111 presentation_id introduction paul kirch specialist in multinational oracle implementations,...

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Introduction

• Paul KirchSpecialist in multinational Oracle implementations, multinational tax issues, and globalization

• Tel: 408-316-5899

• [email protected]

• Client list:

General Electric Aircraft Engines

Cisco Systems

KLA-Tencor

Genentech

FEI Company

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Agenda

• Introduction

• The Company

• The Problem

• Multi-org Setup

• Overview of Intercompany Accounting

“Virtual” Circle of Life

Transaction Mapping

• Conclusion

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FEI Company

• Nanotech company engaged in the manufacture of tools used in silicon wafer design (largely design labs)

• Spin off from Phillips Semiconductor

• $500 MM in sales in FY2004

• Sales offices in 40 countries worldwide

• Principal manufacturing in U.S. (Hillsboro, Oregon and Peabody, Massachusetts) and Europe (Brno’ Czech Republic and Acht, the Netherlands)

• In process of implementing the full suite of applications (Oracle 11.5.10) over next two years

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The Problem

• Did not want to implement the standard Oracle Multi-org structure

• Needed to be able to accommodate a high number of intercompany transactions between European and U.S. manufacturing sites

• Short timeline and tight budget

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• Multi-Org Alternatives and Setup

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FEI “Virtual” Circle of Life

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Manufacturing

Inventory

FSERepairVendor

Spares Inventory(SSD)

Scrap

MFG(PD)

.

CustomerManufacturing Inventory transfers

a Finished Goods part to ManufacturingInventory. (MFG FG inventory)

- buy

Customer Purchases a Manufactured Part.

MFG issues a FGI part to Service as a Spare Part.

FSE returns Defective Part

(RMAs).

Part is not salvageable and is scrapped.

Part is send to outsourced repair

facility and returned to SSD.

Customer

Part is repaired and returned to customer

(SSD Customer).

Repair vendor returns part to customer.

Service issues a Spare Part to an FSE.

Customer sends in part for repair (RMA)

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Multi-Org Alternatives

A) Standard Model - one SOB per country/currency; one legal entity/operating unit per legal entity. A country/legal based model.

B) “Inverted” Model – shared operating unit for shared business processes - local GL SOB for legal/statutory reporting. A business process efficient model.

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Standard Oracle (“Silo”) Multi-Org Model All Subsidiaries are Parallel Entities

Ledger Consolidation

CentralL1410

Ger1462

Fra Swe Den Spa

Inventory

Fra1475

U.K1473

Ita1463

Swe1444

Den1432

Hol1461

Bel1442

Swi1465

Aus1415

Spa1467

PorNorEE Mea Fin

Pol14xx

Per Operating Unit : One Validation Org for VAT rates , One Planning Org , Global Master.

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Shared Operating Unit ModelGeneral Concept

Unit A

Global Operating Unit GL, OM, AR, INV

Unit B Unit C Unit D Unit E Unit F

Shared Processes for

Sales and Service Entities

Entity Separation by Balancing Segment

Local Processes (AP, FA, Payroll…?)

Local Legal Adjustment Entries are booked at

country level

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Enterprise Consolidation With FEI “Push Down/Push Up” Model

IT FR DE HK SG

FEI Company Europe

FEI Company Asia and U.S

WW Consolidated SoB GL

Local Legal Adjustment Entries are booked at

country level

Book of Record

Eliminations and

Consolidations Entries


•Built for separate legal entities and country organizations

• Automatic inter-company activities confined to month-end cross charges, consolidation, and special functions.

• Essentially all subsidiaries operate as independent units.

The “Silo” model is assumed in most of Oracle applications, inter-company, localization and globalization functionality as well implementationand training models.

Traditional Multi-org Model


• Simplify maintenance:

Eliminate duplication and synchronization of setups

• Simplify implementation process:

Roll-out, CRPs, testing would require only one OU. Operating unit parameter need to be setup only once in all operational modules. GL setup is not simplified, local GL books required.

• Easily create shared service centers:

Customer service, AP and Procurement, Accounting and Finance in 1 location, without changing responsibilities

• Simplify and speed up monthly closing:

Inverted process means that Corporate SoB closes first.

Benefits of Shared OU Model


Issues of “Silo” Model• Duplicate setups and maintenance

• Customer balance, inventory, and order visibility by subsidiary • Logistics operations (allocations) limited per OU

• Global view of business only at high level (financial consolidations) or special tools, such as a DW

• Duplicate inter-company transactions without value to the business

• Implementation impact (setups, CRPs, configuration, testing)


Additional Issues with “Silo”

- No standard solution for global standard inventory cost (breakout of standard cost and inter-company “uplift” on Cost of Sales entries). Solution: transfer at cost and bill uplift separately. - No standard solution for Commissionaire Interco-invoice price = Sales price less commission%. Investigate: possible solution for cost-plus inter-co pricing in 11.5.9/11.5.10. Advanced Pricing Module difficult and costly to implement.

- Investigate: No complete standard solution for internal supply chain movements across entities and borders (internal sales orders).


• VAT calculations and reports can be generated through standard functionality. Oracle VAT Group functionality allows standard compliance in either model.

• Country specific accounting regulations, Oracle globalizations.

•Sequencing for sub-ledger (VAT Invoices) and accounting entries. Oracle setups provide functions to assign different sequences within the same OU.

Benefits of “Silo” Model


Additional Design Guidelines: • Business Group is used to segregate HR

information. If you request a list of employees in a module, you will only see those employees in that ‘Business Group.’• Inventory Org defines the level at which you track inventory transactions and balances. The relationship between Inv Org and SoB is used for financial purposes only (creating requisitions and replenishing supplies.) Inventory Org must be below Business Group (Cisco).• Legal Entity represents a company for which you prepare fiscal or tax reports. Generally, the LE is defined at the same level as the Operating Unit.• Operating Unit is an autonomous organization that uses Oracle Receivables, Oracle Payables, Oracle OM, Oracle Purchasing, and Oracle Projects


• Intercompany Transaction Modeling


Types of Intercompany Transactions

• Inter-Company Sales (including drop shipments to customer)• Inter-Company Purchases/Sales Orders• Inter-Company Adjustments • Inter-Company Chargebacks• Inter-Company Payments• Inter-Company RMAs• Inter-Company Cross-Charges and Allocations (Marketing, Admin, etc.)• Inter-Company Transfers (Assets)• …. And the return/reversal of each of them

Required: - Transfer Pricing, VAT, EFT Formats

- Statutory Reports, Financial Statements and Commercial Invoice


• Factory Drop-Ship Function (sale from one entity, shipment from another entity): Oracle automatically generates AR invoice at shipping entity, matching AP invoice at selling entity.

• Internal Sales Orders: available cross-entities, sets of books. For inventory items, expense items. Allows in-transit visibility. No external invoices provided.

• Vendor Drop-Ship Function (shipment from outsource manufacturing vendor directly to customer): AR Invoice to Customer, matching AP Invoice from Vendor.

• GIS Intercompany Accounting: Financial only transactions - GL only; no VAT calculation or reporting.

Oracle Standard I/C Functionality


FEI “Virtual” Circle of Life

111

Manufacturing

Inventory

FSERepairVendor

Spares Inventory(SSD)

Scrap

MFG(PD)

.

CustomerManufacturing Inventory transfers

a Finished Goods part to ManufacturingInventory. (MFG FG inventory)

- buy

Customer Purchases a Manufactured Part.

MFG issues a FGI part to Service as a Spare Part.

FSE returns Defective Part

(RMAs).

Part is not salvageable and is scrapped.

Part is send to outsourced repair

facility and returned to SSD.

Customer

Part is repaired and returned to customer

(SSD Customer).

Repair vendor returns part to customer.

Service issues a Spare Part to an FSE.

Customer sends in part for repair (RMA)


Transaction Mapping

Transaction Sales

Organization

MFG and Shipping

Organization

Transfer Price

Oracle Treatment

Std./ Gap?

France customer purchases mfg part from Acht. Acht drop ships part to customer in France. (1 SOB, 2 OUs)

France SSD Acht StandardCost?

Trading Networks

No gap.

U.S customer purchases part manufactured in Acht. (Mfg Mfg)

U.S. Hillsboro Acht Standard Cost

Internal Sales Orders

No gap.

Customer returns part manufactured in Acht in the United States. (RMA) (Ser Mfg)

Original: N/A

RMA: US

Original: Acht

RMA: US

Standard Cost

Process Solution

No gap.

US service inventory purchases part from Acht manufacturing (Ser Mfg)

Purchasing Org: US Service Org

Acht Manufacture

Standard Cost

Internal PO/ Sales Order

No gap.

Service in U.S. purchases part from services in Europe BV

Purchasing Org: US Service Org

Acht Services

Org

Standard Cost

Internal PO/ Sales Order

No gap.


Intercompany Accounting: Drop Shipment

Acht Mfg (Ship Org) France SD (Sale Org) ConsolidatedI/C Rec DR 200 AR

Customer

DR 200 AR - Customer

DR 200

I/C Revenue

CR 200 Revenue - Trade

DR 200 Revenue - Trade

CR 200

I/C COGS

DR 200 Inventory DR 200 COGS DR 200

Inventory CR 200 I/C Pay CR 200 Inventory CR 200

Factory Drop-Ship: France takes Sales Order. SO is drop-shipped from Acht.

Oracle automatically generates AR invoice at shipping entity, matching AP invoice at selling entity.

US GPS BV GPS

USCustomer

BVCustomer

Sale

I/C Sale


Intercompany Accounting: Internal SO

Acht (Ship Org) Hillsboro (Sales Org) ConsolidatedI/C Rec DR 160 AR -

Customer

DR 200 AR- Custom

DR 200

I/C Rev CR 160 Revenue-Trade

CR 200 Revenue CR 200

IC COGS DR 160 Inventory DR 160 COGS DR 160

Inventory CR 160 I/C AP CR 160 Inventory CR 160

Internal Sales Orders: U.S. Purchases from Acht/ Sells to End Customer

Available cross-entities, sets of books. For inventory items, expense items. Allows in-transit

visibility. No external invoices provided.

Customer

AchtBV

USI/C Sale

End Customer Sale


Intercompany Accounting: RMAs

Acht (Sales Org) Hillsboro (Ship Org) ConsolidatedInventory DR 200 Inventory DR 200

Inv. Reserves

CR 200 Spares Reserves

CR 200

Inventory DR 200 SparesReserves

DR 200

Spares Reserves

CR 200 Inventory CR 200

I/C COGS DR 200 I/C AR DR 200

IC AP CR 200 I/C Sales Revenue

CR 200

Return Material Authorization: BV customer returns RMA in Acht for material manufactured in U.S

US Mfg BV Dist

BV GPS

EMEA Customer

I/C Sale

Physical Product Return

Sale/Return

Cisco BV

US GPS


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111 presentation_id introduction paul kirch specialist in multinational oracle implementations,...

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