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11i Cost Cutoff Date to Retroactively Cost Transactions

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

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11i Cost Cutoff Date to Retroactively Cost Transactions

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  1. 11i Cost Cutoff Date to Retroactively Cost Transactions NorCal OAUG 2007 Training Day Event January 17, 2007 Eric Guether Opnext, Inc. eguether@opnext.com

  2. Presentation Agenda • Introduction • Business Case & Solution: Cost Cutoff Date • Transaction Examples • Inventory Miscellaneous Receipt • Purchasing Receipt into Inventory • WIP Workorderless Completion • Lessons Learned

  3. 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

  4. 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

  5. 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

  6. Examples of Opnext Products Laser Diode Modules Transmitters Receivers Transceivers 10GbE XENPAK Modules

  7. 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

  8. 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

  9. 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

  10. 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

  11. Parameter Setup • Organization Parameters –> Costing Information tab

  12. 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

  13. 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

  14. 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

  15. 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

  16. Example # 1 Transaction

  17. Example # 1 Cost Update • To change the unit cost on 04-APR from $1,200 to $1,000

  18. Example # 1 Change Cutoff Date • Change CCD on April 6th to 01-OCT-2007

  19. Example # 1 Distributions

  20. Example # 1 Chart • Costing deferred until 06-APR • Valued at new cost of $1,000

  21. 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

  22. 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

  23. 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]

  24. Example # 2 Transaction

  25. Example # 2 Chart

  26. 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

  27. WOC: Three Transactions in One Final Product Added to Inventory WORK ORDER-LESS COMPLETION Liability Accrued for Outside Processing Charge Component Consumed from Inventory

  28. 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]

  29. Example # 3 Transaction

  30. Example # 3 Cost Rollup

  31. 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

  32. 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

  33. 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

  34. 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

  35. Intercompany Invoicing Example Intercompany Invoicing Process Flow For Japan Customer Sale Sourced from U.S. Inventory Org Parent Record: Trx type = “Sales order issue” Action = “Issue from stores”

  36. Price List for I/C A/R Invoices

  37. 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

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