11i Cost Cutoff Date to Retroactively Cost Transactions

1
11i Cost Cutoff Date to Retroactively Cost
Transactions

• NorCal OAUG 2007 Training Day Event
• January 17, 2007
• Eric Guether
• Opnext, Inc.
• eguether_at_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
Todays Speaker Eric Guether

• IT Director at Opnext in Eatontown, NJ
• Manages Opnexts 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
• Oracles 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 Opnexts 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 gt 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 gt CCD

27
WOC Three Transactions in One
Final Product Added to Inventory
WORK ORDER-LESS COMPLETION
Component Consumed from Inventory
Liability Accrued for Outside Processing Charge
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 QTY0 BUT THE VALUE IS gt 0
• Metalink bug 3480557 11I INCIAR GETS APP-5706
  WHEN RUN ON END DATE OF PRICES APP-05706
• ORAtips October 2005 Article 11i Inventorys
  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