Fusion

Process
Manufacturing
A guide on the utilization of process manufacturing with a complete
overview of costing.

JANUARY 9, 2020
DISCLAIMER
This document in any form, software or printed matter, contains proprietary information that is the
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terms and conditions of your Oracle software license and service agreement, which has been
executed and with which you agree to comply. This document and information contained herein may
not be disclosed, copied, reproduced or distributed to anyone outside Oracle without prior written
consent of Oracle. This document is not part of your license agreement nor can it be incorporated into
any contractual agreement with Oracle or its subsidiaries or affiliates.

This document is for informational purposes only and is intended solely to assist you in planning for
the implementation and upgrade of the product features described. It is not a commitment to deliver
any material, code, or functionality, and should not be relied upon in making purchasing decisions.
The development, release, and timing of any features or functionality described in this document
remains at the sole discretion of Oracle.

Due to the nature of the product architecture, it may not be possible to safely include all features
described in this document without risking significant destabilization of the code.

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TABLE OF CONTENTS

Introduction ................................................................................................. 4

Setting Up Manufacturing (Defining the production process)....................... 4

Work Definitions........................................................................................... 7

Work Execution............................................................................................ 9

Manufacturing Tips and Considerations .................................................... 11

Setting Up Costing ..................................................................................... 12

Cost Planning Setups and Execution......................................................... 19

Costing Tips and Considerations ............................................................... 25

Conclusion ................................................................................................. 28

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Executive Overview

The Fusion Process Manufacturing module offered by Oracle provides a robust solution in terms of handling the
recipes or formulae involved in a process along with the various levels of products and co-products obtained. The
module has been majorly designed to cater to the Consumer Packaged Goods industry. With the help of this paper,
you will attain a holistic understanding of the steps involved in deploying Oracle Process Manufacturing and setting
up the costing relevant to the process.

Introduction

Oracle Fusion Manufacturing has introduced the process manufacturing flow starting from Release 19.04 or 19B. As
with discrete manufacturing, process manufacturing supports similar capabilities for in-house manufacturing and
outside processing of standard products, where you can design your production process with work definitions,
manage production with a material availability check and work order picking, execute production with quality
inspection and production exceptions, as well as perform standard and, actual costing. Manufacturers with standard
recipes, fixed UOM conversions, and batch production are best suited for the capabilities introduced with process
manufacturing work definitions and work orders.

Batch production moves a batch quantity through each stage of the production process instead of moving individual
discrete units. Process Manufacturing supports batch production with multiple products that come into picture in
scenarios involving recipes for producing various batch sizes and products.

With respect to process manufacturing the following features are available:

 Defining the relationship of inputs and outputs to make a batch instead of defining a hierarchical item
structure.
 Manage co-products that are planned, multiple output products resulting from a process, and by-products
that are additional unplanned outputs from a process. As in, at the work order operation level, and
completion, outputs can be added as byproducts if required.
 Define and execute recipes on the basis of batch size instead of the number of discrete items.
 Define the input size of a batch process, outputs, and also scale a work order to a target batch quantity.

This document has been designed to introduce the necessary setups to define and execute the flow from a
Manufacturing point of view. Key features have been outlined wherever applicable.

Setting up Manufacturing:

 ROLE INFORMATION:

o Privilege Name and Code: No additional privileges required.

o The following shipped roles can be assigned to provide access to process manufacturing:
 Manufacturing Engineer (ORA_WIS_MANUFACTURING_ENGINEER_JOB)
 Production Operator (ORA_WIE_PRODUCTION_OPERATOR_JOB)
 Production Supervisor (ORA_WIE_PRODUCTION_SUPERVISOR_JOB)

 Opt-In Features:

To enable Process Manufacturing in the instance, the first step would be to enable the Opt-In Features. Follow the
steps in the sequence suggested below to achieve this:

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 o Navigate to Setup and Maintenance -> Manufacturing and Supply Chain Management subject area
-> Change Feature Opt-in -> Navigate to ‘Manufacturing’-> Enable the highlighted feature and also
select all other required features per the business requirement.

 Plant Parameters

o Once the offerings are enabled, the process manufacturing should also be enabled in the
Manufacturing plant parameters.
o All inventory organizations marked as manufacturing plants support discrete manufacturing. With
this plant parameter, you can additionally enable process manufacturing in the same plant as
discrete manufacturing to support mixed-mode manufacturing.
o Navigate to ‘Setup and Maintenance’ -> Manufacturing and Supply Chain Materials Management
-> Manufacturing Master Data -> Manage Plant Parameters -> Enable Process Manufacturing

o A point to consider here is that the Default Work Method controls the default behavior of the user
interface, every time the user attempts to create a work definition and work order. Both discrete
manufacturing and process manufacturing work methods are available for selection, so the user
can also override the default work method. Default Work Method is a plant specific attribute. If a
plant typically runs batch production, set the Default Work Method to Process Manufacturing as
shown above.

 Once the plant parameters are defined and plant access is provided to the users. Create the following as
per your business requirement (in terms of the naming):

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 o Work Areas:

o Work Centers:

In the work center, assign the available number of resource units shift wise.

o Resources:

The resource definitions can contain associations to a person or equipment. The resource instance can
be used to tag an employee to the resource. These resources are in turn to be tagged to the work
centers.

o Standard Operations:

o Quality inspection plans (optional) in Quality Management

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Work Definition (Defining the production process for process manufacturing):

For the utilization of process manufacturing you do not need an item structure (or Bill of Material), instead the recipe
or process involved in the manufacturing of the end product is to be inputted as a work definition.

A recipe is modeled as a process manufacturing work definition and does not refer to an item structure as the starting
point for input and output materials. However, an item structure can be used for a phantom item that is added as an
input material in a process manufacturing work definition. The phantom item structure represents a collection of
components that is exploded and added directly to a process manufacturing work order upon creation.

Considering a simple example to elaborate further on the steps involved. A Varnish manufacturing unit is designed,
executed and costed in the sections to come. This is a batch process involving various items and an outside
processing operation at the end in order to complete our packaging into the desired quantities.

To manufacture the desired Varnish: The solvent and resins are first sent through a measuring unit and the exact
proportions are devised post this operation.

At this point, we send the completed product from the first operation to a dispersion unit in which additives and
organic solvents are added as per the work definition. After this two more operations are present to complete the
production of Varnish.

Let us get started with the work definition:

 A work definition resembles a recipe that tells you what you are producing and how you are producing it.
You can define multiple recipes for the same primary product to reflect variations in materials, resources,
and batch sizes.
 A single work definition can produce multiple outputs, including the primary product, co-products, and by-
products. It is not necessary to create a work definition for a co-product unless there is an independent
requirement to do so.
 Login and navigate to the homepage, click on Supply Chain Execution => Work Definition => Select Manage
Work Definitions => Click on the icon for Add (+) => At this point the below window shows up where the
work method, (if not already defaulted based on previous setup in the Plant Parameters), primary output,
batch quantity, UOM, etc., can be selected. => Proceed to create a new work definition as shown below:

At this stage the following points are to be noted :

 In Process Manufacturing, there is no reference to the item structure. Only ad-hoc addition of items is
allowed directly at the operation level.
 The process name entered should be unique. The Process Name allows a user-defined name for a unique
production process that produces multiple outputs. It is similar to a recipe name. The process name can be

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 used to uniquely identify and select a work definition when creating a process manufacturing work order.
On the other hand, a Work Definition Name is a reusable name that can distinguish primary and alternate
ways of production. The same work definition name can be applied across work definitions for multiple
items. For example, different work definition names can distinguish production lines.
 The primary output is the product that we intend to produce. Any other co-products or byproducts of value
can be mentioned in the outputs of each operation. Ensure that the primary output is assigned to at least
one of the operations in the work definition.
 Costing priority in this screen is applicable only for the primary output. Costing priority is one of the criteria
to select work definition for cost roll up when multiple work definitions exist for this primary output.
 Costing Batch Output Size is your typical production batch size (quantity). Costing Batch Size is in the same
UOM as the Batch Quantity.

The production
priority decides the
primary and
alternative work
definitions. While
the costing priority
decides which work
definition is used
for the output rollup
when multiple work
definitions are
present

 In this user interface of the Work Definition, there is a provision to drag and drop the primary output, and
also search for additional items to be added as outputs to other operations. By-products can be added to
the relevant operations as shown under. Ad-hoc components can be added as outputs and operation items.
 FBDI and REST services are also available for process manufacturing work definitions to help load data
and facilitate mass updates.

Further information
on Completion type
is provided in the
Work Execution
section.

Operation Items assigned are inputs to the operation. While output items are the product & co-products.

 For inputs and resources that are consumed on a variable basis in a work definition, the standard cost rollup
process, in Cost Management, uses the ratio of costing batch output size and batch quantity to determine
the scaling factor needed for calculating the costs of outputs.
 The batch quantity moves through operations until work order completion, while process yield loss can be
captured as operation scrap.

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Work Execution (Executing the Production Process):

 Now that the work definition is setup, the execution to create the product can be initiated. Navigate to Work
Execution Tile on Homepage -> Work Execution -> Manage Work Order and click on the + icon to create a
new standard work order. A point to note here is that a process work order can only be created via 'Create
Standard Work Order' action; meaning only a standard process work order must be utilized. There is a
flexibility of selecting the work method to process or discrete thereby making it easy to utilize both the
methods at ease.
 Create the work order based on the process name or the primary output.

*Costing priority
decides which work
definition is
considered for cost
rollups when multiple
work definitions
produce the same
output.

*Costing priority is
for the primary
output alone.

*Costing batch
output size implies
the work order
production size for
this process.

 The work order behavior is the same as discrete manufacturing and the details indicate the output at each
operation. You can also generate the Work Order Traveler, make any ad-hoc changes as necessary to the
work order operations, operations items, and resources.

 Navigate to Supply Chain Execution -> Work Execution -> Review Dispatch List task. Search for the work
order operation and Complete with Details. Operations that are enabled to 'Automatically Transact' will auto
complete and only the count point operations must be completed manually

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  Ensure that the output items are added during the Inventory Step of the Work order operation completion,
if the Completion type is marked as ‘Manual’ at the work order operation setup (this applies to the primary
output of the work order as well). Else a warning will be shown as follows: You have not reported the output
items with completion type as manual for the operation XX of the work order XXXX. This warning is to alert
users of any missed out products to be reported.

 However if the completion is marked as ‘Automatic’ at the work order completion, the component to be
completed shows up in the list as shown below:

 Upon completion, the Output item, quantity, sub inventory, and locator details are shown:

 After the successful execution of the work order i.e., Completion and Close of the Work Order. Run the
following ESS programs to transfer all the transactions incurred for the work order, to Cost Accounting:

o Transfer Transactions from Production to Costing

o Transfer Transactions from Inventory to Costing

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TIPS AND CONSIDERATIONS:

 Using Oracle Transactional Business Intelligence, there is a provision to analyze co-products and by-
products. The end-to-end lot genealogy of co-products and by-products can be traced as well. Visualize
and analyze the parent-child relationships between input and output items under lot control, whether
generated from in-house receiving, production, and shipping transactions, or imported through a
spreadsheet from a supplier.
 The reverse to ready behaves in the same way as discrete manufacturing. So the quantity can be entered
and Completed with details. Similarly the returned quantity can be completed once again through the Review
Dispatch List.
 Scaling of the work order can be performed on unreleased work orders. In the work order navigate to the
Operations and click on the Output items list. Click on the hyperlink containing the item number and select
the Scale button. A pop up appears as follows:

There is a provision to enter the new quantity directly or enter a percentage. Recalculate work order quantities
proportionally based on a critical input, output, or batch quantity prior to work order release through the user interface.
A point to note here is that inputs defined with Fixed basis actually do not scale. Only Variable basis inputs are
scaled. For example a scaling percentage of 600% of the existing work order output 3, would directly update the
output quantity to 18. This scaling is done for all the operations outputs and start/completion dates are updated
accordingly.

 Create a purchase requisition in procurement and associate it with a work order operation in a work order
in “Released” status. The purchase requisition can be for a regular or ad-hoc item for an operation without
the need to stock the item as on-hand, since it is created with destination type as "Work Order". Goods
are directly delivered to the work order after receipt. The material to be purchased can be viewed and
modified through task: ‘Review Purchased Item Details’. Further details on this feature can be explored in
the handout:
http://download.oracle.com/ocomdocs/global/apps_19A/scm/MFG_Manually_Procure_Materials/MFG_Ma
nually_Procure_Materials.doc
 The ERES (Electronic Records and Electronic Signatures) capabilities are similar to the previous releases
and process manufacturing supports similar capabilities for in-house manufacturing and outside processing
of standard products with the option to enable ERES for critical business events.

Note: A comprehensive user guide on the setup and utilization of ERES is available in Oracle documentation
called Using E-Signatures and E-Records.

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  Inspect work order co-products and by-products. An ad-hoc inspection to record quality results against
samples of work in process or a primary product, co-product, or by-product, through the Review Dispatch
List. Net-net Quality Management can be completely leveraged for process manufacturing as well.
 Outside processing is supported in Process Manufacturing as well and the capabilities are similar to the
previous releases of Fusion Manufacturing.

Setting Up Costing:

With the introduction of process manufacturing, the following abilities have been added to Cost Management:

 When a work order is closed, the product costs are calculated to ensure that all the input costs are correctly
considered and is done based on the cost allocation factor chosen in the work definition.
 If the cost allocation factor is “Fixed” then the published standard cost is used, whereas if cost allocation
factor is a percentage, the total accumulated cost till the operation is used to arrive at the cost.

For fixed value of the cost allocation you must create a standard cost for the output item.
The following formula is used for products that have a percentage based cost allocation factor:
(Total costs accumulated through this operation – Scrap Reported in this operation)*(Cost Allocation Factor)
/ Quantity Produced

The costs accumulated through the operation where the scrap is reported, are based on the following
formula:
Scrap costs = (Total costs accumulated through this operation)*(Scrap Quantity/Batch Quantity)

There is a validation, that if there are multiple products in an operation, the total cost allocation factor cannot
exceed 100%.

 The value of scrap reported at an operation is calculated based on the actual accumulated cost at an
operation. This is standard functionality for both process and discrete orders.
 A new variance type called “Yield Variance” has been introduced to handle variances arising from difference
between the planned production and actual production for standard costed products. Compared Yield
variance is calculated as the output correlated to the batch quantity instead of the quantities of inputs
directly.
o The formula for calculating the yield variance is as follows: Yield Variance = (Actual reported
quantity - Planned scaled quantity) * Standard cost of product

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  The Review Work Order Costs page will display the input costs of material and resource transactions for
process manufacturing work orders. The output tab of the review work order cost has been modified to show
the multiple products reported against the work order. It also shows the cost allocation factor used for the
cost calculations.

The following tasks cover the basic setups needed to get started with costing. However care must be taken to ensure
that the business scenario is completely understood before initiating these setup tasks. The section has been divided
into Primary Setups and Cost Planning for a better understanding.

Note: The default setup of our cost profiles will be Standard Costing. However the same item has been setup to be
costed through a Perpetual Average Costing Method as well. The items used therein for the purpose are as follows:

Varnish -> Costed using standard costing.

Varnish PAC -> Costed using a perpetual average costing method. A cost profile has been setup separately for this
item in the cost organization. All the items issued for the production of this item have standard costs. This is to
highlight the functionality of utilizing only standard, perpetual average costing methods or a combination of both.

*Only the work definition and execution of item ‘Varnish’ has been shown in Manufacturing section of the document
so far. It is to be noted that a similar work definition and work execution process took place for ‘Varnish PAC’ as well.
Since the major difference arises in costing alone, the same will be explained wherever applicable.

Primary Setups:

All the names used in the below tasks are for a new cost organization called Cost Org OPM which has been
exclusively setup to explain the Process Manufacturing Cost flows. In case Costing is already being used, the existing
setups of Fusion Cost Management can be leveraged to include process manufacturing costing as well.

 Define Cost organization :

Setup and Maintenance -> Setup: Manufacturing and Supply Chain Materials Management -> Cost
Accounting -> Manage Cost Organizations

A cost organization structure comprises cost organizations, inventory organizations, and cost books. It can
represent a single inventory organization or a group as well. The cost book is the single setup that contains
the item validation organization and the framework within which the accounting policies for items can take
place.

To begin with, each cost organization must be assigned to one cost book and optionally to a ledger.

 Provide Access to the Cost Organization:

Navigation: Setup and Maintenance -> Setup: Manufacturing and Supply Chain Materials Management -> Cost
Accounting -> Manage Data Access to Users

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 Provide access to the cost organization as shown below. For the considered scenario for the scope of this
document, the cost organization is ‘Cost Org OPM’ and the role being used is a shipped role ‘Cost Accountant’.

 Define Cost Books :

Navigation : Setup and Maintenance -> Setup: Manufacturing and Supply Chain Materials Management ->
Cost Accounting -> Manage Cost Books

Per definition, a cost book is a view or method of cost accounting for inventory transactions. Multiple cost
books can be created and assigned to a cost organization for different financial and management reporting
purposes.

 Cost Organization Relationships :

Navigation : Setup and Maintenance -> Setup: Manufacturing and Supply Chain Materials Management -> Cost
Accounting -> Manage Cost Organization Relationships

In this task, the calendar and cost periods can be setup manually. The first opened period and, the maximum open
periods are defined here. Other key setups in this task are the Item validation organization that comes under the
purview of the Cost Organization, the reference data set and the Inventory organization (Cost Org OPM in our case).

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 o Set Assignments provide access to the Reference Data Set. Reference data sets are logical groups
of reference data that various transactional entities can use depending on the business context.
o Effective Date of the inventory organization defines the start point of the inventory transactions
related to the cost organization. It is a key setup linking the inventory org and cost org.
o Cost book tab: You can tag multiple cost books to the cost organization. However there can only
be one primary book here. Secondary cost books are typically used for reporting purposes alone.
Also note that the Period End validations for the cost books are provided here.

 Valuation Structures:

Navigation : Setup and Maintenance -> Setup: Manufacturing and Supply Chain Materials Management ->
Cost Accounting -> Manage Valuation Structures (and) Manage Valuation Units

Valuation structures and valuation units define the granularity level at which the cost of an item is maintained. For
standard costed items, users can define their costs at Cost Org + Inventory Org + Item level. For standard costing,
more granular levels like Lot and Serial are not available. There can be a single average cost for an item belonging
to more than one inventory organization as well.

When a cost profile is assigned to an item, the cost processor uses the valuation structure on that cost profile to
determine how to calculate the item cost.

Valuation structures are of three types, Asset, Expense, and Consigned.

 An asset valuation structure is used for receipts of items that are valued as inventory on the balance sheet.
 An Expense valuation structure is used to account for receipts to inventory of items that are expensed rather
than treated as assets on the balance sheet.
 A Consigned valuation structure is used to account for consigned inventory transactions.
 Depending on the type of the cost profile the valuation structure varies.

Once the Asset, Expense, and Consigned valuation structures are defined for a cost profile; the item then inherits
those valuation structures when it is associated with the cost profile.

 Cost Elements:

Navigation : Setup and Maintenance -> Setup: Manufacturing and Supply Chain Materials Management ->
Cost Accounting -> Manage Cost Elements

A cost element of an item is used to track its cost through the inventory and accounting life cycles. Briefly
explained, the cost element can be defined for Material costs, Overhead costs, Resource costs, Inventory Profit

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 (Incurred during: inter-org transfers, drop shipment flows and global procurement), and Adjustments. The
granularity is left to the users. Each of these costs can be monitored as a separate cost element at the set level.

 Defining Cost Component Mappings:

Navigation : Setup and Maintenance -> Setup: Manufacturing and Supply Chain Materials Management -> Cost
Accounting -> Manage Cost Component Mappings

Cost component mappings are used to define mappings of cost components from external sources to cost
elements in the costing application. They are mapped to cost elements which the costing application uses to
track the cost of items.

Refer to the following search heading (either in the Implementing Cost Accounting guide (or) the Fusion
Applications Help) for further information:

Cost Components, Cost Elements, and Cost Component Groups: How They Work Together

 Defining Cost Profiles:

Navigation: Setup and Maintenance -> Setup: Manufacturing and Supply Chain Materials Management -> Cost
Accounting -> Manage Cost Profiles.

Each item in a cost organization book requires a cost profile to calculate the item costs. Cost organizations can
have multiple cost books and the same item can have different cost profiles in different cost books used by the
cost organization as well.

Some of the key attributes defined in a cost profile are:

 Cost Profile Set: All Cost organizations can be grouped into one set for a given cost profile using this
attribute.
 Cost Method: Standard, Actual, and Perpetual Average.
 Quantity Depletion Method: To setup how the inventory must be depleted for a given item. FIFO or the First
In First Out method is used in Fusion Costing.
 Processing Negative Quantity: As long as an inventory organization is enabled for Negative Quantity
transactions. When the depletion quantity exceeds inventory on hand a negative quantity arises. How we
handle that is defined here and is categorized into three values: Always, To Zero, and Never.
 Valuation Structure Code: Cost calculation for an item can occur at any combinations of the following
attributes: Cost Organization, Inventory Organization, Sub inventory, Locator, Lot, and Serial.
 Provisional Completion: Determines how a partially completed work order must be handled. Option include:
Value at Last Actual Cost, Value at Perpetual Average Cost, Value at Standard Cost, and Value at work
order close.
 Operation Scrap Valuation: Determines how scrap is to be evaluated for a manufacturing work order.
Options include: Value at work order close, Value immediately and at work order close, and Value at cost
cutoff date and at work order close.

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  Operation Scrap Accounting

Refer to the following search heading (either in the Implementing Cost Accounting guide (or) the Fusion
Applications Help) for further information: Setting Up a Cost Profile

 Manage Default Cost Profiles:

Navigation: Setup and Maintenance -> Setup: Manufacturing and Supply Chain Materials Management -> Cost
Accounting -> Manage Default Cost Profiles

A default cost profile can help reduce effort if the costing policy is the same for all items in a cost organization book.
A default cost profile can be assigned at the cost organization book level, or at the item category level within the cost
organization book. If you set the New Item Profile Creation option to Automatic the Item Cost Profile is automatically
created.

--> Here the cost organization, cost book and associated valuation structure are associated to a default cost profile
pertaining to Standard costing. However the same can be set to Perpetual Average Costing or Actual as well.

Note: A default cost profiles can always be over-ridden by assigning specific item cost profiles at the individual item
level. FSM task: Manage Item Cost Profile.

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So as mentioned in the note added to the section ‘Setting Up Costing’, the above default cost profile is used for
Costing the item Varnish, which is setup for Standard Costing.

However since the item ‘Varnish PAC’ uses a Perpetual Average Costing method in the same cost organization, a
cost profile is to be defined manually as shown below. For this purpose a new cost profile is first created and then
the Item profile with the cost profile tagged to it.

After this define the Item Cost Profile:

Notice that the cost method is perpetual average for this item alone and the creation source is manual. One other
key point is that any item can only have one Asset Cost Profile, Expense Cost Profile, and Consigned Cost Profile.

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Cost Planning Setup:

Cost planning is used majorly for calculating the estimated cost prior to the execution of the work order. After a work
order is completed you can obtain the actual cost incurred and calculate the variance which is the difference between
the actual and estimated costs. In the cost planning setups, we have several tasks that come into picture. Each of
these tasks have been sequentially explained in reasonable detail with respect to our scenario of ‘Varnish’ production
(in the case of Standard Costing) and Varnish PAC (in the case of Perpetual Average Costing):

 Defining Standard Costs:

Navigation: Setup and Maintenance -> Setup: Manufacturing and Supply Chain Materials Management ->
Cost Accounting -> Manage Standard Costs

Even if the components are average or actual costed, users need to enter the standard costs for these
components to roll up bring the costs of finished goods. When defining the standard cost, the item, valuation
unit and cost organization association is made. The cost of an item is defined here. This cost is utilized in
the roll-up.
The standard cost for an item can be defined once. The same will be utilized for all subsequent roll-ups
unless the cost is modified.

 Defining Resource Rates:

Navigation: Setup and Maintenance -> Setup: Manufacturing and Supply Chain Materials Management ->
Cost Accounting -> Manage Resource Rates

Define the resource rate incurred. Expense Pool and Cost Element. Resource Cost element (does not need
an Expense Pool), Overhead cost element.

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  Manage Accounting Overhead Rules and Manage Overhead Rates, are utilized to define the Overhead
accounts comprising the rule name, transaction type, item category, effectivity date, and overhead rates.

 Manage Cost Scenario:

Navigation: Setup and Maintenance -> Setup: Manufacturing and Supply Chain Materials Management -> Cost
Accounting -> Manage Cost Scenarios

A cost scenario is used to define the cost scope for a cost organization and its cost books. You can use a cost
scenario to define Material rates, Resource rates, and Overhead rates. Processes such as Roll Up Costs and
Update Costs can be run directly from the Cost Scenario, they can also be scheduled to run at periodic intervals.
The scenario exceptions and rolled up costs can be viewed directly from this task.

Ensure that the resource and item rates are defined before running a rollup. (these tasks have been discussed
in detail right after the Cost Scenario task is explained)

o The ‘Use Latest Work Definitions’ flag indicates whether costing should look for the latest work
definition each time a cost roll up is run. If this flag is unchecked, the work definition which was
used to roll up the current standard cost of this item will be used. If this is a newly introduced item,
cost rollup will include the latest work definition.
o The Work Definition Priority defines the priority with which the work definition for an item is to be
picked for the rollup.

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 o Rollup Scope decides the criteria for selecting items for cost rollup for a cost scenario.

Note: Always ensure that the standard costs for the items and resource rates are created before a roll up is submitted.

In case any scenario exceptions are encountered as shown below, click on the count and resolve all the errors before
running another roll up.

A successful roll up would indicate the data as shown below. Notice that two separate costs are generated. One for
the primary product which is Varnish. The secondary product or the by-product being Acrylic:

Now for the Perpetual Average Item Varnish PAC, a new cost scenario is defined to ensure segregation of the roll
up costs (In order to publish resource and material costs, always run the ‘Update Standard Costs’ only after a cost
rollup is run through the scenario) :

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As shown in the screen above, the cost roll up for the Perpetually Average Costed item ‘Varnish PAC’ has been
completed. The resource and material cost add up perfectly to produce a cost for the parent item.

A key point to note here is that a cost scenario must always have an effective date that is greater than the work
definition start date. Else the work definition will not be considered for the roll up.

 Once the roll up is performed. For the completed work orders in manufacturing, run the ESS ‘Transfer
Transaction from Production to Costing’. The cost is then transferred into the Costing module.
 Then run the Create Cost Accounting Distributions using a run control and a cut-off date. The cut-off date
determines the date up to which all the transactions in a given accounting period are accounted:

Navigation : Supply Chain Execution -> Cost Accounting -> Create Cost Accounting Distributions

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  Once the Cost Accounting Distributions complete successfully, you can utilize the Review Work Order Cost
task to understand the operation completions, materials and resource costs. The task can be utilized for
both process and discrete manufacturing work orders as well. Screen below indicating the work order
balance:

Below image depicts the cost balances for work order OPM102 which has been created for the item Varnish.
This item has been costed using the standard costing method.

While the image below is for work order OPM103 which has been costed using the perpetual average method.
A miscellaneous receipt has been performed for the item Varnish PAC, prior to the work order receipt in order
to ensure a successful cost distribution. The obtained cost or the current of the item is the average of the two.

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 The miscellaneous receipt was performed with an item cost of 85 USD.

 A deep dive of the cost accounting distribution can be reviewed in the Review Cost Accounting Distributions.
The accounting status is updated once the final accounting takes place in the General ledger.

For work order OPM102 for the item Varnish that uses standard costing:

For work order OPM103 which is costed using Perpetual Average:

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  To explain how the cost of a product and by-product is arrived at, the balances have been broken down into
the below sheet. The cost allocation percentage plays a major role in deciding the cost of the by-product
and product from an operation.

The Cost of an output item is calculated using the formula:

[ (The total cost accumulated through the operation minus scrap reported in the operation) multiplied
by (The cost allocation factor) ] divided by (Quantity Produced)

Each Operation has been broken down in the following image and the output cost is mentioned to help understand
how costing processes the data and arrives at the output cost & unit cost of output items:

TIPS AND CONSIDERATIONS

 Outside Processing is completely supported in Process Manufacturing as well. The setups and the receipt
accounting remains the same as discrete manufacturing.
 The accounting entries of Debit (Work in Process Valuation) and Credit (Receiving Inspection) remain the
same in receipt accounting for process manufacturing as well.

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  In Receipt Accounting the destination type of “manufacturing” remains the same. The accrual entry logic
remains the same as well.
 If the item is standard costed the quantity of the items received according to the cost, based on the quantity
is added to the cost. Purchase variance calculation remain the same.
 For an actual or perpetual average costed item, the purchase price multiplied by the quantity is added to
the work order cost.
 Outside processing is supported for all costing methods.
 Receipt Accounting supports creating accruals and processing of purchase order receipts for items that are
directly procured from a process manufacturing work order and are received against the Destination Type
of Work Order. All buy items or purchasable items can be directly procured against the work order even in
Process Manufacturing.
 Different Types of Transactions seen in manufacturing such as the Inventory Transactions including the
Material/Component Issue Transactions, Product/Finished Good Completion Transactions, Resource
Charge Transactions, Operation Transactions, and Update Event Transactions, arise from the work order
completion. In order to get an output cost (Product completion), costing engine sequentially picks all the
input transactions in order to get the output cost.
 When a Product completion transaction is not processed in costing ensure that the corresponding input
transactions such as the Resource Charges, Operation Transactions, and Component Issue transactions
are interfaced and costed. Subsequently, the cost variance only comes into picture when the work order is
closed.

 Understanding Variance on Work Orders:

Variance is recorded when the standard cost of a product is published using a rollup with a work
definition. Work definition and work order details are used to derive variance types and variance amount
at cost element level for each WO-Operation sequence-Component/resource combination.
The following variance arise by comparing the input quantity on the work order with the input quantity
on the work definition:
1. Component Substitution variance: This variance is computed if the input component on
the work order does not match with the work definition. All of the variance between WIP cost and
standard cost for the component can be termed as Component substitution variance.
2. Resource Substitution variance: This variance is computed if the input resource on the
work order does not match with the work definition. The entire variance amount between WIP cost
and standard cost for the resource can be termed as Resource substitution variance.
3. Usage Variance: When the input quantity for the component on the work order is greater or
lesser than the input quantity on the work definition, there will be an unfavorable or favorable usage
variance. This variance is derived using the following formula:
(Scaled Input Quantity – Actual Input Quantity) X WD Component Unit Rate (cost element)
4. Resource Usage variance: When the input quantity for the resource on the work order is
greater or lesser than the input quantity on the work definition, there will be an unfavorable or
favorable usage variance. This variance is derived using the following formula:
(Scaled Input Quantity – Actual Input Quantity) X WD Resource Unit Rate (cost element)
5. Yield Variance: The Yield variance is specific to process manufacturing. It is based on
variances arising from difference between the planned production and actual production for standard
costed products.

Note that when a work order is re-opened after close, the whole variance processing will required to be
executed again for the work order. The delta between the old and new variance will be accounted.

Below work order operations screen indicates the work order components, resources and outputs. Quantities in the
brackets are the quantities actually consumed at the work order operation. The quantities have been deliberately
modified to bring in variance. For example in Operation 30, the component issued ‘Pigment’ is not needed but a
quantity of 5 has been issued. Similarly resource usage has been modified and new resources added.

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The variance of a work order comes into picture only when the work order pertinent to it is closed and the work order
close transaction has been interfaced to costing. As shown below in the Review Cost Accounting Distributions:

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A new type of variance called the Yield Variance which is exclusive to Process Manufacturing has been discussed
earlier. To explain it in further detail, the yield of an operation component (item to be issued to a work order) is defined
in the Manufacturing work definition operation. However if there is a difference in the issue of this component during
the backflush, there is an accounting entry called yield variance. Yield variance in this case has occurred in operation
20, where item Solvent has a yield of 0.8 and quantity to be issued is 2500. But the issued quantity is 2100. This
plays a role in deciding the final output cost of the item as well.

Conclusion

Fusion process manufacturing can be utilized in a wide array of business models and the in-built features support a
plethora of requirements. The provision of process manufacturing in Fusion majorly widens the scope of batch
manufacturing in terms of up-scaling and costing the products efficiently to facilitate multiple outputs. As discussed,
the Cost Management offers a robust solution in terms of understanding the cost incurred and the accounting entries
that follow. The reporting tools that are built into both modules offer a ready to rollout solution for a variety of business
models.

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White Paper on Fusion Process Manufacturing
January 2020
Author: Pramod Vadali
Contributing Authors: Kishor Kollu