Overview of Discrete Costing for Manufacturing OAUG MFG Discrete SIG Meeting November 10, 2010...

Overview of Discrete Costing for Manufacturing

OAUG MFG Discrete SIG MeetingNovember 10, 2010

Douglas VolzDouglas Volz Consulting

[email protected]

Helping people using Oracle Applications since 1990

Agenda

Inventory Structure

High Level Review of Oracle Cost System Capabilities Costing Methods Oracle Cost Management Structure

Discrete MFG and Costing

Setting Standard Costs

Setting Average, FIFO, LIFO Costs

Month-End Accounting Close

Slide 2


Agenda (Continued)

Release 12 Cost Improvements

Flexible Account Number Assignment

Little Known Cost Features

Slide 3


Slide 4

Inventory Structure Global Organization (Item

Master)

Inventory Organization

Subinventory

LocatorsFG

SubinventorySTORES

SubinventoryMRB

SubinventoryWIP

Subinventory

Locators Locators

GlobalOrganization(Item Master)

InventoryOrganization

HDQTRSLocation


Slide 5

Complex Financial EntitiesCorporate ConsolidatedLedger

Secondary Ledger

Primary Ledger

Legal Entity

Operating Unit

Inventory Orgs

Corporate Consolidated Ledger(USD)

USA PL(USD)

Other LEs

US OU

CORP LE

Item Master(ZZZ)

Switzerland Org

Korea OU

Switzerland(CHE) LSP’sLSP’s

European SLs

ORG Korea

SwitzerlandOU

US Dist. Centers

US LSP Orgs

Swiss Dist. Center

Asia-Pac OUs

Asia-Pac Dist. Centers

Europe Dist. Centers

Europe LSP Orgs

Other European

OUs

Korea LE Asia-Pac LEs

Swiss LEOther

European LEs

Korea(KRW)

Asia-Pac LEs

Swiss PL (USD)

European PL(USD)


Slide 6

Costing Concepts

Costing Methods

Average Costing

Standard Costing

Periodic Costing

FIFO Costing

LIFO Costing


Slide 7

Average Costing

Oracle supports a moving or weighted average cost The unit cost changes with each receipt transaction

Unit costs reflect the average of the incoming receipts from purchase order receipts, purchase order returns inter-organization receipts and for manufacturing, for WIP assembly completions miscellaneous issues may or may not affect the unit cost

All issues occur at the existing average costs

Assembly costs come from the cost of your assemblies built in WIP

You may have indirect costs (material overheads, etc.) as well


Slide 8

Standard Costing The primary objective of standard costing is to provide a

performance measurement system Unit costs are set up in advance as an expected cost Component costs (material costs) are defined using the

projected average acquisition costs, plus any associated indirect costs

Assembly costs are rolled up using bills of material and routings Standards are reset periodically, depending on how quickly

your costs change

All manufacturing and distribution activities are measured against the expected costs

Typical variances include: Purchase Price Variance, Invoice Price Variance Manufacturing Variances (material usage, resource efficiency, etc.)


Slide 9

Other Costing Methods

FIFO Costing FIFO costing values inventory by assuming that the oldest inventory

(first in) is the first to be used or sold (first out), but there is no necessary relationship to the physical movement of specific items

FIFO supports WIP costing

LIFO Costing LIFO costing values inventory by assuming that the most recently

received item (last in) is the first to be used or sold (first out), but there is no necessary relationship to the physical movement of specific items

LIFO supports WIP costing

Periodic Costing Periodic has dual costing capabilities, using Periodic Costing at

month-end and using transaction-based “real-time” costing prior to month-end

Periodic supports WIP costing


Slide 10

Cost Structure

Inventory CostOrganization

GlobalOrganization(Item Master)

MatlCost Element

Matl O/HCost Element

ResourceCost Element

OverheadCost Element

OutsideProcessing Cost

Element

Matl1

Matl2

Matl O/H1

Matl O/H2

Res1

Res2

O/H1

O/H2

OSP1

OSP2S

ub-e

lem

ents


Slide 11

Organizational Costing

Costing is by Plant or Warehouse (called an inventory organization)

Each inventory organization has its own item material, labor, outside processing, and overhead costs

• Each inventory organization may have multiple cost versions, called Cost Types

• You can have any number of cost types that are not active (unimplemented costs)

Each inventory organization can have its own costing method

There is only one “Active” cost type that is used to record your Subledger Transactions

• Standard costing uses the Frozen cost type, and average costing uses the Average cost type …

Within an inventory organization, all items have the same costing method, Average, or Standard or FIFO or LIFO or Periodic


Slide 12

Cost Elements

You have five available cost elements for each cost type• Material (supplier purchase costs)

• Material Overhead (freight in, material handling, etc.)

• Resource (labor, machines, other factors of production)

• Outside Processing (subcontracting or outsourcing)

• Overhead (Resource and Outside Processing Overhead)

Only use the cost elements you need

But you can have an unlimited number of sub-elements• Material (metal, plastic, etc.)

• Material overhead (inter-co profit, in-bound freight, etc.)

• Resources (labor, machine groups, etc.)

• Outside Processing (subcontract vendor service1, service2, etc.)

• Production Overheads (Factory Burdens, etc.)


Slide 13

Oracle Cost Management Interaction

GENERALLEDGER

ACCOUNTSPAYABLE

PURCHASING

FIXEDASSETS

ACCOUNTSRECEIVABLE

INVENTORY

ORDERENTRY

WORK INPROCESSShipment

Transactions

InvoiceInfo

BILL OF MATERIAL

MRP

SERVICE

RepairRMA's

S/O Requirements

WIP Supplyto MRP

MRP Releaseto WIP

ENGINEERING

COST MANAGEMENT

BOM's/Routings for Roll Up

Costs

Values Trans

ENG Itemsplanned in

MRP

WIP Consumption &WIP Completions

AssetAdditions

Invoices/Payments

Asset CostAccum Depr

Depr Exp

PUR provides PO'sand Receipts

Delivery Trans

Invoices/Cash Receipt

Trans

INV ReceiptTrans &Exp Accr

Items

BOM's

Items from BOM's

Matl Requirements

Inventory/WIP Trans

Values TransValues INV

Stds Adj

Misc Transfor WarrantyRepair Parts

CASHMANAGEMENT(Bank Recon)


Slide 14

Inventory Costing

Costs Into Inventory/Stores Purchase costs into Inventory: Material, Material Overhead,

etc. costs For Standard Costing: Purchase Price Variances

More Costing for Inventory Movement Misc. Account Receipt / Issue Physical Inventory, Cycle Counts Consignment (WIP/OSP, purchase consignment) Subinventory and location transfers Customer shipments Internal orders Project shipments and transfers (PJM) Logical Transactions (extended supply chain network)

Supports many intercompany scenarios Internal orders Internal shipping and billing


Slide 15

Discrete MFG and Costing

All of the Costing Methods support WIP Costing Timing varies by how your charge to WIP

• Backflush, Assembly Pull, etc.• Push

Costs into WIP: Material Issues Material Overhead Earning Resources, Outside Processing and Overheads

Costs out of WIP Scrap Assembly Completion

Job Close Variances Only for Standard Costing


Slide 16

Manufacturing Variance Summary Costs-Incurred Costs-Relieved Variances

Previous-level costs @ actual usage

Previous-level costs @ standard

Material usage variance

Resource efficiencyResource Resource

Overhead efficiency

Outside processing Outside processingOutside processing

efficiency

Overhead Overhead

Sources of:• Components issued• Resources earned• OSP earned• Overheads earned

• WIP completions @ standard rolled up costs

= -

=

=

=

-

-

-


Slide 17

Cost Reports and Inquiries

Material Distribution Detail/Summary Reports

WIP Account Detail/Summary Reports

Discrete Job Value

Expense Job Value Report

WIP Value Report

WIP Value Inquiries


Slide 18

Setting Standard Costs

Cost Mass Edits

Item Cost Copies

Cost Rollups (also across the Supply Chain)

Standard Cost Updates

Bills of Material Cost Inquiries and Reports

Pending and Standard Cost Adjustment Reports


Slide 19

Setting Average, FIFO, LIFO Costs

Simulation Costing with Cost Rollups and Mass Edits

Transaction-based updates of Average, FIFO, LIFO costs

Manual cost updates

PO retroactive price adjustments

And if you are clever, using open interfaces for custom updates


Slide 20

Month-End Accounting Close

Close by Inventory Organization

Month-End Inventory, Receiving, WIP Value Reports

Release 12, close in Inventory Transfer to G/L using Subledger Accounting (Create

Accounting)

Closing Inventory closes Receiving and WIP

Purchasing has its own close (and also closes off Receiving)


Slide 21

Month-End Inventory Value Reports

Inventory Value Report

Intransit Value Report

Subinventory Account Value Report (disabled in Release 12)

All Inventories Value Report

Receiving Value Report

Receiving Value by Destination Report (disabled in Release 12)

WIP Value Report

Period Close Value Summary Report

Period Close Reconciliation Report (11.5.10 and 12)


Slide 22

R12 Improvements Period Close Diagnostics

Forms Drilldown• Using the same Inventory Accounting Periods form you can

drilldown to associated forms to view the problem transactions

New workflow to notify of failing transactions

Period Close Pending Transactions Report• Report for transactions holding up the inventory accounting

period


Slide 23

Reconciliation Improvements in R12

Inventory Value Reports have an “as of date”

• Inventory Value Report• Receiving Value Report• Intransit Value Report• All Inventories Value Report


Slide 24

Flexible Account Number Assignment

Release 12 Subledger Accounts allows you to extend the standard oracle setups (all costing methods except periodic)

Subledger Accounting rules govern how the final accounting entries are created and sent to the G/L

Subledger Accounting Offers Major Improvements

Subledger Accounting Comes with Default Rules


Slide 25

SLA for Product Line Accounting, Variance Recognition

Transactions

Accounting Events

Cost Management SLA

AccountingConfigurations

SubledgerBalances

SubledgerJournal Entries

AccountingProgram

Journal Entry Setup

GLJournal Entriesand Balances


Slide 26

SLA Accounting Tables

Enter Transaction(s)

Transaction Accounting Tables

AccountingProcessor

XLA_AE_HEADERS

XLA_AE_LINES

XLA_DISTRIBUTION_LINKS

XLA_EVENTS

Module Specific

Transaction Accounting

Tables

Create Accounting

G/L Tables

GL_LEDGERS

GL_JE_HEADERS

GL_JE_LINES

GL_JE_BATCHES

One Common Accounting Subledger

Table

GL_INTERFACE

ReceivingMaterial

WIP

Basic Table Structure for SLA


Slide 27

More Release 12: COGS Recognition

In R12 the customer shipment entries go to deferred COGS

Automates the matching of Cost of Goods Sold (COGS) for a sales order line to the revenue that is billed for that sales order line.

“True” COGS

1. Customer Shipment 10

102. COGS Recognition

Deferred COGSInventory

10

10


Slide 28

Related R12 BOM Features

Fixed Component Usage Support:Support for lot-based materials that have a fixed usage regardless of the job size for discrete WIP jobs, OSFM lot-based jobs and Flow Manufacturing

Component Yield Support:

Flexibility to control the value of component yield factors at WIP joblevel. The transaction logic now considers pre-yield BOM quantity per assembly rather than the quantity inflated by shrinkage.


Standard Features You May Not Be Using

Currency setup

Period open and close by organization hierarchy

Material overhead absorption rules

Transaction Value Historical Summary Report

Period close snapshots

Slide 29


Standard Features: Currency Setup You can change your item cost decimal precision at

any time

Slide 30


Standard Features: Period Open/Close by Org Hierarchy

You can open and close multiple inventory periods by organization hierarchy Define your organization hierarchy using an Human

Resources, Purchasing or Inventory responsibility Using the Inventory Organization Parameters, Costing

tab, make sure your “Transfer to GL” settings are all the same for all orgs in the same organization hierarchy

Slide 31



Open Period Control request

Slide 32



Close Period Control request

Slide 33


Standard Features: Mat’l Overhead Absorption Rules

Explicitly say which ones do and do not earn material overhead

Slide 34


Standard Features: Transaction Value Historical Summary Report

Rollback inventory value to any date you choose

Choose which columns of information to view You have four columns to select The fifth column on the report is everything else

Useful as a “roll-forward” audit report

Useful to verify month-end inventory value report balances

Two reports: Transaction Value Historical Summary (for Standard

Costing) Transaction Value Historical Summary – Average Costing

Slide 35


Standard Features: Transaction Value Historical Summary

Slide 36


Standard Features: Period Close Snapshot

Period close snapshots (Release 11.5.10 onward)

Prior to Release 11.5.10, the inventory period close only stored summary values by inventory organization and subinventory (blank subinventories are for intransit)

When you close inventory you automatically store period-end inventory values and costs by organization, subinventory and item

Slide 37


Desired Enhancements

Multi-Org Reporting Multi-Org Material Account Summary Report Multi-Org Receiving Account Summary Report Multi-Org WIP Account Summary Report Multi-Org All Inventories Value Report (with account

numbers) Multi-Org Inventory Value Report (with account numbers) Multi-Org Receiving Value Report (with account numbers) Multi-Org Expense Value Report (with account numbers) Multi-Org WIP Value Report (R12 still has account

numbers!)

Slide 38


Slide 39

Summary

Oracle Discrete Costing offers robust, flexible costing

Multiple costing methods are supported

Powerful mass edits, item cost copies and cost update capabilities

Account classification is much better with Subledger Accounting

As you transact your cost accounting happens automatically

Multi-org reporting is a continuing area of concern


Slide 40

Acknowledgements

Oracle Cost Development

Partners in crime at our clients

Thank You for Your Attendance and Participation

Douglas A. Volz

Slide 41


Slide 42

Douglas Volz ([email protected])

Professional Background

Doug Volz is a Senior Architect and Advisor for Oracle Application projects, with a particular interest in Cost and Project Management. He has 30 years accumulated experience, including 5 years in Oracle Development (co-designing Oracle Cost Management) and 12 years in industry in Cost and Accounting Management positions. His Manufacturing and Cost systems experience covers project management, software design/development, delivery and consulting services, for both Oracle Corporation, and multiple international consulting firms. Prior to his systems career, Mr. Volz also held numerous management accounting positions for telecommunications, defense, and electronics companies.

In his consulting roles, Doug has served over 100 clients. Many of these were multi-org, multi-currency with global footprints. Countries include US, Mexico, UK, Netherlands, Belgium, Taiwan, P.R.O.C., Norway, Japan, Italy and Germany.

Doug leads the OAUG Cost Special Interest Group. He also advises and participates on the Oracle Customer Advisory Board for Fusion Costing.

Core Expertise Multi-organization, Multi-currency ERP

Implementations Project Management and Senior Project Advisor Core manufacturing processes

Cost Management Inventory Bills of Material WIP

Systems Integration and Data Conversions

Experience Sample of clients served:

Beckman Coulter (US) Matsushita (UK, Mexico) NTL (now Virgin Media) Logitech (US, Taiwan, P.R.C.) Celgene Corporation (US) NTL (UK, now Virgin Media) TCI International (US) Onninen AS (Norway)


Slide 43

End of Presentation

Overview of Discrete Costing for Manufacturing OAUG MFG Discrete SIG Meeting November 10, 2010...

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