice
After 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 Invoice
               Lines




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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 account
  Intercompany Relationships:
  -    Check Customer/Vendor Header and Site
  -    Check Customer Locations
  Inventory Organization and Location: Check Location record is “internal”
  AR Setup: AR Intercompany Transaction Type
  IC 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 OU
  Price List: check item is on list, Check pricing precedence is not duplicated
  Item Setup: Check item parameters for internal requisitions and orders
  Responsibility Access: Costing Processor needs have rights across both organizations
       and balancing segments.



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          Setup Steps – Shipping Network

                                                                              If “Direct” then no IC
                                                                                    invoicing

                                                                           Not Used when IC Invoicing, IC
                                                                                 Price List instead



                                                                            Not Used when IC Invoicing,
                                                                             IC Invoice Revenue instead
                                                                            Not Used when IC Invoicing,
                                                                            OM: COGS workflow instead
Same Usage
                                                                          Not Used when CST: Transfer Pricin
                                                                     Option=YES, INV: COGS workflow to ge
Same Usage                                                                        AP Accrual account
(wrong account
   entered)
                                                                       New Account for Transfer Pricing
                                                                     Option = YES, Used on Receiving Org
        Menu path: INV, Setup, Organizations, Shipping Network
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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
                                                                       Same Customer No.
                                                                      from IC Relationship




Customer Bill-to Site Location matches
with Intercompany Relationship Setup

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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 customer location,
                                                      not inventory location




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



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




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


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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
Accounting Tab for IC liability account              Inventory Org



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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 NorCal GEO Training Day January                                    65
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Alternative Step-by-Step Implementation

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.




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




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                2006 - Copyright Celantra Systems
Example Alternative Distribution




        NorCal GEO Training Day January
                                            68
        2006 - Copyright Celantra Systems
     Thank you !

Hans Kolbe, Celantra Systems
hanskolbe@celantrasystem.com
+ 1 (415) 730 - 1131




          NorCal GEO Training Day January
                                              69
          2006 - Copyright Celantra Systems

				
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Description: Hans Kolbe s Presentation On Intercompany Transactions Currency Pair