ManagerialAccounting StudentGuide

Schedule: Timing Topic
05 minutes Lecture and Demo

00 minutes Practice
05 minutes Total
Advanced Supply Chain and Fulfillment Techniques Course 1 - 2
To locate the Oracle Supply Chain Management Cloud resources on the Oracle Help Center,
do the following:
1. Go to the Oracle Help Center at: docs.oracle.com.
2. Click the Cloud icon.
3. On the Cloud Documentation page, click the Applications tab, and then click Supply
Chain Management Cloud.
4. On the Oracle Supply Chain Management Cloud page, click the Books tab.

00 minutes Practice
05 minutes Total
Managerial Accounting is designed to take a fresh approach to the financial aspects of the
supply chain.
• Receipt Accounting can be implemented independently of the other solution areas for
procure-to-pay customers.
• Cost Accounting, as well as Cost and Profit Planning, helps you to plan and account for
inventory and manufacturing operations.
• Landed Cost helps you to plan and account for additional costs to acquire materials
such as freight, import taxes, or other fees. With this solution, you can associate third-
party charges with your material purchases.

• Receipt transactions are processed by Receipt Accounting.
• The Purchase Order price from purchasing and the Invoice price from accounts payable
are also processed by Receipt Accounting.
• The Receipt Accounting process creates accounting distributions and posts those to
Subledger Accounting for processing.
• The accounting information is posted to General Ledger via Subledger Accounting.

10 minutes Practice
25 minutes Total
This process flow demonstrates accrual at period end. Only those receipts that did not receive
an invoice are accrued at period end.

Uninvoiced Receipt Accrual is the process that accrues receipts that were received before the
end of a period, but have not yet had a supplier invoice processed by Accounts Payable (AP).
This process is for purchase orders that are set to not accrue upon receipt.
Note: This process is not typically scheduled on a repeating frequency. Rather, it is a process
that a user orchestrates to be run after Accounts Payable has completed the period close to
ensure that all the invoices that will be processed have been processed for the period, and
any subsequent invoices will be processed in the next open period.
You can run the Uninvoiced Receipt Accrual process at any time, and multiple times during
the period, even before the Payables period has closed, and the process will reverse prior
accruals when a Payables invoice arrives. As long as you do run the Uninvoiced Receipt
Accrual process after the Payables period has closed, it will automatically reverse prior
accruals to avoid duplicating any accruals with a payables invoice accrual. Also be sure to run
this process before you close the General Ledger period.

Create Accounting is the process that posts accounting entries from the Receipt Accounting
subledger into the Subledger Accounting (SLA) rules engine, which in turn, posts the
accounting entries into General Ledger.

The Uninvoiced Receipt Accrual Report is a standard Business Intelligence Publisher report.
Typically, during period end, accrual entries are generated for uninvoiced receipts that have
not been accrued. The cost accountant prints and reviews the uninvoiced receipt amount for
which the period end accrual entry must be created.

For each PO distribution, this report captures details of net received quantity, net invoiced
quantity, net receipt/invoiced amount, and the amount of uninvoiced receipts along with the
accrual information.

20 minutes Practice
40 minutes Total
In the Accrue at Receipt flow, accrual is booked on the purchase order receipt.
At delivery, the charge account will be debited, and the Receiving Inspection account will be
credited.
The accrual is debited when the AP invoice is created.
Business benefit for the Accrue at Receipt flow: Accrual of receipts can be more timely.

The slide shows where the Accrue at Receipt option is set on the Purchase Order > Line >
Schedules tab. This is a pivotal policy decision that affects the implementation of Receipt
Accounting.
If the PO is set to accrue at receipt, Receipt Accounting takes on the accrue at receipt pattern.
If the accrue at receipt option is not enabled, Receipt Accounting creates only accounting
entries in the case where the invoice is unprocessed before the period end when you run the
Accrue Uninvoiced Receipts process after the Accounts Payable period is closed.
If you accrue at receipt, the Receipt Accounting application, on receipt, creates accounting
entries that follow this pattern: Debit Receiving Inspection, Credit Accrued Liability.
When the receipt is delivered, Receipt Accounting creates accounting entries with this pattern:
Debit Expense, Credit Receiving Inspection.
When the supplier invoice is processed in Accounts Payable, it creates an entry in this
pattern: Debit Accrued Liability, Credit Accounts Payable. The Accrued Liability account is a
clearing account, which means that ideally, the credit performed by the Receipt Accounting
application will be exactly offset by the debit from the Accounts Payable application.
When you define your SLA rules for the Accrued Liability account, you will want to keep in
mind that the nature of the account is a clearing account. Receipt Accounting provides tools to
help you reconcile your Accrued Liability account.

There are three fundamental tasks that a user must manage in the Accrue at Receipt flow.
• Review receipt accounting distributions (optional).
- Query and review all the receipt-related distributions and accounting-related
information.
• Manage Accruals (optional).
- The subsequent slides cover how a user can manage accruals, both automatically
and manually.
• Transfer data to GL (mandatory).
- This is the last step in Receipt Accounting. After the data is processed, it is
transferred to GL.

The screenshot in the slide shows the Review Receipt Accounting Distributions page. This
page includes all of the receipt information.

Automatic Accrual Clearing
If you are using the Accrual on Receipt flow, you may find the Automatic Accrual Clearing rule
feature quite helpful. Small remainders in your accrual clearing account may be the nature of
your business and small variations may be expected. To define an accrual clearing rule, go to:
Navigator > Receipt Accounting > Manage Accrual Clearing Rules.
Consider a use case where the PO is for 1000 Gallons, and 1001 Gallons are received. The
supplier invoice is for 1000 Gallons, and is processed for payment worth 1000 Gallons. This
scenario will leave a small remainder in your accrual account. This is an ambiguous situation
for the system because it cannot know whether to expect a pending return of 1 additional
Gallon, or an invoice correction. One solution is that a user can manually use the accrual
clearing page to clear these remainders. But it would be a lot of manual effort if small
variations are a normal part of your business. This is where the automatic accrual clearing
rules feature becomes useful.

Clear Receipt Accrual Balances is the process that automatically clears the routine
remainders from your accrued liability account based on the rules that you have defined.

Auto Accrual Clearing Rules
The accrual clearing rules are user defined. The example in the slide has the following rule
defined:
• If a receipt was created more than 10 days ago, it can be assumed that there are no
additional receipts or accounts payable corrections pending.
• If the amount of the remainder is small enough, you need not spend money on manual
effort to investigate it. You can adjust it with normal business variations (some amount
will be additional, some less, and it all averages out). In this rule example, the user has
defined small enough as less than $500 and less than 2% of the total.
• When the Auto Clearing process is run on a periodically scheduled basis, these small
remainders are cleared automatically. This saves time and allows you to focus energy
on tasks that really do need human intervention.
These rules work on an analogy that is similar to a fishing net. You can create as many rules
as you like, and the transactions that are picked up by any one of your fishing nets are
automatically cleared. For example, you could add a rule that says that you want to clear
anything < $50 after 5 days (even if it is more than 2% of the total), or another rule that says to
clear anything less than $750, more than 20 days old, and less than 1.5%, and so on. A
transaction caught by any rule that you define is cleared automatically.

Adjust Receipt Accrual Balances
On the Adjust Receipt Accrual Balances page, you can query any accrual based on the PO
number and other attributes. You can then perform any adjustment actions on the accrual.

The Receipt Accrual Clearing report is a standard Business Intelligence Publisher report.
This report captures the accrual clearing accounting events for each purchase order. It
displays the accrual balances that were cleared automatically, and can significantly reduce
the time spent on reconciliation activities.

The report in the slide shows the purchase order information, clearing amount, and other
details for each PO.

The Accrual Reconcilliation Report, as shown in the slide, is a standard Business Intelligence
Publisher report.
For each PO distribution, the report captures details of the transactions, the accrual amount,
and the resulting net balance in the accrual account for all purchases that are accrued at
receipt. The parameters required to run the report are: business unit, accrual account, date
range.

The report in the slide shows the Accrual account along with the balance in that account. It
also shows the PO and Invoice details that corresond to each of the accrual accounts.

Receiving may sometimes create a backdated transaction and the transaction date can be in
a closed period. When such a backdated transaction is interfaced to Receipt Accounting, it is
processed in the same accounting period if the receipt date is within the accrual cutoff date,
and if the accounting period is not closed. If that accounting period is closed, it is processed in
the next open accounting period. If the receipt date falls outside the accrual cutoff date, it is
processed in the current accounting period.
Receipt Accounting follows GL accounting periods.

This feature provides the ability to control posting backdated receipts into GL periods even if
the GL period is still “open.” This would be a control imposed in Receipt Accounting to stop
past-dated transactions from being posted with an accounting date in the past. The goal of
this feature is to give users a way to prevent backdated receipt transactions, for Accrue on
Receipt POs, from getting posted in a prior period even if the GL for that prior period is still
open.
A backdated transaction is a transaction that has a transaction date before the current period
start date and a transaction creation date on or after the current period start date.
This feature allows customers to specify a recurring date that would be applied from one
period to another. This recurring date may be called “accrual cutoff date” and is derived based
on the value of “Offset Days.”
If the receipt accounting processor runs on or before the accrual cutoff date and finds any
backdated transactions for the previous period, it would post the backdated transaction in the
previous period.
If the receipt accounting processor runs after the accrual cutoff date and finds any backdated
transactions for the previous period, it would post the backdated transaction in the current
period.

There are several background processes that you must run in order to complete the Receipt
Accounting transaction flows. These processes are all launched from the Oracle Enterprise
Scheduler, which you can use to run these background processes as needed, or you can set
them to automatically run on a repeating schedule. Many customers prefer to have their
background processes run on a repeating schedule, at least daily or multiple times per day,
depending on business needs.
The first category of processes includes those that transfer data from upstream functional
areas into Receipt Accounting:
• Purchase order information is automatically sent to Receipt Accounting by using a real-
time event model. You do not need to run a background process for this.
• Receiving information is sent to Receipt Accounting via the Transfer Transactions from
Receiving to Costing process.
• Accounts payable information is sent to Receipt Accounting via the Transfer Costs to
Cost Management process. Receipt Accounting uses the accounts payable information
to update the cost of receipts to the actual amounts that will be paid to the supplier.

The slide shows a screenshot of two interface processes that transfer Receipt and Invoice
information to Receipt Accounting.

The next category of processes includes those that process the incoming receipt information:
• The Create Receipt Accounting Distributions process prepares accounting entries for
receipts, and stages them in the Receipt Accounting subledger.

Create Accounting
The Create Accounting process posts accounting entries from the Receipt Accounting
subledger into the Subledger Accounting (SLA) rules engine, which in turn, posts the
accounting entries into General Ledger.

00 minutes Practice
20 minutes Total
The slide shows the three seeded reports in Receipt Accounting that were covered in the
previous lessons.

Create Analysis
In addition to the seeded reports provided by Fusion Receipt Accounting, you can create your
own Oracle Transactional Business Intelligence reports on transactions. Certain business
objects are exposed to users in the Reports and Analytics pane, and users can create their
own reports by using these business objects.

Navigation: Navigator > Receipt Accounting > Reports and Analytics > Create > Report



Navigation: Navigator > Receipt Accounting > Reports and Analytics > My Folders > Report
> View

00 minutes Practice
25 minutes Total
Manage Subledger Application
To understand the Subledger Accounting setup, it is important to understand event type and
event class.
• Event types match to transaction types in Receipt Accounting.
• Event class is a logical grouping of event types.
Navigation: Navigator > Setup and Maintenance > Manufacturing and Supply Chain
Materials Management Offering > Setup > Receipt Accounting > Manage Subledger
Application.

• All businesses have ledgers to hold financial information.
• A majority of this financial information flows from subledgers (such as AP, AR, and so
on) to the General Ledger.
• The financial impact of the transactions that are created in the source systems is sent to
the General Ledger as journal entries. These journal entries are stamped with specific
accounts that need to be debited or credited.
• Subledger Accounting Method is a setup task that specifies which account to use for
which transaction, and for which Subledger application. SLAM ties the event class or
event type to the Journal entry rule set.
• Journal Entry Rule Set is a setup task that has a group of rules, and it brings together
the event class, event type, Journal rule line, and accounting rule. For this combination,
it indicates whether a debit or credit should occur.
• Journal Rule Line is a setup task that indicates the accounting line type to be used for a
particular event class.
• Account Rule is a setup task that groups the Receipt Accounting Subledger accounting
line type and the account code combination identifier (CCID).

One key task when implementing Receipt Accounting is defining Subledger Accounting (SLA)
rules.
The default PO charge account (often the expense account) and the accrual accounts are
entered on the PO distributions. Typical implementations of SLA will have accounting rules
that accept accounts from the PO. For Invoice Variance lines such as Invoice Price
adjustment, the default account is obtained from the invoice document.
Another key attribute on the purchase order line schedule is the option to accrue on receipt. If
you are accruing at period end and not on receipt, Debit to the Expense Account and Credit to
Accounts Payable is created by the Accounts Payable application when you process the
supplier invoice.
In case some supplier invoices for receipts in a period are not processed before the Accounts
Payable application closes for the period, Receipt Accounting has a process to automatically
accrue uninvoiced receipts. You will generally want to run the accrual of uninvoiced receipts
function after the Accounts Payable period is closed but before the GL period is closed. The
uninvoiced receipt accounting entries follow this general pattern: Debit Expense Account,
Credit Accrued Liabilities. This is an auto-reversing entry, which means that SLA creates
another entry automatically in the subsequent period in the opposite direction: Credit
Expense, Debit Accrued Liabilities.

In your SLA configuration, for a simple Procure-to-Pay flow, you must define rules for deriving
the Receiving Inspection account and the Tax Recoverable account.
The account numbers for the following accounts are derived from a source document, such as
the PO or Invoice:
• Expense
• Expense Accrual
• Accrual Account
• Invoice Price Adjustment
• Tax Invoice Price Adjustment
• Tax Rate Exchange Adjustment
• Tax Rate Variance Adjustment
• Exchange Variance Adjustment
Materials Management Offering > Setup > Receipt Accounting.

Manage Account Combination Rules
This rule indicates how the account code combination is defined. The possible Value Type
options are as follows:
• Source: From a source transaction
• Mapping Set
• Account Rule: A user-defined rule to get the account details
Materials Management Offering > Setup > Receipt Accounting > Manage Account Rules

Manage Journal Line Rules
This rule defines how an accounting line type is assigned for a specific event class and
subledger.
Materials Management Offering > Setup > Receipt Accounting > Manage Journal Line Rules

Manage Journal Entry Rule Sets
For a given event type and class, the Journal Line Rule and Account Combination Rule are
combined. It also indicates whether this combination needs to be debited or credited.
Materials Management Offering > Setup > Receipt Accounting > Manage Journal Entry Rule
Sets

Manage Subledger Accounting Method
This rule defines how a rule set is assigned for a given event class and event type.
Materials Management Offering > Setup > Receipt Accounting > Manage Subledger
Accounting Method

The slide shows where accounts are defined by users on a Purchase Order. The accounts
are defined on the Distributions tab at the Purchase Order > Line > Schedule level. The PO
Charge Account and the Expense Account are used by the Receipt Accounting application as
mentioned previously.
Many customers define SLA accounting rules that simply use the charge account and the
accrual account from the PO. Also, a typical practice is that Accounts Payable SLA rules use
this accrual account to ensure that the AP entries clear the Receipt Accounting entries.

00 minutes Practice
10 minutes Total
Managerial Accounting is designed to take a fresh approach to the financial aspects of a
supply chain.
• Receipt Accounting can be implemented independently of the other solution areas for
Procure-to-Pay customers.
• Cost Accounting and Cost and Profit Planning help you to plan and account for
inventory and manufacturing operations.
• Landed Costs helps you to plan and account for additional costs to acquire materials
such as freight, import taxes, or other fees. With this solution, you can associate third-
party charges with your material purchases.

You can implement only Cost and Profit Planning if you need a solution only for business
decisions, such as what-if analyses, pricing decisions, sourcing decisions, make and buy
decisions, and product life cycle cost projections predominantly for non-accounting purposes.
(You do not need to implement Cost Accounting or Receipt Accounting unless you plan to
implement accounting for receipts and inventory flows).
If you need solutions for accounting of inventory or manufacturing flows, you need to
implement Receipt Accounting and Cost Accounting.
If you need solutions for creating standard costs for planning purposes, or for using a
standard cost accounting method, you must implement all three. Standard costs can be set up
and used for analysis purposes even if you are planning to use average or actual costing
methods for accounting.

The Cost Accounting work area contains the various tasks that are required by a cost
accountant to perform day-to-day functions, such as reviewing item costs, monitoring cost
processors, reviewing distributions, and so on.

The Receipt Accounting work area contains the tasks that are required to create and manage
purchase accruals.

The Cost and Profit Planning work area contains the tasks that are required to set up costs for
items, resources, and overheads. It also contains the tasks that help cost accountants to roll
up and publish standard costs.

The Landed Costs work area contains the tasks that are required to set up trade operations,
and estimate and capture additional costs incurred in purchasing.

Capabilities include:
• User-defined organization and granularity of cost elements, ability to track internal profits
through inventory for more accurate gross margin reporting, and easier financial
reporting consolidations
• Ability to create multiple books for different currencies or reporting requirements within a
business unit

• Adoption of set IDs for reference data. This means that you can define setup entities just
once and share your definitions across organizations (less setup).
• Tools to help users manage and minimize the effort on routine processes and tasks

Cost Accounting integrates with several supply chain and financial applications through a set
of well-defined interfaces.
• Shipping, receiving, and inventory transactions from manufacturing are interfaced to
Costing through the Inventory-Costing interface.
• Resource transactions are interfaced directly from Manufacturing.
• Payable invoices are interfaced from Payables.
• Invoices and revenue are interfaced from Receivables.
The transactions from source systems are interfaced to Cost Accounting and picked up by the
cost processor for cost accounting, based on the cost method and other cost policies.
Subsequently, the distributions are created and sent to Subledger Accounting (SLA) for
posting. SLA applies the appropriate account rule and posts the accounting entries into the
General Ledger.

10 minutes Practice
190 minutes Total
The Fusion Cost Accounting solution strives to be flexible with ease of implementation.
Cost Methods
Cost accounting methods include:
• Actual Cost, also known as “FIFO”
• Perpetual Average Cost
• Frozen Standard Cost
Cost method can be defined granularly down to individual items if necessary, but you can
define default cost methods at the organization level and at the item category level. This
ability to use different cost methods within an organization gives you the flexibility to use a
cost profile as appropriate for different types of items within your warehouse.
For example, you may have a category of items that you buy and resell, for which you want to
use an Actual FIFO cost method, and you may have standard manufactured items where a
standard cost method is appropriate. The cost accounting methods you want to use
throughout your enterprise can be defined at the setID level and shared across all of your
organizations. Not only does this save redundant setup, it also enables you to control and
standardize your cost accounting policies.

The table in the slide shows the key entities that must be set up for Cost Accounting.
• A cost organization is a grouping of several inventory organizations to help cost
accountants manage and set policies.
• A cost book helps to enable the alternate representation of cost and accounting data.
• Cost elements form the lowest level at which costs are defined, calculated, and stored.
• Cost components are used to capture costs from external sources (such as purchasing)
and also to define costs in cost planning.
• Valuation structure helps users to define the level at which they want to share costs. The
available choices include cost organization, inventory organization, sub-inventory,
locator, lot, and grade.
• A cost profile is used to define accounting policies such as cost method, cost structure,
and so on. This can be attached to a group of items or all items within a cost
organization.

Before you can set up the Cost Accounting entities, ensure that the enterprise setups have
been completed. Business units must be designated as profit center business units to be used
in Cost Accounting.
Inventory organizations must also be mapped to profit center business units to be associated
with cost organizations.
Refer to the Enterprise Concepts Guide for details on setting up these entities.

Each business unit is within a single legal entity. A business unit is an autonomous location
such as a service center, a warehouse, a store, or a factory. Each business unit likely has
internal financial reporting responsibilities either as an autonomous cost center or as a profit
center, often with a general manager who is responsible for the internal financial performance
of that location. You may have a business unit that provides shared services to many other
business units, even across legal entities, or a business unit that operates as a profit center,
generating sales to other internal and external entities.
When you define business units, you can define them as either the first legal entity (typically a
shared service cost center that provides services to other business units but does not have
sales), or the second legal entity (a profit center that has sales to other internal business units
or sales to external customers). For example, a business unit may procure goods for itself; a
shared service center procurement business unit can procure goods to be delivered to any
other business unit without creating internal sales between business units (for example, a
corporate purchasing center); and a procurement profit center business unit can purchase
goods for other business units and create internal sales and receivables between the two
business units. More details on business units and internal sales flows are covered in the
section titled “Supply Chain Financial Orchestration” of the Advanced Supply Chain
Implementation course.
Business units can contain several cost organizations, and cost organizations can contain
several inventory organizations. Cost organizations and inventory organizations can belong
only to a single business unit. It is a very simple yet powerful architecture that gives you the
flexibility to model your enterprise.
Cost Accounting setup can be performed in one of two ways. Use the quick setup option to
get started quickly, for proof of concepts, and so on. The quick setup process creates all the
mandatory setups by using predefined data. Users can modify data, and customize it to suit
their requirements.
The other option is to perform a traditional setup, by accessing individual screens to set up
the data.

The Core Cost Accounting setup has these parts:
Organizational definitions –
Define cost organizations, cost books. It is assumed that you have already defined inventory
organizations, business units and the business unit that each inventory organization operates
within. The Cost Organization Relationships definition is where you define the cost books that
a cost organization will use and the inventory organizations for which the cost organization
will perform accounting. You will also define which ledger a cost organization and book will
post accounting entries into. There are built in business rules to help you avoid mistakes such
as making sure all the inventory organizations assigned to a cost organization belong to the
same business unit, that at least one cost organization book will be posting into the primary
ledger, all secondary books post accounting into their own secondary ledger, etc.
Cost Profiles –
The cost profile is where you define accounting policies, including valuation structures, cost
components, cost elements, and the mapping of cost components to cost elements.
Assignment of cost profiles to items –

It is assumed that items
Advanced and item
Supply categories
Chain are already
and Fulfillment defined. The
Techniques default8cost
Course - 10 profile
definition is a way to have the system automatically assign cost profiles to items based on
cost organization, cost book, and item category.
The set ID–level definitions in Cost Accounting save you effort because you can share the
common set ID–level definitions across all your cost organizations. Set IDs also enable you to
ensure that cost organizations are using consistent best practices across your enterprise.
After you have your set ID–level definitions, creating a new cost organization is easy. All you
need to do is define the Cost Organization and the Manage Cost Organization relationships.
This is covered in more detail in subsequent slides.

Cost Elements form the lowest level of costs in Cost Accounting. They are user-defined and
can belong to different cost element types. The cost element types are: Material, Resource,
Material Overhead, Resource Overhead, and Profit in Inventory.
The cost details that are captured from source systems include:
• Purchase order cost components: PO price, freight, tax, and invoice variance
• Interorganization transfers: Transfer price, source organization cost, and freight
Cost components represent the most atomic level of cost detail coming into Cost Accounting
from upstream sources such as Purchasing and Accounts Payable, which are translated into
cost elements based on the cost component mappings.
Cost Analysis groups offer you a way to group cost elements through analysis codes into cost
buckets such as Fixed, Variable, Direct Material, Factory Overheads, and Marketing
Expenses.

The table in the slide shows the relationship between cost components, cost elements, and
analysis groups. In this example, the cost components, PO Price and Transfer Price, are
mapped to the same cost element: Direct Material. The cost elements can be mapped to the
user-defined analysis groups, Marginal Costing and Cost Sheet, to analyze the cost
differently.

Navigation: Navigator > Setup & Maintenance > Manage Cost Elements
Here is an example of how you can define cost elements for the common set. The common
set is a predefined set ID that is universally available to all your cost organizations. You can
also create your own set IDs if you need to segregate your policies across business units. For
example, if you need the lines of business to see different selections of cost elements, create
set IDs so that each line of business sees only the values that are relevant to it.

Navigation: Navigator > Setup & Maintenance > Manage Cost Component Mappings
Cost components represent the most atomic level of cost detail coming into Cost Accounting
from upstream sources of cost such as Purchasing and Accounts Payable. Cost elements are
the level where you want to track costs through inventory. You can track as much detail as
needed through inventory, but the trade-off is the additional rows of data in the database and
the number of accounting entries you will see for each inventory transaction. If you track five
cost elements, that would be 10 rows of debits and credits for every inventory transaction.
Many customers choose to map cost components to only a couple of cost elements.

Navigation: Navigator > Setup & Maintenance > Manage Cost Component Mappings
Many customers use one set ID for all their cost organizations. However, if you want to
transfer inventory between inventory organizations that use different set IDs, you also need to
map the source cost element to the destination cost element. In a basic configuration, you
simply map like for like, but you do have the flexibility to remap source cost elements to
different destination cost elements if desired. This is a one-time setup at the set ID level.

The valuation structure defines the level at which you want cost accounting to track quantities
and costs for items. Define a valuation unit structure for the possible levels that you will use
for items, because, as you see in a later slide, in your cost profile definitions, you choose one
of the valuation unit structures that you defined.
For example, if you want to maintain average costs at the Inventory Organization + Item level,
you can define a valuation unit structure to do that. If you have other items that are lot-
controlled, you can define another valuation unit structure to track quantities and costs at the
lot level, which means that each lot will have its own average cost.
Similarly, if you are using an actual FIFO cost method, the valuation unit structure is how you
set the boundaries for your layers. If you are using a valuation unit at the lot level, a depletion
transaction will consume only from receipt layers that have the same lot ID as the depletion lot
ID. You can define as many valuation structures as you need and different items within an
organization can use different structures, depending on the nature of the item. Some items
might be lot-controlled and other items in the same organization may not be. This gives you a
lot of flexibility and control.

Valuation structure is the level at which costs are calculated and stored. To ensure that the
costs calculated are accurate, the Cost Accounting system also calculates and stores
inventory balances at the same level at which the cost is calculated.
In the example in the slide, the user selects a combination of inventory organization and
subinventory as the valuation structure. When an inventory transaction is interfaced to
Costing, the cost processor stamps a specific identification of the valuation unit based on the
inventory organization and subinventory that are stamped on the transaction. This helps the
cost processor to calculate costs based on the cost method for this inventory organization.
In this case, the three subinventories have different costs, because each of them is a separate
valuation unit.

Navigation: Navigator > Setup & Maintenance > Manage Valuation Structures

A cost profile is the central definition of your cost accounting policies. It is where you define
the cost method that you want to use (Actual FIFO, Average, Standard), your cost element
structure, your valuation unit structure, and other settings such as how to process negative
inventory, assign a cost to returns, and so on.
The cost profile definition is in the context of set ID so that when you define the cost profiles,
you can share those across all your cost organizations. The cost profile definition is where
you balance the need for consistent accounting policies across your organizations while
allowing flexibility tailored to different kinds of inventory items and flexibility to meet various
internal and external financial reporting requirements.
In the next few slides, you see how cost profiles are assigned to items for cost accounting
purposes. These are all one-time setups. The Cost Accounting solution is setup-intensive in
order to provide the necessary configuration options that different customers need. After your
system is configured, your daily cost accounting processing is automated.

The cost profile contains three important attributes:
• The valuation structure, which determines the cost-sharing levels
• Cost elements, which are the basic building blocks for costs
• Cost policies, which determine the key costing information such as:
a) Cost method
b) Unit of measure to be used in costing (Primary or Secondary)
c) Policies to handle exceptions such as partial completions, scrap, and negative
inventory

Navigation: Navigator > Setup & Maintenance > Manage Cost Profile

Navigation: Navigator > Setup & Maintenance > Manage Default Cost Profiles
How does the system know which cost profile to use for which item? It would be difficult if a
user had to manually assign a cost profile to every new item, and easier if the system
automatically assigned cost profiles to items based on default settings. This is where you can
define your default cost profile assignments.
If all the items in a cost organization use the same cost profile, it is easy. You define that as a
single row for the cost organization on this page. However, in many businesses, it is not
always realistic that all the items in a warehouse use the same cost accounting methods. You
may have some items that are lot-controlled, some items that are serial-controlled, some that
are not lot or serial-controlled, some that are standard, some custom, and so on. You can
assign different cost profiles to different categories of items as needed.
Inventory allows you to track inventory either as an asset or expense. An item that is tracked
as an inventory asset is most familiar to many people. This is where goods are treated as
assets and the cost basis value of those assets is held in the current assets section of the
balance sheet in the financial statements.

Inventory also enables you to deliver expense receipts into inventory, which lets you post the
costs to an expense account and also keep track of your on-hand quantities and value. You
can define a cost profile for both situations on this page.
In the New Item Profile Creation column, you can let the system automatically set the cost
profile of new items without user intervention. Many customers choose this option because it
reduces manual efforts. But some customers may want a live person to approve the default
cost profile after it is automatically assigned to a new item but before any transactions are
processed. You may have some categories of items where the automatic option is appropriate
and other categories of items where manual intervention is needed. This page enables you to
define options that make most sense for your business.
Again, if you want the system to use a single cost profile for an entire cost organization
automatically, it is easy to do, but be aware that more options and controls are possible as
needed.

Navigation: Navigator > Setup & Maintenance > Manage Cost Organizations
The previous setups were at the set ID level and now we are getting into organization-level
setups. Remember that set ID‒level setups will be shared across your organizations.
The screenshot in the slide shows where you can define a cost organization as part of your
enterprise structure. As part of this definition, you will also define the legal entity for this cost
organization.
A legal entity is the umbrella that contains business units and business units can contain
many inventory organizations. Cost accounting organizations perform cost accounting for one
or more inventory organizations in a business unit. The legal entity affects the GL ledgers that
the cost organization will post accounting entries into. You will see how to associate inventory
organizations with cost organizations subsequently.
The screenshot in the slide shows how to create a cost organization. You can create a new
cost organization and enter details for it, including Name, Code, and Legal Entity.
Alternatively, you can assign an existing inventory organization as a cost organization.

Navigation: Navigator > Setup & Maintenance > Manage Cost Organization Relationships
The screenshot in the slide shows where you can define relationships for the cost
organization.
Here you define the set ID that the cost organization will use, and the inventory organization
that is the item definition reference organization (also known as the Master Inventory Item
Organization). The next step, on the Inventory Organizations tab, is to define the inventory
organizations for which this cost organization will perform cost accounting. As mentioned
earlier, there can be one or more inventory organizations.

Cost books help to achieve true multiple representations of cost transactions. Whereas the
primary book is used for accounting and regulatory purposes, secondary books can be used
to represent the same data in different ways. For example, you can use different cost
methods, currency, overhead absorption methods, and so on. You could also create ledger-
less books when multiple representation is not required for accounting.

Navigation: Navigator > Setup & Maintenance > Manage Cost Books
This is where you define the cost books that you want to make available to your cost
organizations.
Many enterprises need only a single cost book for financial reporting. You do not need to
define separate cost books for every cost organization. A single one such as Financial
Reporting will do, and all cost organizations can share the book name. You can also create as
many cost books as you need for various secondary, local, regulatory, and internal
management reporting purposes.

Navigation: Navigator > Setup & Maintenance > Manage Cost Organization Relationships
On the Cost Organization Relationships page, you also define your cost books and for each
cost book, the ledger into which the accounting entries will be posted. A cost organization
needs to have one cost book that posts into the legal entity primary ledger. For many
enterprises, this is the only book they need in order to run their business.
For customers who want to get into more advanced cost accounting features, cost
organizations can have more books that post into secondary ledgers. Only one of the cost
organization books can post into any one ledger (because obviously if multiple books are
posted into the same ledger, there would be double counting). It is possible to have a
secondary book that does not post into a ledger at all, and this is known as a ledger-less book
that can be used within the cost accounting system for analytical purposes. As mentioned
before, the reason you might want multiple books is for internal management reporting
requirements or local regulatory accounting purposes.
For example, you may be in a location that needs to track and account for inventory value in
terms of two currencies, such as a local currency and a corporate currency. One way to
achieve this is with multiple books.
Or for example, you may have one cost method that you use for corporate external financial
reporting purposes, and another that you use for local regulatory reporting purposes or for
internal management decision-making purposes. You can create secondary books for this.

Also note the period end validation settings. Cost Accounting provides several audit tools that
you can run throughout a period in order to ensure that your system is in balance and running
healthy. A crucial juncture occurs as period end approaches where you need to decide how
strict you want your period end process to be. This is where you define whether or not you
want to prevent users from closing a period if they have an error, or if you want the error to be
known (a warning) but still allow users to close the period if they deem the error to be not so
significant that it should stop a period close (the materiality principle).
Cost Accounting avoids putting users at points of no return where possible. Closing a period
is a step that you cannot undo after transactions in the subsequent period are processed, but
if a user closes a period with unaccounted transactions (we assume that it was consciously
done because they were immaterial amounts), those transactions will not remain forever. The
system simply performs cost accounting for those transactions in the subsequent period after
the reason that the transaction could not be processed is resolved.

Navigation: Navigator > Setup & Maintenance > Manage Overhead Expense Pools
Another useful feature in Cost Accounting is the ability to define rules to absorb the overhead
expenses that are triggered by inventory transactions. On this page, you define categories of
expenses that you want to absorb. You can also define the cost element for tracking the
absorbed costs in inventory.
For example, you may have some warehouse overhead expense items such as building
expense and labor that you want to absorb and include as part of the value of your inventory.
You could define an overhead rule for every receipt transaction that absorbs an appropriate
amount of overhead.

An expense pool is simply a way to categorize the expense items that you want to absorb.
You can also use the expense pool as an attribute in your SLA accounting rules in order to
direct your absorption accounting to the appropriate general ledger account. The accounting
pattern typically is: Debit Inventory, Credit Absorption Account. The intent of the architecture
is to allow you to achieve an end result where you can see the following on your financial
statements: the expenses incurred and the amount absorbed, along with an ability to
understand the over and under absorbed expenses for each pool of overhead expenses.
Expense Pool A
Expense 1 $3000
Expense 2 $2400
Absorbed Amount <$5250>
Under (over) absorbed amount $150

With Quick Setup, users can configure and run the Cost Accounting application with minimal
effort. The Quick Setup task performs a series of setup tasks with default values. The task
requires some basic information on the cost organization and cost method that the user wants
to use.
Quick Setup is useful for a simple implementation of Cost Accounting or for pilot
implementations. After the Quick Setup task creates the various entities, you can extend and
modify the data if necessary.

The Quick Setup task performs a series of tasks, and generates the data in the UIs listed
here.
Navigation: Navigator > Setup & Maintenance > Manufacturing and Supply Chain
Management > Setup > Wheels icon next to Cost Accounting

The table in the slide shows the default data that is generated by the Quick Setup task.

Navigation: Navigator > Cost Accounting > Manage Accounting Overhead Rules
The slide shows where you define your overhead absorption rules. You can define overhead
rules for the combination of a cost organization, book, and transaction and the rules can apply
to all items, a particular category of items, or a particular item. These rates are associated
with an expense pool and a cost element, which is what you saw in the previous slide.

Cost Accounting uses background processes extensively to interface data from and to Cost
Accounting. The Create Cost Accounting Distributions UI helps cost accountants to set up
user-defined schedules to run the Cost Processor for several cost organization – cost book
combinations and to run processes selectively.

The table in the slide shows the background processes that must be scheduled to run at
periodic intervals to push data from source applications to Cost Accounting.

Cost Accounting uses SLA to convert the distributions created into journal entries and transfer
them to General Ledger. SLA provides a host of powerful tools to create user-defined account
rules, and helps users to review journal entries before submitting them to General Ledger.

Navigation: Navigator > Cost Accounting > Create Accounting
The SLA Create Accounting process accesses data from various subledgers, creates the
journal entries, and transfers them to General Ledger.
The Accounting Mode option can be Final or Draft, and can be run for a specific set of
transactions (Inventory, Purchasing, WIP, and so on) or for all. The cost accountant can
decide to transfer to General Ledger or run in draft mode as many times as needed, before
transferring to General Ledger.

Navigation: Navigator > Cost Accounting > Review Journal Entries
Use the Review Journal Entries page to review the journals that are generated. Cost
accountants can navigate to the View Journal Entry page to look at more details of the
journal.

The table in the slide describes important considerations before planning the Cost Accounting
implementation.
The answers to these questions would influence the key setup decisions on costing functional
areas. These are just indicative and not exhaustive, and vary from one customer to another.
The key aspect is if a customer from earlier releases has a set of Cost Accounting practices,
the same need not be carried forward into this release. The best practice would be to re-
assess the costing processes that were implemented earlier and take advantage of the new
costing capabilities in the current release, where appropriate.
Examples
Valuation Structure
• Assume that you have two subinventories dedicated to hold returned goods and the rest
of the subinventories to hold normal goods, and need cost to be maintained at the
subinventory level. In this case, you will create a manual valuation unit to group the two
returned goods subinventory.
• A few items are lot-enabled and cost must be tracked at the lot level. In this case, the
item needs to have a valuation structure that is lot-enabled. Such items will have costs
at the lot level.

Examples
Cost Profile
• The number of cost profiles depends on the uniformity of the Cost Accounting policies.
Suppose that there is a category of items that follows the Average cost method and
needs cost to be tracked at the inventory organization level; you just need one cost
profile for the entire item category. All the items in that category will inherit the same
cost profile.
• However, if there is an item within that item category that is grade-enabled and requires
cost to be tracked separately for each grade, you would need a new cost profile for such
items where the valuation structure is grade-enabled.

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20 minutes Practice
50 minutes Total
Cost Accounting uses background processing tasks extensively. By accessing the monitor
process in the Cost Accounting work area, users can check the status of the background
processes that are running in Costing. This provides information on the processes that were
run for a specific time period.

On the Review Cost Accounting Processes UI, users can identify issues logged against each
run of the Cost Processor. The UI provides a list of the warning, information, and error
messages that are logged, and in most cases, the cause and the action that a user must take
to resolve the exceptions.

On the Review Item Costs UI, you can review item costs, compare costs, and review
transaction cost information.

On the Review Cost Accounting Distributions UI, you can see what happened to a transaction
that was interfaced from a source system. This UI provides detailed information about a
transaction, including:
• Costing status
• Accounting status
• Costing attributes used (cost organization, book, valuation unit, cost profile, and so on)
• Transaction reference information (for example, purchase order number for a receipt,
work order number for a component issue, and so on)
• Depletion layer information (useful for Actual costing)
• Source cost information, including cost component–level cost (for example, details of
item cost, tax, and freight for a purchase receipt)
• Cost distributions at a cost element level (this information is transformed into journal
entries when the transaction is accounted in SLA)
• Information about any transaction errors
• Journal entries created in SLA and the status of those journal entries

Cost adjustments can be manually created, or in some cases, created automatically by the
Cost Processor. Typical manual cost adjustments include adjustments to perpetual average
cost, adjustments to specific receipts, or adjustment of the cost of a specific cost layer. The
Cost Processor also creates adjustment transactions when the cost of a transaction is
updated. For example, when invoice price variance is reported, the item cost needs to be
adjusted to include this new component.

05 minutes Practice
15 minutes Total
Supply Chain Managerial Accounting 10 - 2
In Cost Accounting, periods are set up to help users manage when transactions are costed
and accounted. Business users do not have to worry about period statuses to create their
transactions. Business users can create the transactions based on their needs, and Cost
Accounting slots them in appropriate periods based on cost cutoff dates and period statuses.
Cost Accounting periods enable you to monitor the timing of transaction processing, and to
perform validations in preparation for period close. Cost periods are associated with
combinations of cost organizations and cost books. When you associate a cost organization
with a cost book, you also define the cost accounting period calendar and other attributes.
When a cost book is associated with a cost organization, users can set up the maximum
number of open periods allowed. Users can also define the behavior of the system if it
encounters exceptions during period end validations. Valid options for exceptions are Error,
Warning, or Ignore. Period end validations can be run by the user at any time, and as
frequently as needed during the period. Performing period end validations regularly helps to
identify issues proactively and fix them before the period end, thereby reducing the time to
close a period.

The cost period statuses are as follows:
• Never Opened: This is the default status for new periods, and does not allow creation of
distributions for transactions.
• Open: A period status can be changed to Open only if the corresponding general ledger
accounting period is open. You can open several periods at a time, as long as they are
contiguous. You cannot change the current period to Open if the prior period status is
Never Opened. When a period status is Open, inventory transactions can be accounted
in that period; when the period is not open, inventory transactions cannot be accounted
in that period, but they will be accounted in the next open period. Both costing and
general ledger periods must be open for a transaction to be accounted; if the costing
period is open but the corresponding general ledger period is closed, the transaction
cannot be accounted and is held pending further user action.
• Pending Close: This status is used to stop transactions from being accounted in this
period. Any new transactions that are entered with a transaction date that falls in a
period that is in Pending Close status are held pending further user action. You can set
the Pending Close status back to Open status, and then process the transactions, so
that those that fall into the period are staged for accounting in that period; or you can set
the status of the period to Permanently Close and set the next period to Open, in which
case the transactions are accounted in the next open period.

• Closed: You can change this status to Permanently Closed or you can revert it to Open.
When you set a period status to Closed, you have the option of configuring the
processor to allow closing even if all validations do not pass; this enables you to decide
when discrepancies are not material enough to delay period close. You can also
configure the processor to prevent closing a period until all selected validations pass.
• Permanently Closed: This status closes the period for all types of transactions
irreversibly. You cannot change the period status to Permanently Closed without first
changing the prior period status to Closed.

The following period end validations can be run at any time during the period to avoid
surprises at period end:
• Pending Processing: Detects inventory transactions that have not been interfaced to
cost accounting.
• Pending Cost Processing: Detects transactions that have not yet been processed by
the create cost accounting distributions process.
• Pending Create Accounting Final Mode: Detects cost accounting distributions which
have not yet been posted into GL.
• Pending Revenue Recognition Events Import: Detects revenue recognition events in
accounts receivable which have not yet been processed in cost accounting. This
functionality recognizes Cost of Goods sold in the same proportion as recognized
revenue.
• Items with onhand Costing and Inventory Mismatch: This is a proof to provide you
with confidence the qty onhand per cost accounting is the same as the onhand per the
inventory system.
• Completed Work Orders not closed: Detects work orders that are completed but not
yet closed. There may be completed work orders that should be closed. Work orders
need to be closed to finalize the cost accounting.
You can execute these validations

Supply Chain one at a timeAccounting
Managerial or all at once.10
You
- 7can correct any resulting
transaction errors, and rerun validations as needed.
One of the purposes of a cost cutoff date is to allow backdating of transactions in an orderly
fashion. For example, if you set the cost cutoff date to October 31, you can still process the
October transactions that were entered in November but meant for the period ending October
31 by backdating them to October 31 or earlier. However, when the cost cutoff date advances
forward to a date past October 31 and other transactions are processed beyond October 31,
the backdated transactions can no longer be processed as October transactions.
If you set a cost cutoff date at October 31, the cost processor queues up but does not process
any transactions with a date after October 31. If you subsequently need to backdate the
transactions to a date before October 31, you can still process those backdated transactions
as long as you do not process any transactions beyond October 31. You can also backdate
transactions to any date after October 31, with the assurance that these transactions will be
processed in the correct order when the cost cutoff date moves forward.

05 minutes Practice
10 minutes Total
Cost Accounting includes the reports listed in the slide, which can be viewed for a number of
parameters. It also has options for viewing the data by using different report formats. These
reports are built by using the Business Intelligence Publisher tool, and can be customized to
meet your requirements.

20 minutes Lecture and Practice
00 minutes Practice
20 minutes Total
The cost planning solution is designed to be auditable and interactive.
Work Definitions
This process typically starts with manufacturing engineers who define what are called “work
definitions”.
• A work definition defines, at each operation, the required materials, labor, and machine
resource time.
• The work definition also specifies the output item, the typical batch size quantity to be
assumed for purposes of calculating the total cost of a typical work order, and it defines
whether or not the inputs at an operation are a fixed quantity or variable.
- A fixed quantity operation is for situations where you will consume a fixed quantity
of input materials and resource time regardless of the batch size quantity. For
example, you may have machine setup operations that require a set amount of
time to perform, along with a set quantity of material that will be consumed during
test runs to verify the machine is set up correctly.
- A variable operation, such as a machine run operation requires an amount of input
material and resource time that varies with the output quantity. These parameters
on the work definition affect the calculated costs.
SCM Foundation 17 - 3
Selecting Work Definitions
There may be more than one work definition for a given manufactured item to reflect
alternative input materials, alternative routings, and so forth. For the purpose of a costing
scenario, you choose one work definition per manufactured item as the one to use for
establishing your standard costs.
• There are tools to help you make this choice efficiently by using values that already exist
on the work definition for other purposes.
• You can simply select the work definition for each item that has the top production
priority, or you can walk down the structure by using “name”. For example, you could put
“Plan A” in the name of your preferred work definitions and the system selects those
work definitions.
• You can also set a costing priority on your work definitions and have the system select
the work definition with the top costing priority for each item. And you can prioritize these
choices. For example, you can have the system find the work definitions for items
named “Plan A”, then top production priority. That way, if an item does not have a work
definition named “Plan A”, the system looks for the work definition with the top
production priority and selects that one.
Scenarios
A cost accountant creates records of purchased material cost estimates, resource rates, and
overhead rates. A scenario is a container for these cost estimates, and you can use different
scenarios for different cost assumptions if you wish to compare alternatives and
contingencies. The user interface is designed to be interactive so you can run the cost rollup
calculations, see results, modify assumptions, correct missing information, and rerun cost
rollup to see the new results. After the cost accountant is satisfied with the results, the
standard costs can be published to be used for cost accounting purposes. You can publish
standard costs for future effective dates. The cost accounting system will automatically
implement those new standards when the effective date arrives.
SCM Foundation 17 - 4
The costing of manufactured items includes the following capabilities:
• Setup of standards for purchased components and costs for resources and overheads
• Cost rollup with the costs and work definition information
• Publishing of costs to Cost Accounting
• Costing of work order transactions and creation of distributions
The following types of manufacturing are supported:

• Work order–based manufacturing for normal and configured items
• Work order–less manufacturing
• Contract manufacturing

Cost and Profit Planning provides flexible cost setup, including user-defined cost structure for
estimation, user-defined expense pools for overhead absorption, and flexible planning for
inventory organizations.
Cost simulation is performed by leveraging the fundamental concepts of a cost planning
scenario. With the cost planning scenario, you can select the work definition and explosion
logic, accurately define and maintain costs, and associate them with items across the global
supply chain for detailed product profitability planning purposes. The scenario also provides
user-friendly views into standard costs to proactively manage cost structures, and publish
standards to take effect on a specific date.

Manufacturing is typically a three-step process: input  process  output.
• Inputs form the material aspect that involves components or other subassemblies that
are used as inputs to manufacture a product.
• The process represents the transformation or the value that is added. These input
materials are transformed into a finished product or output of more value by utilizing an
organization’s resources (machine and labor).
Throughout the manufacturing process, various costs are incurred by the organization, which
must be estimated carefully, because it can influence complex production or business
decisions. Cost and Profit Planning is the application that helps to estimate these costs by
adopting a modular model of planning so that it can also assist the overall cost management
cycle.

Cost and Profit Planning estimates all possible costs in a typical manufacturing operation,
including the following:
• Cost of raw materials or input materials are estimated in a Material Cost Plan.
• Cost of converting input materials, that is, conversion costs are estimated by using a
Resource and Overhead Rate Plan.
• Rolled-up cost of output materials are calculated by using a Cost Planning Scenario.

Fusion Cost Accounting supports costing and accounting of different types of manufacturing,
including:
• In-house manufacturing
- Standard work orders
- Non-standard work orders
- Work order–less manufacturing
• Contract manufacturing
• Manufacturing of configured items

The material transactions are sourced from Inventory, whereas the resource and work order
information is imported through a set of interface tables. The Cost Processor picks up these
transactions and creates the necessary cost transactions, and calculates the costs incurred
and detailed variances for each work order. The distributions for these transactions are
created and interfaced to Subledger Accounting (SLA).

05 minutes Practice
15 minutes Total
Enabling cost organization for cost planning helps to define and maintain costs across
multiple locations and production facilities. One of the modeling options is to perform cost
planning at the business unit level, by mapping all the inventory organizations that belong to
the business unit to one cost organization.

Enabling Costing
Resources must be active and enabled for Costing for purposes of estimating resource rates.
The Costing enabled check box must be selected on the Create Resource page.
Navigation: Navigator > Manufacturing > Work Definitions > Tasks > Manage Resources >
Create/Edit Resource
Editing Work Definition Details for Cost and Profit Planning

The Costing Priority and Costing Batch Output Size fields are defined on the Work Definition
page. These attributes are used in Cost and Profit Planning for the purposes of selecting the
work definition, and exploding the work definition tree for cost rollup.
Navigation: Navigator > Manufacturing > Work Definitions > Tasks > Manage Work
Definitions > Create/Edit Work definition

Defining Additional Cost Profile Details
Additional attributes must be defined in the Cost Profiles UI for manufacturing costing.
Navigation: Navigator > Setup and Maintenance > Search -Tasks > Manage Cost Profiles
Additional attributes include:
• Option for costing provisional completions
- Value at last actual cost
- Value at perpetual average cost
- Value at standard cost
• Timing of operation scrap valuation
- Value at work order close
- Value immediately and at work order close
- Value at cost cutoff date and at work order close
• Operation scrap accounting option
- Include in inventory
- Expense

20 minutes Practice
55 minutes Total
Resources are defined in manufacturing and added to the work definition along with the item
structure. The work definitions are additionally prioritized for production, planning, or costing.
For purposes of cost estimation, the system picks up only those resources that are specifically
enabled for costing by selecting the Costing-enabled check box on the resource setup page.
Similarly, an item can have multiple work definitions in manufacturing, for different purposes
and with different costing and production priorities. In Cost Accounting, users can manually
configure the work definition selection criteria to select either the costing or the production
priority, or to select a specific work definition by name for cost rollup, or the cost as-of date of
active work definitions.

• A Material Cost Plan is the entity that holds the standard costs for input components or
items that are defined as buy items.
• Material Cost Plans are defined for a cost organization and an item master organization
combination.
• Standard costs for items can be shared across all inventory organizations that share the
same item master organization.
• Standard costs can be entered directly on the UI, or imported via a spreadsheet in either
online or offline mode.
• Standard costs for items can be entered for every quarter, at mid-year, or annually, with
specific effective start and end dates. For example, an item can have different standard
costs for each quarter.
Item A:
standard cost = $20.00 effective start date 01-Jan-15
standard cost = $22.00 effective start date 01-Apr-15
standard cost = $23.00 effective start date 01-Jun-15
• Users can estimate material costs by copying existing actual or average costs for the
items in a period, and simulating and setting a new standard cost for the following
period.

Navigation: Navigator > Costing > Cost and Profit Planning > Tasks > Manage Resource and
Overhead Rates > Manage Resource Rates
• Resources are set up in Manufacturing. The costing option is enabled in the resource
definition for estimating rates. Resource rates can be entered directly as and when the
resource is created in Manufacturing.
• Resource and Overhead Rate Plan is the entity that holds rates for resource
consumption and overhead absorption. This rate plan is defined for a combination of
cost organization and inventory organization.
• Resource rates can be directly entered on the UI or imported via a spreadsheet (in
online or offline mode). Rate plans can be created for different accounting or
management reporting purposes.
• Rates for resources can be entered for every quarter, mid-year, or annually, with specific
effective start and end dates. For example, a Resource can have different rates every
quarter.
Resource A:
resource rate = $10.00 effective start date 01-Jan-15
resource rate = $12.00 effective start date 01-Apr-15
resource rate = $13.00 effective start date 01-Jun-15

Navigation: Navigator > Costing > Cost and Profit Planning > Tasks > Manage Resource and
Overhead Rates > Manage Overhead Rates
A Resource and Overhead Rate Plan is the entity that holds the rates for resource
consumption and overhead absorption. This rate plan is defined for a combination of cost
organization and inventory organization.
Overheads such as plant lighting and security, which are incurred by all the work centers, are
termed “plant overheads” and absorbed by the cost object or item as a percentage of the
material cost. All the other overheads that can be assigned to specific work centers are
termed “work center overheads” and are absorbed by the cost objects as a percentage of the
resource cost.
Overhead absorption rates are date effective. For example, a user can set different absorption
rates for every quarter.
Plant / work center overheads:
plant/ work center rate = 5% effective start date 01-Jan-15
plant/ work center rate = 7% effective start date 01-Apr-15
plant/ work center rate = 8% effective start date 01-Jun-15

Navigation: Navigator > Costing > Cost and Profit Planning > Tasks > Manage Cost Planning
Scenarios > Edit
A cost planning scenario is used to estimate the standard cost for assemblies and finished
products. This scenario is defined in the context of an inventory organization and cost
organization.
A cost planning scenario is associated with a rate plan, work definition selection criteria, and
the effective start date on which the standard cost for assembly is calculated.
Multiple work definitions may be available for an item, from which users can select one for
cost estimation. The selection can be made based on the following:
• Work definitions with the highest production priority
• Work definitions with the highest costing priority
• Work definitions with a specific name
• Combination of all the above
Users can select from the available criteria and also specify the sequence of execution. For
example, if an item has a work definition named Plan A, select it for rollup; otherwise select
the top cost priority. If there is no Plan A work definition or cost priority, use the top production
priority.

Eligible work definitions for all the items in an inventory organization are selected at once
based on the selection criteria defined in the cost planning scenario. Users can run the
Perform Build and Cost Rollup process from the Actions menu for selecting and exploding the
work definition. This process can be scheduled to run at periodic intervals.

Example:
Item AB has input items A, B, and C. The ABC costing batch size quantity is 10; the B costing
batch size is 20; Part A and Part C are purchased components.
The build logic first grabs the work definitions for ABC, and then for item B based on the
selection logic. Then after the build in the cost rollup, it computes the total cost of making 20
of B divided by 20 to get the per unit cost of B; then it goes up to the next level to compute the
total cost of making 10 of ABC where it multiplies the number of As needed to make 10 ABCs
by the per unit cost of A, plus the number of Bs needed to make 10 ABCs multiplied by the
per unit of B, and so on, until it gets the total cost of making 10 ABCs, and then divides that by
10 to get the per unit cost of ABC.
Work Definition: ABC

Costing Batch Size: 10
Part A: 2 units for every 1 unit of ABC
Item B: 1 unit for every 1 unit of ABC
Part C: 0.50 unit for every 1 unit of ABC

Work Definition: B
Costing Batch Size: 20
Part B1: 2 units for every 1 unit of B
Part B2: 1 units for every 1 unit of B

Scenarios > Edit > Go To Tasks > View Rolled up Costs
As soon as the job for a scenario build and cost rollup is complete, users can verify the work
definitions selected for cost estimation in the scenario before the final cost rollup, or they can
skip viewing of the work definition and directly view the rolled-up costs.
The costing quantity on the work definition is the assumed batch size for the purposes of
computing a standard cost. This has the biggest effect when there are operations or inputs of
a fixed amount. For example, let’s say that there is a setup operation in the production
process such as “adjusting machine to the fit this item’s measurements,” or there is a need to
run a certain number of trial outputs regardless of the number of good outputs (that is, use up
a fixed amount of material). This is relevant in cases where it requires the same amount of
material, labor, and machine time to make 1, 10, or 1000 items. If the operation has $1000 of
fixed cost per 1 unit of output, you get a different per unit cost for the work definition than if the
$1000 of fixed cost is for 1000 units of the output. The variable costs must also be factored
into the calculation.

Formula:
+ Fixed cost operations
+ variable per unit input times quantity of input consumed (which is often based on per unit
of output)
= Total cost
Divide by cost quantity
= Per unit cost
If the results are not satisfactory, users can change the selection criteria, including the rate
plans, and rerun the build and rollup process.
Rollup cost can be viewed in tree or hierarchy mode. Viewing the data in hierarchy mode
facilitates analyzing the rolled-up costs with the drill up and drill down functionality.

Scenarios > Edit > Go To Tasks > Compare Rolled-Up Costs
Multiple scenarios can be created for a cost organization and an inventory organization for a
given period, and users can perform cost comparisons across scenarios before finalizing the
cost to be published as a frozen standard cost.

Scenarios > Edit > Go To Tasks > Publish Costs
The cost planning scenario is the single gateway through which costs are published to
designated accounting cost organizations and cost books.
There are three cost objects that are assigned to the cost planning scenario from which costs
can be published:
1. Material cost plan, from which frozen standard costs for components, input materials, or
buy items are published
2. Resource rate plan, from which rates for resource usages are published
3. Rolled-up cost, from which the frozen standard cost for assemblies or the finished
product are published
Users can publish all three cost objects at once or individually. There are typically two sets of
data that are eligible for publishing through these options:
(i) Items or resources used in the scenario for cost rollup
(ii) Items or resources not used in the scenario for cost rollup
If the rolled-up cost option is selected for publishing, in addition to the rolled-up cost of the
item, the standard cost or resource rates for the components and resources used in the cost
rollup are also published.
20 minutes Practice
50 minutes Total
After work orders have been created and transacted in Manufacturing, the transactions must
be interfaced to Costing through the background processes. The Cost Processor will then pick
up the interfaced transactions, cost the work order, and create the necessary accounting
entries.

In Manufacturing, create a work order for an item that has a valid work definition and other
related setups.
Navigation: Manufacturing Execution > Manage Work Orders

Use the Quick Complete option to complete the entire planned quantity. The necessary
material and resource transactions are created automatically.
Navigation: Manufacturing Execution > Review Dispatch List

Review the transactions that have been created for the work order.
Navigation: Manufacturing Execution > Review Production Transaction History

The Transfer Transactions from Production to Costing process is available in the
Manufacturing Work Execution work area.
The Transfer Transactions from Inventory to Costing process is submitted from the
Scheduled Processes page, which is accessed from the Tools section of the Navigator
menu.

Create Cost Accounting Distributions is the key process that creates all cost transactions for
all resource and material transactions that are interfaced to Costing. This process, in turn, has
several sub-processes that you can run selectively.

Review Work Order Costs is a single interface that provides all the information that is required
to analyze work order costs. Cost accountants can review summary or detailed versions of
input costs, output costs, variances, and scrap information.

The Review Cost Accounting Distributions page displays distributions created for work order
transactions, such as component issues, product completions, variances, scrap, and so on.

When a work order is closed, the above variances are calculated and reported for products
that are standard costed.
Navigation: Cost Accounting work area > Review Work Order Costs

00 minutes Practice
15 minutes Total
The Work Order Costs page provides summarized and detailed information about all work
order costs.

Navigation: Cost Accounting Work Area > Review Work Order Costs

Navigation: Reports and Analytics > Shared Reports and Analytics > Work in Process
Inventory Value Report

00 minutes Practice
15 minutes Total
Landed Cost Management (LCM) gives organizations financial visibility into their extended
supply chain costs, including transportation and handling fees, insurance, duties, and taxes.
Because these types of charges can represent a significant portion of an item cost, it is
important to accurately incorporate them into the overall financial processes and decision-
making activities. LCM initially estimates these costs and later updates them with the actual
amounts as they become known, allocating them to purchase order receipts. The landed cost
eventually becomes a part of the item cost and is absorbed into inventory.

Benefits of Landed Cost Management:
• Maximize product profitability: Automatically capture and itemize extended costs and
charges such as freight, insurance, and brokerage fees, as well as duties and taxes to
reflect the hidden costs associated with complex supply chains.
• Enhance competitiveness: Strategically source products and components from lower-
cost foreign locations by identifying and measuring all of the extended supply chain,
thus optimizing supply networks.
• Increase financial visibility into the supply chain: Tracking estimated costs as soon
as they are known gives product line managers, as well as financial professionals, more
insight into their exposure for budgeting and reporting.
• Ensure compliance: Itemizing and tracking all landed costs as they apply to a product
is a global best practice for industries with complex supply chains.

LCM interfaces with the following applications:
• Purchasing: LCM receives the material PO information. The trade operation charges
are associated with the PO schedules and allocated proportionately to the PO
schedules and receipts.
• Receipt Accounting: All the receipt information flows from Receipt Accounting into
LCM. Accrual for the service purchase orders is booked in Receipt Accounting based on
the information flow from LCM. Tax information about the material PO and receipt
information also flows from Receipt Accounting to LCM.
• Cost Management: Charges from Fusion LCM are absorbed as part of the item cost in
Cost Management. After the goods are delivered to inventory, the landed cost charges
are absorbed into inventory valuation.
• Taxes: Taxes may be applicable on the service charges coming from LCM. After the
service charges are defined in LCM, taxes are automatically calculated, when
applicable, by calling the Tax application.
• Payables: In most cases, suppliers send invoices for the services provided (such as
freight). These invoices are for the landed cost charges defined in LCM. In Payables,
users can provide a reference number on the invoice, and the reference number is used
to match these invoices automatically with the landed cost charges. The invoice charges
become the actual charges, and the difference between the actual and estimated
charges are shown as variance in LCM.
Landed Cost Management performs three main tasks:
1. Capture Charges: Landed Cost Management provides the capability to capture
charges such as Freight, Insurance, and so on. These charges are captured and
grouped under an entity called trade operation. A trade operation is a logical entity that
denotes a single instance of a business transaction or process in which you would like
to capture all the charges—for example, a single shipment or container.
2. Perform Allocations: Material PO schedules are associated to charges. This denotes
the PO schedules that are part of the trade operation or that are impacted by this trade
operation. After the PO schedules are referenced to charges on the trade operation, the
charge amount is distributed and allocated to the respective PO schedules and further
on to the receipts that are performed on those schedules.
3. Create Accounting: The final step is to account for all the charges that were incurred.
This is done by transferring all the charge information to Receipt Accounting and Cost
Accounting.

00 minutes Practice
30 minutes Total
There are three main setup tasks for Landed Cost Management:
1. Set up charge names: Define the charge names that are incurred at different stages of
procuring and transporting a material.
2. Set up reference types: Reference types are used for matching the landed cost charge
invoices to the trade operation charges. These are typically the document names that
are used in the business process and are visible on the invoice and in LCM—for
example, Bill of Lading, Shipment Number, and so on.
3. Set up routes: These are the routes through which a material is transported. Charges
such as taxes and customs are different on different routes. Setting up routes helps to
capture and analyze landed cost by various routes.
Additionally, you can create Trade Operation Templates: A trade operation is used to capture
and allocate the landed cost charges that are incurred for material shipments. Trade
operations can be modeled on a single shipment or a group of shipments. A trade operation
template can be used to create trade operations quickly, in cases where a business performs
similar trade transactions and makes regular shipments.

You can define your own landed cost charge names for costs such as freight, insurance,
handling fees, and so on. You can also configure default attributes—for example, whether tax
is applicable or not. You can also attach default reference types and analysis groups to each
of these landed cost charges.
An analysis group consists of analysis codes that are mapped to one or many cost elements.
This would help to look at the same cost information in multiple dimensions.

Reference types are used to match the landed cost charge invoices with the trade operation
charges. These are typically the document names that are used in the business process, and
are visible on the invoice and in LCM—for example, Bill of Lading, Shipment Number, and so
on.

Define the routes through which materials will be transported. Charges such as taxes and
customs will be different on different routes. Setting up routes helps to capture and analyze
landed cost by various routes.

00 minutes Practice
30 minutes Total
Landed Cost Management performs three main tasks:
1. Capture Charges: Landed Cost Management provides the capability to capture
charges such as Freight, Insurance, and so on. These charges are captured and
grouped under an entity called trade operation. A trade operation is a logical entity that
denotes a single instance of a business transaction or process in which you would like
to capture all the charges—for example, a single shipment or container.
2. Perform Allocations: Material PO schedules are associated to charges. This denotes
the PO schedules that are part of the trade operation or that are impacted by this trade
operation. After the PO schedules are referenced to charges on the trade operation, the
charge amount is distributed and allocated to the respective PO schedules and further
on to the receipts that are performed on those schedules.
3. Create Accounting: The final step is to account for all the charges that were incurred.
This is done by transferring all the charge information to Receipt Accounting and Cost
Accounting.

Trade operation templates can be used for repeat purchases. Create a template if you need
to create a similar trade operation multiple times. This helps to ensure consistency. Trade
operation templates contain information about the supplier, charge lines, reference types,
routes, and other related information. Whenever a trade operation is created by using a
template, all this information is copied to the trade operation. The user can modify the copied
information where required.

Navigation: Navigator > Landed Cost Management > Manage Trade Operation Templates
Users can create multiple trade operation templates depending on business requirements by
using naming conventions, for example, by naming them after a supplier and supplier site.
Trade operation templates can have an end date. This helps users to avoid selecting old and
obsolete trade operation templates when creating a trade operation. For example, if a trade
operation template was created last year based on a purchase agreement that was valid last
year, there is a good chance that the template is invalid this year, because the original
purchase agreement is invalid.

Navigation: Navigator > Landed Cost Management > Manage Trade Operations
A trade operation is a logical entity that contains all the charges that are incurred for a
shipment or for a group of shipments that are related. A trade operation is the place where all
the charges are collected and allocated to the PO schedules on which these charges are
incurred.
On the Manage Trade Operation page, you can define or edit a trade operation. You can also
see the charges of trade operation, cost details, estimated charges, actual charges, and
variances.

A trade operation can have multiple charges. All the charges on a trade operation can be
assigned to the same Purchase Order (PO) or different charges can be assigned to different
POs.

One or more landed cost charges can be included on a trade operation to depict the charges
that are incurred on a shipment. These charges can have different charge business units
(BUs). The charge basis and allocation basis allow users to determine how to calculate the
charge amount and how to allocate the charge to different PO schedules.
If a service PO schedule is referenced on a charge line, the amount of the charge is derived
from the service PO schedule.

Navigation: Navigator > Landed Cost Management > Manage Trade Operations > Create
Charge Line

Navigation: Navigator > Landed Cost Management > Manage Trade Operations > Create
Charge Line
The allocation basis tells the landed cost system how you would like to spread a trade
operation charge amount across the purchase order lines associated to the trade operation.
Equally – spread the charge equally across all the associated purchase order lines
Quantity – spread the charge across the associated purchase orders based on the ratio of
each PO line quantity divided by the total quantity
Volume - spread the charge across the associated purchase orders based on the ratio of
each po line volume divided by the total volume of all PO lines.
Weight – spread the charge across the associated purchase orders based on the ratio of
each po line weight divided by the total weight of all PO lines.
Item Value - spread the charge across the associated purchase orders based on the ratio of
each po line cost divided by the total cost of all PO lines.

Manual allocation factor - spread the charge across the associated purchase orders based on
the ratio of each user entered “factor” divided by the sum of the “factors” entered for all PO
lines. For example if there were three purchase order lines associated with the trade
operation charge and you entered 1, 2, 3 as the factors of each po line respectively, then the
first po line would be allocated 1/(1+2+3) of the charge amount, the second 2/(1+2+3) of the
charge amount, and so forth.

Some of the landed cost charges may be taxable. Oracle Fusion Landed Cost Management
provides the ability to flag charges as taxable or non-taxable both at the time of charge
definition and when charges are associated with a trade operation. Oracle Fusion Landed
Cost Management also provides the capability to calculate tax automatically by calling the
Tax application. If users do not want to enable automatic tax calculation, they must deselect
the check box “Enable automatic tax calculation.”

Purchase Order schedules must be associated to charges so that the charge information can
be allocated to PO schedules. PO schedules can be associated to all the charges in the trade
operation at once, or they can be done for individual charge lines.

Navigation: Navigator > Landed Cost Management > Manage Landed Cost Processes

The estimated landed cost charges are credited to a landed cost clearing account in Receipt
Accounting. Accrual of landed cost charge estimates occurs only if there is a service purchase
order and a material receipt.
Navigation: Navigator > Receipt Accounting work area > Review Receipt Accounting
Distributions > Distributions

00 minutes Practice
15 minutes Total
The landed cost reference details can be entered on a Payables invoice. When the invoice is
interfaced to Oracle Fusion Landed Cost Management, the application automatically identifies
the match between the trade operation charge line and the Payables invoice based on the
charge reference type value.
The application adjusts the allocations based on the landed cost charges from the AP invoice.
The difference in charge amounts is shown as variance. The supplier accrual and the
inventory valuation are adjusted according to the AP invoice amounts.

Some of the Payables invoices can be purely landed cost charge invoices. The figure in the
slide shows the invoice line where LCM can be enabled and the reference values entered. If
the same reference value is provided on the trade operation charge line, this invoice is
automatically associated with the corresponding trade operation charge estimates. Inventory
valuation is then adjusted to reflect the true landed cost.

The screenshot in the slide shows the process that transfers the Invoice information from
Oracle Fusion Accounts payables to Oracle Fusion Landed Cost Management. This process
can be run manually or can be scheduled to run at periodic intervals.

The slide shows the Run Control page for Oracle Fusion Landed Cost Management (LCM).
All the processes in LCM can be launched and monitored from this page. On the same page,
there are processes that are specific to invoices.
• Prepare invoice data: This process validates and pulls the AP Invoice information into
the primary tables of Landed Cost Management.
• Associate invoices to trade operation charges: This process tries to map the AP
invoices to the trade operation charges based on the reference type value provided.
This process also indicates the match status.

After interfacing the Payables invoices to Landed Cost Management, the invoice information
can be monitored on the Manage Charge Invoice Associations page. On this page, Oracle
Fusion LCM automatically shows the invoice association status to a particular trade operation.
The status can be: Associated, Deleted, or Rejected.

00 minutes Practice
20 minutes Total
The View Item Landed Cost page shows the following information at the PO receipt level:
• Graph of material and landed cost charges
• Graph of recent landed cost trends

Reporting in Landed Cost Management is primarily driven by analytics which are based on an
Essbase cube. All the reporting is based on a single source of truth: Receipt Level Allocated
Landed Cost Charges.
Analysis can be done on the following dimensions:
• Business Unit
• Inventory Organization
• Route
• Third Party Supplier
• Charge
• Item Category
• Item
• Time Period

00 minutes Practice
05 minutes Total
Objectives
After completing this lesson, you should be able to:
• Understand the costing of Oracle Cloud business flows that you will learn in the
Advanced Supply Chain and Fulfillment course.
• Understand the high-level capabilities and benefits of these integrated cross Oracle
Cloud product solutions.

Cost Management includes the following applications to support costing fulfillment business
flows:
• Receipt Accounting generates accounting for receipts and performs accrual accounting
(consigned, purchase, inter-company).
• Cost Accounting costs transactions (inventory, consigned, manufacturing), performs
inventory accounting, cost of goods sold (COGS) accounting, and computes gross
margin calculations.
• Cost and Profit Planning creates cost estimates for standard cost accounting.
• Landed Cost Management estimates and accounts for additional costs (third-party
charges such as freight, handling, import taxes, or other fees) for external purchases.

These are the different business flows you are going to cover in this course. The value
additions that Cost Management facilitates are as follows:
• Reduction of implementation costs and time because the core infrastructure provides
automatic support for the costing fulfillment business flows.
• Cost-effective fulfillment for high cost, non-stocked, and slow moving products.
• Improved accuracy of product cost measurements and support for decision making.
• A holistic view of product profitability and costs across the supply chain, and improved
reporting of global operations.

This course covers the following :
• After this overview, we will cover costing for Contract Manufacturing, followed by
Configured to Order Costing and Consigned Inventory Costing.
• Next we will discuss costing for two fulfillment techniques: Back-to-Back and Drop Ship
and costing for transfer management portion of Internal Material Transfer (IMT).
• Finally we will cover matching of Cost of Goods Sold (COGS) to revenue and reviewing
product gross margins.

00 minutes Practice
25 minutes Total
Contract Manufacturing helps companies manage outsourced manufacturing operations, and
involves several applications such as Order Entry, Value Chain Planning, Procurement,
Manufacturing, Logistics, and Costing. The orchestration of the flow is managed by Supply
Chain Orchestration.
OEM = Original Equipment Manufacturer

Cost Accounting calculates the cost of manufacturing the contract manufactured item by
processing the following transactions:
a) OEM material consumed by the contract manufacturer through work order component
issues
b) Purchase receipt of the contract manufacturing service item
c) Product completion transaction reporting in the work order
DOO = Distributed Order Orchestration

GOP = Global Order Promising
VCP = Value Chain Planning
PRC = Procurement
MFG = Manufacturing

The cost planning capabilities that were discussed in the Defining Standard Costs lesson are
the same for contract-manufactured items as they are for in-house manufactured items. The
only difference is that any item that is provided by a supplier is excluded from the cost rollup
process for the contract-manufactured item.

Material transactions are sourced from Inventory, whereas the resource and work order
information comes over to Cost Accounting through a set of interface tables. The cost
processor picks up these transactions, creates the necessary cost transactions, and
calculates the cost incurred and detailed variances for each work order. The distributions for
the interfaced transactions are created and interfaced to SLA.
Supplier-provided items are not interfaced to Cost Accounting.

00 minutes Practice
30 minutes Total
Computer Package A is the base model; Laptop A1, Hard Disk, and others are the option
classes and options.
A base model bill of materials typically consists of:
• A base model
• Options that are grouped into option classes. An option class is not a buildable or
salable item. For each option class, the customer may choose one or more of the
options. An option can be another model.
• Mandatory components and included items

The configure to order (CTO) process flow starts with a sales order in Order Management and
goes through supply orchestration, in which a supply order for the CTO is created. Based on
the supply order, Manufacturing creates a work order, and releases it. The work order
information interfaces with Cost Accounting, which calculates the standard cost for this
configured item by processing the standard cost rollup. When the work order is transacted,
the transactions flow to Cost Accounting to be costed.

The cost planning scenario is the entity that is used to estimate standard cost for assemblies
and finished products, and to publish estimates as standards to Cost Accounting. This
scenario is defined in context of an inventory organization and the cost organization. The cost
planning scenario can be enabled for configured items. When the scenario is enabled, it
requires a cutoff date, after which the CTO work orders are considered for cost rollup of CTO
items.

To estimate the standard cost for CTO assemblies, the user must select an existing published
cost planning scenario of type Make and Buy. This scenario has costs rolled up and published
for all components and subassemblies used in the CTO assembly.
The selected scenario must be enabled for CTO. This can be done by selecting the CTO-
enabled option on the scenario header and by populating the CTO from the Date field. The
CTO from date must be the same as or later than the published scenario date.

When the scenario is enabled for CTO, the user can either schedule or manually run the Build
and Rollup for the Configured Items process. This automatically creates a new scenario
version for the CTO and builds and rolls up all the CTO items that have CTO work orders.
This process selects all the CTO work orders which are created after the CTO from date.
After the build and rollup, the user can schedule or manually run the publish process. The
publish process is the same as for regular items. The user may also view the cost details of
the rolled-up CTO item on the View Rolled-up Cost UI.
After the cost of the configured item is published to Cost Accounting, the cost is available for
transactions.
When the scenario is enabled for CTO, the user can either schedule or manually run the Build
and Rollup for the Configured Items process. This automatically creates a new scenario
version for the CTO and builds and rolls up all the CTO items that have CTO work orders.
This process selects all the CTO work orders which are created after the CTO from date.
After the build and rollup, the user can schedule or manually run the publish process. The
publish process is the same as for regular items. The user may also view the cost details of
the rolled-up CTO item on the View Rolled-up Cost UI.
After the cost of the configured item is published to Cost Accounting, the cost is available for
transactions.

00 minutes Practice
15 minutes Total
Consigned Inventory Process Flow
• The consigned inventory process is initiated by the establishment of a consignment
agreement between a buyer and a supplier. The consignment agreement stipulates the
terms of the consignment relationship between the buyer and the supplier.
• Consigned inventory is ordered from the supplier through a consignment order.
• Consigned inventory is received into the organization in the same manner as non-
consigned inventory. After consigned inventory is received, it will be considered owned
inventory.
• The consumption advice is used to report usage of consigned inventory to the supplier
on a periodic basis, such as daily or weekly.
• The supplier will send the buyer an invoice for the consigned inventory used. When the
invoice is received from the supplier, it can be matched to the associated consumption
advice for audit and reconciliation purposes.
• After the invoice is validated, payment will be sent to the supplier for the consigned
inventory used. Optionally, pay-on-use can be used to pay the supplier immediately
upon usage of consigned inventory.

Supplier Consigned Inventory Process Flow Across Products:
• The process begins in Purchasing with a consignment agreement between the buyer
and the supplier.
• A consignment order is used to purchase consigned inventory from the supplier in
response to a requisition demand.
• Consigned inventory is received in the same manner as non-consigned inventory.
• Costing will calculate the cost of consigned inventory for valuation purposes.
Consigned inventory is owned by the supplier but is located at, and under the custody of, an
inventory location. The inventory location values the inventory on their financial statements
with a zero inventory value, but still expects supplemental reporting on the inventory’s
contingent valuation for purposes such as insurance, reconciliation with suppliers, and
management decision making.

Navigation: Navigator > Setup and Maintenance > Search-Tasks > Manage Valuation
Structures
Transactions for consigned items follow a certain flow. Inventory tracks on-hand consigned
items by receipt line. When there is a transaction against a consigned item, the transaction
will come to costing with the affected receipt line. Costing will then deplete the quantities from
that specific receipt line to stay in sync with Inventory. Therefore, as all consigned items are
tracked through inventory at the receipt line level, a Consigned valuation structure type is
defined in Costing, similar to the Asset and Expense valuation structure types.
The Consigned valuation structure allows Cost Accounting to track quantities and costs for
consigned items at the following levels to stay in sync with the inventory system:
• Owner Type: Indicates who owns the goods—supplier or inventory organization
• Owner: Name of the supplier or inventory organization
• Original Receipt Number: Consigned receipt number
• Inventory Organization: Organization where the consigned goods were received
originally.
The valuation structure is then used in the cost profile definition.

Navigation: Navigator > Setup and Maintenance > Search-Tasks > Manage Cost Profiles
Just as an Asset cost profile and an Expense cost profile, you can also define a Consigned
cost profile for an item.
For consigned items, Inventory tracks inventory by receipt. When the consigned inventory is
no longer consigned or becomes owned inventory, the related receipts are available on the
inventory transaction interfaced to Costing from Inventory. These consigned transactions will
always flow through Costing at receipt based on the Actual cost method on the cost profile
definition. The other cost methods, Standard or Average, will not be available if the valuation
structure is of Consigned type.
Specific valuation rules on the cost profile definition will govern the costing and accounting for
consigned transactions:
1. Accounting Distribution Basis: The options are At Zero Cost or At Actual. These
options determine if the accounting for consigned receipts and issues should be valued
at zero cost or at actual transaction cost.
2. Create Accounting: The options are Yes or No, that is, whether the consigned
transactions should be accounted or not.
The Consigned cost profile must be specified on the item cost profile or default cost profile for
a combination of cost organization and cost book.

The consigned receipt transactions are interfaced from Receiving to Receipt Accounting.
Consigned receipt delivery and transfer to owned transactions are interfaced to Cost
Accounting from Inventory.
The receipt accounting processor picks up receipt transactions and creates
consigned/supplier accruals.
The cost processor in cost accounting picks up the delivery and transfer to owned
transactions, costs them as per the cost profile.
Finally, the distributions for the interfaced transactions are created and interfaced to
Subledger for Accounting (SLA).

Navigation: Navigator > Costing > Receipt Accounting > Tasks > Review Receipt Accounting
Distributions
Receiving indicates when a receipt is consigned or not consigned. When it is consigned,
Receipt Accounting processes the receipts as usual, except that the receipt accounting
distributions are created with zero amount or actual cost based on the cost profile setup in the
primary cost book of the inventory organization. As seen previously, the consigned receipt
transaction is processed as per the transaction cost, but the accounting is with zero amount.
This is because consigned items are not owned assets and must be valued on the balance
sheet at zero. However, users still want to see business intelligence on the off-balance sheet
value of their consigned inventory. The current unit price (or cost) of the inventory must be
based on the procurement price agreement (not the PO schedule) because the current price
may change over time. This valuation is used for cash flow management, risk assessment
(purchasing insurance), and other business purposes.
The accounting distributions are based on specific accounting line types for consigned
inventory receipts. However, the actual supplier receipt accrual accounting entries are created
later in the flow when the consumption advice is created.

Inventory will have events that trigger a transition of consigned inventory to non-consigned
(non-owned to owned). The transition to owned (non-consigned) could be a momentary state
or a long-term state. For example:
• A consigned item is sold. The user may enter a single transaction into the system, and
this triggers a change in ownership from non-owned to owned (consigned to non-
consigned) for a brief moment before the consigned item is depleted from inventory to
satisfy the sale. Inventory will generate two transactions: an ownership change from
non-owned to owned, and a depletion transaction of the owned items.
• An aging limit is reached or any other business agreement threshold is exceeded,
which causes a change in ownership. Items transitioning from non-owned to owned
(consigned to non-consigned) as a result of this condition will typically be in the owned
state for a longer period of time.

When the inventory system transitions an item from consigned to non-consigned (non-owned
to owned), it generates consumption records and subsequently generates consumption
advices, which may consolidate consumption records for Receiving and for Accounts
Payable. Accounts Payable will match supplier invoices to these consumption advices.
Receipt Accounting will perform the accrual accounting entries for these consumption
advices. The accrual accounting for consumption advices in general will be in a very general
sense: a credit to accrued liability clearing and a debit to receiving inspection. The Receipt
Accounting entry will have an accrual accounting line type for a consumption advice, which is
a debit to trade clearing. Users will tend to want to debit the same accrued liability clearing
account that was debited by Receipt Accounting. Some may prefer to use a contra-account
method for offsetting the accrual.
When consumption advices are created, they will reference the original receipt line. The
receipt line, in turn, references the PO line schedule. The receipt accrual amount will be for
the current amount from the PO line schedule.

00 minutes Practice
05 minutes Total
Back-to-back order refers to a business scenario wherein the supply creation and sales order
fulfillment for a specific sales order triggers all or one of the following:
• Procurement from an external supplier
• Production or assembly at an in-house manufacturing location
• Transfer from another warehouse
• Reservation of on-hand supply
Cost Accounting facilitates the costing and accounting of back-to-back orders and supports
cost-effective fulfillment for high cost, non-stocked, and slow moving products. The detailed
steps for executing the back-to-back order are covered in the Advanced Fulfillment
Techniques course. In this lesson, you will cover the steps in Costing to execute the back-to-
back order when external procurement is the supply source.

A back-to-back order begins with a sales order in Order Management. It then goes through
shipment orchestration, and based on how the demand is fulfilled, a purchase order, transfer
order, or a manufacturing order is created by Supply Chain Orchestration.
For back-to-back orders that are fulfilled by external procurement, the receipts and issues are
costed like normal purchase orders and sales order shipments.

Other than the normal Costing setups, no additional setups are required to execute the back-
to-back flow.

The receipt transactions are interfaced from Receiving to Receipt Accounting, and delivery
and shipment transactions are interfaced to Cost Accounting from Inventory. The receipt
accounting processor picks up receipt transactions and creates supplier accruals. The cost
processor in cost accounting picks up the delivery and shipment transactions, and costs them
as per the cost profile.
Subledger for accounting.

Back-to-back orders have a sales leg and a procurement leg.
Procurement Leg:
For Costing, there is no difference between a back-to-back purchase order and a normal
purchase order. The procurement leg of the back-to-back order is costed as any other
purchase order receipt. When the receipt for the back-to-back order against a purchase order
is created in Receiving, the receipt information is interfaced to Receipt Accounting by running
the Transfer Transactions from the Receiving to Costing process. The put away (receipt
delivery) transaction is interfaced to Cost Accounting by running the Transfer Transactions
from the Inventory to Costing process.
The purchase order receipt is costed in Receipt Accounting at the purchase price, plus landed
cost charges (if any), and the delivery leg is costed in Cost Accounting at receipt cost plus
overheads, if any. If the cost method is Standard Cost, the delivery is costed based on the
applicable standard cost.
Sales Leg:
For Costing, there is no difference between a back-to-back sales order and a normal sales
order. The sales leg of the back-to-back order will be costed as any other sales order
shipment. When goods are shipped for the back-to-back order against a sales order in
Shipping, the shipment information will be interfaced to Cost Accounting by running the
Transfer Transactions from the Inventory to Costing process.
The sales order shipment is costed as per the cost method of the item, and the deferred cost
of goods sold and the cost of goods sold are booked. The gross margin is calculated as per
the revenue recognition percentage on the customer invoice.
00 minutes Practice
10 minutes Total
Customer drop ship refers to the practice where the seller does not keep products in
inventory, but relies on suppliers or contract manufacturers to build, store, and ship orders to
customers. When a customer places an order for a drop shipped product, the seller issues a
purchase order for the item and provides instructions for shipping directly to the customer.
The suppliers or contract manufacturers ship the product, and the seller earns a profit.
The physical delivery of goods and services will be directly from the supplier to the end
customer, but financial ownership passes through one or more business units or legal entities.
Cost Accounting facilitates the costing and accounting of drop ship receipts and sales, and
provides:
• Streamlined accounting
• Cost-effective fulfillment for high cost, non-stocked, and slow moving products
• Improved accuracy of product cost measurements to gain better insight into product
cost drivers
• Tracking of product margins at more granular levels, and improved reporting of global
operations
The detailed steps for executing the drop ship order is covered in the Advanced Fulfillment
Techniques course. In this lesson, you will be covering the steps in costing to execute the
drop ship order.

The seeded flow makes use of cloud products:
• Order Promising is done by Global Order Promising Cloud.
• Drop Ship Requisition and Purchase Order are created in Procurement Cloud.
• Supplier may enter Advanced Shipment Notice (ASN) using the Supplier Portal in
Procurement Cloud.
• Receiving and Costing is done in Inventory Management Cloud.
• Customer invoicing is done in Financials Cloud.

The drop ship process begins with a sales order in Order Management and goes through
Supply Orchestration, in which a drop ship purchase order is created for the supplier, based
on the drop ship agreement, to deliver the goods directly to the customer. The supplier raises
an Advanced Shipment Notice (ASN) upon shipment, based on which a logical drop ship
receipt is created in Inventory followed by a logical sales issue. Costing performs the costing
and accounting for all the financial trade events generated in the drop ship business flow.

The basic setup discussed in Cost Accounting Fundamentals is all that is required to execute
the drop ship flow.

The receipt transactions are interfaced from Receiving to Receipt Accounting, and trade
transactions are interfaced from Supply Chain Financial Orchestration to Cost Accounting.
The receipt accounting processor picks up drop ship receipt transactions and creates supplier
accruals. The cost processor in cost accounting picks up the drop ship delivery and trade
transactions, and costs them as per the transaction cost.
Subledger for Accounting (SLA).

Setting up a drop ship agreement is a prerequisite to executing the flow. A drop ship purchase
order is created based on this financial agreement. Following the Advanced Shipment Notice
(ASN), the drop ship receipt and delivery transactions are created automatically by Receiving,
and interfaced to Receipt Accounting through the Receiving-Costing interface. The financial
trade events are generated by the Supply Chain Financial Orchestration and automatically
interfaced to Costing through the trade events interface.
The following trade events are generated in the drop ship business flow:
• Trade Receipt Accrual Event:
- Trade receipt accrual is always costed at the drop ship purchase order price.
- Accounting: Dr Trade Clearing, Cr Supplier Accrual
• Trade In Transit (TIR) Event:
- Trade In transit receipt is always costed using the cost from trade receipt accrual
plus any overheads modeled in Costing.
- Accounting: Dr Trade In-Transit, Cr Trade Clearing

Drop Ship Receipt Event:
The drop ship receipt event is processed after the corresponding trade receipt accrual event
is processed. Drop ship receipt is costed using the cost at which the trade receipt accrual is
booked. Additionally, any landed cost charges modeled on the drop ship PO are applied to
the drop ship receipt by the landed cost allocation process.
Accounting: Dr Receiving Inspection, Cr Trade In-Transit
Drop Ship Delivery Event:
The drop ship delivery is processed using the average Trade in Transit Receipt (TIR) cost
plus the landed cost charges from the corresponding drop ship receipt.
Accounting: Dr Drop Ship Inventory, Cr Receiving Inspection
Trade Sale Issue Event:
The predecessor event for Trade Sales Issue transaction in a customer drop ship flow is a
Drop ship delivery event. The trade sales issue transaction drives the cost from the cost
structure of the drop ship delivery event.
Accounting: Dr DCOGS, Cr Drop Ship Inventory

00 minutes Practice
10 minutes Total
Internal material requests are made for goods and services to be fulfilled internally. The
internal material request and fulfillment process can range from simple to extremely complex
processes, spanning multiple legal entities, geographies, and involving multiple shipment
points.
Internal material transfers involve the movement of goods from one inventory location to
another after being triggered by one of the following:
• Fulfillment of a back-to-back customer or manufacturing order
• Stock transfer in anticipation of future demand
• Stock transfer because of inventory min-max planning
These transfers can be across organizations or within business units and can be done using
transfer orders or as a simple interorganization transfer. In this lesson, you will cover the
internal transfers driven by transfer orders.

Costing facilitates the costing of internal transfers and supports:
• Streamlined accounting
• Separation of physical and financial flows
• Improved accuracy of product cost measurements to gain better insight into product
cost drivers
• Tracking of product margins at more granular levels over time, which improves the
reporting of global operations
The detailed steps for executing the drop ship order is covered in the Advanced Fulfillment
Techniques course.

Internal material transfers begin with supply chain planning and go through supply
orchestration and inventory management, wherein a transfer order for material transfers is
created. Costing facilitates the costing and accounting of all the financial trade events
generated in the internal transfer flow.

Navigation: Navigator > Setup and Maintenance > Search-Tasks > Manage Cost Elements
Besides the core Costing setups covered in the Cost Accounting Fundamentals lesson, there
is one additional setup task which is optional: Define a cost element of type Profit in Inventory
to facilitate automatic tracking of internal profits.

Cost Management has the infrastructure in place to trigger costing and accounting of internal
material transfers automatically.
• Process physical and trade execution events for IMT transfers and create accounting
• Process physical and accounting, only return transactions
• Gross margin reporting for intercompany trade flows
• In-transit valuation report for goods in trade in transit
• Intercompany, intraorganization trade accounting supported
The automated process performs a sequence of steps in real time:
• Interface internal material transfer transactions like Transfer Order Shipment from
Fusion Inventory and Transfer Order Receipt from Fusion Receiving
• Interface trade events from Supply Chain Financial Orchestration based on the trade
agreement
• Receipt accounting processor to process receipt transactions and create relevant
intercompany accruals if invoicing enabled, or book intercompany payables
• Cost Accounting processor to process the shipment transactions and compute
Intercompany Cost of Goods Sold if invoicing enabled, or book intercompany
receivables

Cost Management supports costing and accounting for internal material transfer transactions,
including both forward and return transactions. It also facilitates streamlining accounting
when the physical flow of shipping goods is different from the financial flow.
Additionally, Cost Management also helps in providing better visibility of internal markups in
such intercompany trade flows by automatically tracking profit earned on such internal
transfers using a separate cost element of type profit in inventory.
When profit tracking is enabled, the profit earned at each leg of the transfer is automatically
visible. For example, the goods received in US West BU, at a price of $11.55, are further
broken down into the profit earned by the Singapore and China business units, and the
original cost of the material.

00 minutes Practice
10 minutes Total
Gross Margin is the difference between the Revenue earned and the Cost of Goods Sold.
When items are shipped out of Inventory, the Cost of Goods Sold entries are created in
Costing, and the Revenue entries are created by Receivables when an invoice is created.

When revenue recognition is used, the following accounting entries are created:
At time of shipping
Deferred Cost of Goods Sold Dr
Inventory Cr
When invoice is created

Receivables Dr
Deferred Revenue Cr
When a revenue recognition event is created, a percentage of Deferred Revenue is converted to

Revenue:
Deferred Revenue Dr
Revenue Cr
The same percentage is used to convert Deferred COGS into COGS:

COGS Dr
Deferred COGS Cr

The background processes transfer transactions from Inventory and Receivables. When the
transactions are interfaced, the Create Cost Accounting Distributions process processes
these transactions and create the necessary distributions. The COGS sub-process is
responsible for matching the revenue and COGS entries.
The Analyze Product Gross Margins UI is used to analyze the gross margin data. Similarly,
the revenue and COGS matching report and Analyze Product Gross Margin report can be
used to analyze the data through printed reports.

The first step of the process is to transfer the shipment issue transaction to Costing through
the scheduled background process.
Navigation: Scheduled Processes > Transfer Transactions from Inventory to Costing

The Import Revenue Lines program helps move the revenue transactions from Receivables to
Costing.
Navigation: Scheduled Processes > Import Revenue Lines

The Create Cost Accounting Distributions page is used to schedule periodic runs of the Cost
Processor. The interfaced shipment transactions are stamped with the appropriate cost, and
distributions are created. The revenue lines that are imported from Receivables are then
matched to the shipment lines. The revenue recognition percentages interfaced from
Receivables are used to convert deferred COGS to COGS for the matched shipments.
Navigation: Cost Accounting work area > Create Cost Accounting Distributions

The Analyze Product Gross Margins UI helps cost accountants analyze the gross margins.
The details can be viewed for a specific Business Unit, Cost Organization, Cost Book, and
Inventory Organization. Details of the gross margin can be viewed by Items or by Customers.
Navigation: Cost Accounting navigation > Analyze Product Gross Margins

The transaction-level details of shipments and invoices are shown in the Gross Margin Details
UI.

This report provides information for reviewing and reconciling recognized and unrecognized
revenue and cost of goods sold.
Navigation: Reports and Analytics > Shared Reports and Analytics > COGS Revenue
Matching Report

This report provides information for reviewing product gross margins.
Navigation: Reports and Analytics > Shared Reports and Analytics > Gross Margin Report

00 minutes Practice
25 minutes Total
Let’s discuss an example wherein a global enterprise has chosen the following structure to
optimize their supply chain:
Vision Corporation is a global, high-tech product design and manufacturing company, with
headquarters in Redwood Shores, California, USA.
Vision Corporation’s warehouse for its electronic components is in Seattle.
The Seattle warehouse sources supply for the electronic components from the manufacturing
facility in China.
Vision China is the facility located in Shanghai, China, where the electronic components are
manufactured.
The Seattle warehouse supports the dealers on the west coast region.
In order for the warehouse to support the demand for electronic components, the warehouse
manager needs to replenish the item below the minimum stock level from the Chinese
manufacturing facility. Vision Singapore has been created as an international procurement
hub to support all internal or external purchases throughout. All buyers are located in
Singapore, and they manage all purchases into and out of Asia.

To maximize the physical movement of goods, product ships directly from the manufacturing
plant in China to the warehouse in Seattle.
However, financially, the ownership transfer is from China to Singapore to the US.
Upon receipt of goods, the ownership transfer is documented and accounted through China-
Singapore-US.
The transfer pricing rules that have been agreed upon enforces the Chinese manufacturing
facility to add a markup of 12% of its manufacturing cost when it engages with the Singapore
entity. Also, the Singapore entity will have a markup of 60% of its cost when it engages in
relationships with the US. As part of the guidelines, Payables and Receivables invoices are
required for the trade transactions upon ownership change, which happens during the receipt
of goods into the Seattle warehouse.

Supply Chain Financial Orchestration is a configurable application that manages all the
trade relationships between internal parties belonging to a large corporation, typically
spread across geographies. The supply chain business flows supported are customer
shipment (between internal parties), global procurement, and internal transfers.
Supply Chain Financial Orchestration supports:
• Infrastructure and framework to define the financial trade and physical flows
independently.
• Configuration to define cost-based, document-based, and third-party transfer pricing
rules.
• Configuration that supports compliance with legal and internal control requirements for
creating the appropriate transactions and documents in the financial trade route.
• Ability to define various supply chain execution events to trigger financial orchestration

In this example:
Vision Operations sources supplies for electronic components from the manufacturing facility
in China. The goods are shipped directly from China to the warehouse in the US. On receipt
of goods, the ownership transfer is documented and accounted through China-Singapore-US.
The financial flow is independent of the physical movement of goods.
You can monitor the execution of the financial flow between the entities. The user interface
gives you the status of the financial orchestration transactions.
Supply Chain Managerial Accounting 30 - <#>

Supply Chain Financial Orchestration supports defining the financial flow for the following
business flows:
Global Sales Order Shipment: The shipping inventory organization is different from the
business unit taking the sales order
Global Procurement: A central procurement BU buys goods on behalf of a requesting BU.
In this case, the purchase order is issued out of the central procurement's legal entity, with a
ship to organization in the requesting BU.
Supports:
• Inventoried or expensed items
• Supplier Consigned Inventory
• Description-based lines
In addition to standard items, Configure to Order items are also supported as part of the flow.

Global Drop Shipments:
• When drop shipping directly from suppliers, you define which organization acts as the
requisitioning organization for the drop ship purchase order. Then, the system uses the
selling BU, the requisitioning BU, and the supplier site to determine if a global sales
order shipment or global procurement flow applies when the goods are shipped.
• In addition to standard items, Configure to Order items are also supported as part of the
flow.
Internal Material Transfers across profit center business units:
• When moving material between business units within your enterprise, Supply Chain
Financial Orchestration is used to calculate the transfer price. You can also define
whether or not an intermediate node is required to be part of the financial flow.
• In addition to standard items, Configure to Order items are also supported as part of the
flow.

Supply Chain Financial Orchestration helps you:
1. Model your global, tax efficient corporate structures without impacting the physical
movement of goods, ensuring you can get goods and services to your customers as
quickly as possible, and lowering your total supply chain costs at the same time.
2. Optimize operational efficiency by centralizing sourcing and procurement without
impacting the physical movement of goods.
3. Define business rules easily and flexibly, for the financial flows of any physical
movement in your supply chain. This reduces the implementation cost and cycle time,
and allows you to easily react to corporate reorganizations or acquisitions.

Supply Chain Financial Orchestration receives supply chain events from the execution
systems (Inventory, Receiving, and Shipping) on the physical movement of goods or
fulfillment of services. Web services are exposed by products such as Distributed Order
Orchestration and Procurement for the retrieval of source document information.
The process matches the supply chain events to the appropriate financial flow and
orchestrates the transaction. Tasks for the accounting and creation of intercompany invoices
on the financial transfer of ownership are generated based on the flow definition. Web
services are exposed by the target systems for the population of the records.

Supply Chain Financial Orchestration has the capability to model financial flows for trade
between internal parties resulting from supply chain transactions. You can also configure the
financial tasks to transfer ownership and create the required documentation. The financial
flow execution is automatic, and separates the physical flow from the financial flow.
Supply Chain Financial Orchestration solution can be broadly classified into two parts:
• User events or setups to configure the intercompany orchestration
• Orchestration process that executes the flow based on the configuration
Supply Chain Financial Orchestration also has the capability to monitor the executed
transactions, and provide the history for the financial flow resulting from the physical
movement of goods.

Supply Chain Financial Orchestration allows you to model financial flows for trade between
internal parties resulting from supply chain transactions. User interfaces are available to
define financial relationships between profit center business units belonging to an enterprise.
You can also configure what, when, and how the financial tasks are created to account
transfer for ownership and documentation.
The changes done to the defined financial orchestration entities are tracked using date
affectivity. This would enable users to create future dated changes well in advance and the
orchestration process adopts to the changes seamlessly from the date when the changes
become effective.

Supply Chain Financial Orchestration receives supply chain events from the execution
systems (Inventory, Receiving, and Shipping) on the physical movement of goods or
fulfillment of services. These events are physical events such as the shipment or receipt of
goods to or from a warehouse.
The financial orchestration flow setup, which is identified on the basis of the source document
information, is the driver for the financial orchestration. This initiates the orchestration tasks to
create financial transactions. The application matches the supply chain events to the
appropriate financial flow and orchestrates the transaction. Tasks for the accounting and
creation of intercompany invoices on the financial transfer of ownership are based on the flow
definition. The interface web services are exposed by the target systems for populating the
records.
Documentation and accounting rules specify the documents and trade accounting required as
part of the financial orchestration. The rules can be configured to meet country-specific
intercompany requirements.
Documentation and accounting rules will specify the tasks to be created in the financial route.

Use the dedicated work area to monitor all the inbound supply chain events and all the
resulting financial orchestration tasks. You can also manage exceptions and view the
transaction history for any given physical movement of goods.
When you start the Financial Orchestration work area, you will notice that the landing page is
the Monitor Financial Orchestration Execution UI.
The Cost Accounting Distributions for the financial Orchestration transactions can be viewed
from the Cost Management work area.

25 minutes Practice
50 minutes Total
The following is an example of the setups for Supply Chain Financial Orchestration.
It is the same example that was discussed in the previous lesson.
This is the internal transfer business flow:
Vision China and Vision Operations (US) are two entities that belong to a large corporation
called Vision Corporation. Vision Operations gets its supplies for electronic components from
the manufacturing facility in China. The goods are shipped directly from China to the
warehouse in the US. On receipt of goods, the ownership transfer is documented and
accounted via China-Singapore-US. The financial flow is independent of the physical
movement of goods.

Before getting into the Supply Chain Financial Orchestration-specific setups, it is important to
understand the different types of business units in the applications enterprise structure.
Business units can act as shared service centers by performing a business function on behalf
of one or more legal entities. For example, you might have a single business unit that issues
Accounts Payable (AP) and Accounts Receivable (AR) invoices on behalf of many legal
entities.
Or, if a business unit is marked as a Profit Center, it is intended to record profit and loss due
to movements of goods within your enterprise. It must be related to only one legal entity. All
inventory organizations are then assigned to a profit center business unit (BU). Supply Chain
Financial Orchestration agreements are set up between profit center business units, and
costing is always done in the context of a profit center business unit.
Supply Chain Financial Orchestration supports agreements between business units in
different legal entities (intercompany) or between business units within the same legal entity
(intracompany).

The profit center represents the Operational Management node responsible for profitability
(revenue and costs), and performance of the inventory organization(s) and other business
functions under its control. It operates under a legal entity. The profit center derives
contractual autonomy from the legal entity, and management autonomy from the strategic
management team. The profit center can enter into trade relationships with other profit
centers. (Global PO, drop ship, internal orders).
Modeling Tax Registration Entity as a Profit Center Business Unit
A trade partner or a trade affiliate is represented by the Profit Center Business Unit in the
context of financial flow. Primary trade relationships are always across Profit Center BUs.
In countries where intracompany invoices are required if goods move across tax borders,
each tax registration under a legal entity will be modeled as a Profit Center Business Unit to
orchestrate inter-tax registration transfers.
Representation of Buyer and Seller Entities for Intercompany Transactions:
Intercompany Customer Supplier Association
This setup specifies the customer and supplier for a given legal entity. This is used by Supply
Chain Financial Orchestration to determine the customer and supplier for creating an
intercompany receivables invoice or an intercompany payables invoice for a given legal entity.

The following legal entity option represents the business unit as the profit center.
Navigation: Navigator > Tools > Setup and Maintenance > Implementation projects
Search for the Implementation project.
Note: It is assumed that an implementation project that contains the Manufacturing and
Materials management offering exists.
After the search results have found the project, you can expand the directory tree to get into
Define Supply Chain Financial Flows.
Start the Manage Business Unit task.

Start the Manage Intercompany Customer Supplier Association task.
Ensure that all Legal Entities that participate in a financial flow have both a supplier and
customer defined.

Transfer pricing rules allows you to define the ways in which you calculate transfer prices
between your profit center business units.

Navigation: Navigator > Financial Orchestration > Manage Transfer Pricing Rules
Click Manage Transfer Pricing Rules to start the task.
Transfer Pricing Rules provide the capability to derive transfer price from the following
sources:
• Cost
• Source Document Price (PO/SO)
For both these cases, a markup can be defined optionally in the Pricing Rules setup.
The Source Document price applies to both procurement and shipment flows. For
procurement, the system uses the Purchase Order (PO) price as the basis for calculating a
transfer price (+/- the markup specified). For a shipment flow, the system uses the Sales
Order (SO) price as the basis.
When the transaction cost basis is selected, the shipping organization’s cost in the business
unit is used to calculate the transfer price.
Alternatively, you can access a custom web service outside Oracle applications to derive the
transfer price.

Based on this example, when Vision China ships the goods to the warehouse in the US, a
markup of 12% is defined based on its cost when the goods flow through Singapore.
You will also set up a rule where a markup of 60% is applied to the cost when Singapore
ships the goods to the US.

The behavior of the financial orchestration process can be controlled through reusable
documentation and accounting rules.
These rules specify things such as what currency should be used to document the ownership
transfer, whether or not invoices need to be created, what triggers ownership change, and
whether or not you want to track profit in inventory.

Navigation: Navigator > Financial Orchestration > Manage Documentation and Accounting
Rules
Click Manage Documentation and Accounting Rules to start the task.
This setup contains the trade accounting and documents that are required in the financial
route. It is associated to a node in the financial route and each financial route can have
different documentation and accounting rules.
The ability to configure the documentation and accounting rules enables companies to comply
with the mandatory laws that require accounting and invoicing in some countries, and simplify
the process in countries where less documentation is required.
The rules specify the currency that you use to execute the trade. The possible currency
options can be ‘from node’ or ‘to node’, wherein the currency code is derived from the primary
ledger of the legal entity of the start node or end node defined in the agreement. The currency
option can be ‘source document’, in which case the currency code of the source document is
used for intercompany trade.
They also specify whether intercompany invoices must be created, or if profit in inventory
must be tracked as a separate cost element in the buying business unit.

The events that initiate these tasks are also specified. For example, you could specify if the
shipment transaction or the receipt transaction triggers the financial orchestration tasks for an
internal transfer of goods. For Global Procurement, the ownership transfer is always assumed
at PO Receipt and PO Return, and for Internal Drop Shipments, it is assumed at SO
Shipment and RMA Receipt.
In this example, you will set up a single rule that can be used for both nodes in the financial
route: China-Singapore and Singapore-US.
You will set the ownership triggering event to "Interorganization Receipt". Profit tracking is
enabled, as is intercompany invoicing.
You will use the selling nodes currency to create the invoices.

Using the profit center business unit to party relationship setup, you can define, view, and edit
the relationships between the profit center business units and the supplier sites and customer
sites associated to them. The supplier sites and customer sites are used to create the
intercompany receivables and payables invoices in Fusion Financials. You could also define
shared service center business units that can process the intercompany invoices for one or
more profit center business units.

Supply Chain Financial Orchestration generates invoices between profit center business
units. The internal customer and internal supplier setup in AGIS are used to understand the
internal supplier and customers associated to the Legal Entities involved in the transaction.
The profit center business unit to party relationship setup is used to define relationships
between the profit center business units and the Procurement, Payables and Receivables
Business Units, and supplier sites and customer sites associated to them.
Intercompany Buyer Profile
You can specify the intercompany buyer profile in the Profit Center BU Profiles section of
the Create Profit Center Party Relationships page. You must specify it for a profit center
business unit that acts as a buyer in a buy and sell relationship. You can use the following
sections:

Setup for Buyer's Payables Invoice and Purchase Order. You can use the following drop-
down lists to specify the business units that provide the procurement and payables invoicing
for the profit center business unit. Financial Orchestration uses these business units when it
calculates trade distributions and costing transactions, so you must specify them even if you
do not require Financial Orchestration to create an intercompany invoice for the buy and sell
relationship:
• Procurement Business Unit. Specify the business unit that provides procurement
services to the profit center and stores the supplier site data that Financial Orchestration
uses to create the intercompany payables invoice.
• Bill to Business Unit. Specify the business unit that Financial Orchestration must use
to get the attributes that it uses to create the receipt accounting in the Fusion Cost
Management application, and to generate payables invoices for the profit center.
Customer Locations for Seller's Receivables Invoice and Sales Order. You define:
• Ship to Party Site: This is an optional field. You can select the party sites belonging to
the Party of the Legal Entity’s Business Unit. The selected ship to party site is used
when creating the intercompany receivables invoice.
• Seller's Customer Address Set: Choose an address set. The address set that you
choose includes the bill-to locations that you can specify for the buyer. If your
organization does not require an intercompany invoice, then you do not need to specify
an address set or bill-to location.
• Bill-to Location: Choose a location that identifies the profit center business unit that
Financial Orchestration must use as the buyer. Financial Orchestration uses this bill-to
location to create the intercompany receivables invoice that it sends to the selling
business unit. Note that the Manage Legal Entity Supplier Customer Association task
from Advance Global Intercompany System (AGIS) of the Financials product offering
provides the customer and supplier record for the legal entity.
If you modify any values for the intercompany buyer profile, then Financial Orchestration does
not do any of the validations for the buy and sell terms that you specify, or for the financial
routing that you specify.
Intercompany Seller Profile
You can specify the intercompany seller profile in the Profit Center BU Profiles section of
the Create Profit Center BU to Party Relationship page. You must specify it for a profit
center business unit that acts as a seller in a buy and sell relationship. You can use the
following sections:
Business Unit for Seller's Receivables Invoice: In the Receivables Business Unit drop-
down list, choose the profit center business unit where Financial Orchestration sends the
receivables invoice.
Supplier Site for Buyer's Payables Invoice and Purchase Order: Associate a supplier site
to every bill-to business unit you use during intercompany. You can use the following drop-
down lists:
• Buyer's Procurement Business Unit: Choose the profit center business unit that acts
as the seller in the buy and sell relationship.
• Buyer's Bill to Business Unit: Choose the business unit where Financial Orchestration
sends the bill.
• Supplier Site: Choose the supplier site that Financial Orchestration uses to create the
intercompany payables invoice.
This example shows the representation of setups when Singapore is the selling entity and
Vision Operations is the buying entity.

Navigation: Navigator > Financial Orchestration > Manage Profit Center Party Relationships

Optionally, qualifier rules can be defined and added to the financial orchestration. These rules
determine the applicability of the financial orchestration flow. Financial orchestration qualifiers
give you the flexibility to define rules to match a supply chain event to a financial orchestration
flow. Different business attributes, such as Item Category, Supplier, and others, can be used
to define these rules.
Multiple financial orchestration flows can be simultaneously defined with different execution
patterns. For example, you could define multiple flows between the same business units
having different transfer price methods or markups. Priorities can be defined for financial
orchestration flows. Priority combined with financial orchestration qualifiers help you easily
build rules to achieve your business objective.
For example, you would like to configure the setups so that all physical goods get bought
through Singapore and all services are bought direct in the country.
In this case, you can define a financial orchestration qualifier with a rule for services and
attach it to the financial orchestration flow with priority 1. Create another financial
orchestration flow with priority 2 without any qualifier. Transactions are matched to the
financial orchestration flows in the order of priority. The next financial orchestration flow is
picked if the previous one does not satisfy the rule.

Start the Manage Supply Chain Financial orchestration Qualifiers task.
Create the Qualifier rule.
In this example, no qualifiers are required.
This qualifier, when associated to the financial flow, determines the applicability of the flow.
You can use this to determine or limit the applicability of the financial flow only.

The default parameters to control the processing of Supply Chain Financial Orchestration are
defined in the Supply Chain Financial Orchestration System Options UI, which consists of the
following parameters:
• Item Validation Organization: Indicates which organization should be used to find
relevant item attributes such as item category.
• Service Item Number: Used to create financial orchestration tasks for service
transactions. The service item is used when an inventory item number does not exist in
the Supply Chain Financial Orchestration source document. For example, for amount
based Purchase Order lines where you purchase 10 hours of training at a rate of $/hr,
there is no specific item number associated in the source document. The service item
number in the Systems Options setup is used for the creation of financial orchestration
tasks such as intercompany invoicing and accounting for these purchase order lines.
• Maximum Number of Records Per Batch: Maximum number of rows efficiently
accommodated by the payload of the execution systems for the different Supply Chain
Financial Orchestration event enrichment web services are defined. Supply Chain
Financial Orchestration calls various web services to obtain additional information
required for the processing of the supply chain events received.

Start the Manage Supply Chain Financial Orchestration System Options task.

Supply Chain Financial Flow enables companies to support tax efficient supply chains during
Supply Chain execution.
The financial flow setup is business rules-driven. The framework enables users to configure
the setups so that a given physical movement of goods spawns a series of financial
ownership changes.
Typically, because the most optimal financial movement of goods is different from the most
optimal physical movement of goods, the financial flow has the infrastructure and framework
to define the two flows independently of each other.

Supply Chain Financial Flow is established between the legal entities, business units, and
trade organizations of a corporate group for establishing a trade relationship. The financial
flow setup contains the parties involved in the trade relationship and the process of financial
settlement among them.
The three major components are:
1. Business Process Type: This represents a specific business flow. The flows supported
are Global Procurement, Customer Shipment across internal entities, and Internal
Transfer.
2. Primary Route: This is the basis for defining financial flows.
Primary Route is used to define the Financial Orchestration Flows. The to and from
entities to define a physical route depend on the business process type selected.
It represents the supply chain execution partnership between two Profit Center Business
Units.
It conveys that there is an agreement to transact goods and services between the two
primary trade partners, where the start node represents the internal seller and end node
represents the internal buyer. The financial flow can have more than one primary route.
The terms and conditions of their relationship are, however, defined as part of financial
route. Primary route relationships are always across Profit Center BUs. The BUs can be
within the same legal entity (intracompany) or across legal entities (intercompany).
3. Financial Route: This is the financial route through which financial obligations are
settled.
Financial settlement between trading partners can be routed through (financial route)
one or more intermediary organizations. These intermediary organizations are used only
for financial settlement. No physical transactions are executed in these intermediary
nodes.
4. Documentation and Accounting Rule: This dictates the documents and trade
accounting required in financial route and s associated to each financial node.
5. Pricing Options: These derive the transfer price based on the pricing options defined
as part of the financial route.
6. Financial Orchestration Qualifiers: Business attributes that determine the applicability
of the agreement.

Navigation: Navigator > Financial Orchestration > Manage Financial Orchestration Flows
Click Manage Financial Orchestration Flows to start the task.
The changes made to the defined financial orchestration entities are tracked using date
affectivity. With this, you can create future dated changes well in advance, and the
orchestration process adapts to the changes from the date when the changes become
effective.
Based on the example, this financial flow represents a scenario where the goods are shipped
directly from China to the warehouse in the US. Upon receipt, the ownership transfer is
documented and accounted through China-Singapore-US.
Based on the example, the primary route will be from Vision China to Vision Operations.
The financial routes indicate that the financial flow is routed as follows:
• Vision China to Singapore
• Singapore to Vision Operations US
The Documentation and Accounting Rule and Pricing Options that were created as part of the
exercise can be used in these financial flows.

In addition to the flows that have been discussed, Supply Chain Financial Orchestration also
provides the setup for the drop ship financial flow.
This setup is also part of the Order Management offering task list.
On the Manage Drop Ship Financial Flows UI, you specify the receiving trade organization for
every selling business unit in your enterprise. The receiving trade organization is the
organization that places the requisition for the goods, that act as the “receiving org” for the
drop ship PO, and where the receipt and shipment accounting for the drop shipment is
performed. The receiving BU and the receiving LE are defaulted based on the receiving trade
organization.
This feature allows you to configure the event in the supplier to customer supply chain
process that triggers the financial orchestration process in Supply Chain Financial
Orchestration.
Supply Chain Financial Orchestration supports the following predefined events for supplier to
customer drop ship flow:
• ASN from Supplier
• AP Invoice Match to PO

In some cases, you need to define different requisition trade organizations for different drop
ship orders that are sold out of the same selling business unit. To do this, you can add
multiple drop ship financial flows with different orchestration qualifiers. For example, if you
need to buy from a supplier in China, you can create a second drop ship financial flow with a
qualifier of the Chinese supplier site, and a receiving trade organization of the Chinese
inventory organization.
Finally, for each drop ship financial flow, you can determine whether the ASN or the supplier
invoice should be used as an event that triggers the ownership change from the supplier to
your company.
If the selling BU and the receiving BU are different, then Supply Chain Financial Orchestration
determines if there are any additional financial and accounting transactions that need to be
performed based on procurement and shipping flows defined in the system.

Single BU Drop Ship Flow
For single BU supplier to customer drop ship flows, there might not be any procurement or
shipment agreements existing in the Supply Chain Financial Orchestration setup. However,
costing transactions for receipt and shipment have to be interfaced to Costing. Supply Chain
Financial Orchestration uses the drop ship financial flows setup as the reference for these
costing transactions in case of single BU Supplier to customer drop ship flows. Support for
Single BU drop ship is a common component. The drop ship financial flow is a prerequisite for
single BU drop ship flows as you derive the requisition org and the ownership change from
supplier event from drop ship financial flow.
After the events are received in the inbound interface, the orchestration process first identifies
the source document of the event as Drop Ship Purchase Order.

If the Drop Ship Purchase Order is not a global procurement PO, Supply Chain Financial
Orchestration identifies the PO to a financial orchestration flow based on the following
attributes:
• Selling Entity/Requisition Entity
• Qualifiers like Item, Category, Supplier, others.
• For supplier to customer drop ship orders, Purchase Orders are created by Distributed
Order Orchestration on external suppliers. Distributed Order Orchestration invokes the
service provided to get the requisition BU and the Requisition org where these purchase
orders are created. The Requisitioning BU for supplier to customer drop shipment flows
is specified in the drop shipment financial flows setup. Distributed Order Orchestration
invokes a service to derive the ‘Requisitioning BU’ and ‘Requisitioning Org’ for a
supplier to customer drop shipment order.
Navigation: Navigator > Financial Orchestration > Manage Drop Ship Financial Flows
Click Manage Drop Ship Financial Flows to start the task.
Specify the ownership change event that triggers the financial flow for drop shipment.
Note: There is no qualifier associated with this flow. However, you can associate a qualifier if
relevant.
The requisition organization derived from the requisition BU is used for creating purchase
orders.

00 minutes Practice
20 minutes Total
The Financial Orchestration process flow summarizes the example of when goods are
shipped from the warehouse:
• The supply chain controller is responsible for modeling the tax efficient supply chain
strategy that is chosen by the enterprise.
• The warehouse manager is responsible for the execution of the inbound and outbound
logistics and will be shielded from the financial flow setup.
• The ownership change is triggered based on the setups, and the orchestration process
identifies the financial flow after the process is executed.
• The supply chain controller then monitors the execution of the Financial Orchestration
flow and ensures the accounting and the documentation defined for the flow is
successful.

The automation of the financial flow execution involves the following high-level steps:
• Receive the supply chain events that occur during the execution of the supply chain
business flow. These events are physical events such as shipment or receipt of goods to
or from the warehouse.
• Initiate the process of identifying the financial orchestration flow, followed by the
generation of tasks for the accounting of the transfer of ownership and documentation.
During the orchestration process, the financial flow is identified. The transfer pricing rule,
and the documentation and accounting rules that are appropriate for the flow are then
executed for each financial route that is part of the primary route.

Supply chain events are initiated by execution systems such as Receiving, Inventory, and
Shipping upon the occurrence of physical events such as the receipt of goods in the
warehouse.
The physical events are executed on a real-time basis.
The physical execution is independent of the financial flow in Oracle Fusion Supply Chain
Financial Orchestration, so the movement of goods or fulfillment of services is accomplished
without interruption.
Some of the key features include:
• Real time capture of supply chain events
• No interference with execution systems

This table displays the ownership change events in the execution of financial transactions.

A source document identifier is a unique key of the source document. Every business event
raised for a physical transaction is associated with a source document identifier. For example,
the fulfillment line reference is the Orchestration Order in case of a Customer Shipment
business flow, or a Purchase Order (PO) schedule reference for a Global Procurement flow.
In this example, the unique key for the internal transfer business flow executed through the
interorganization transaction is the Shipment Transaction ID.
The financial orchestration flow is identified by matching business attributes on the business
event with attributes defined in the financial flows such as internal parties, priority, date
affectivity, and other attributes set as qualifiers, such as item or category.
In this example, when the transfer order is executed, the transfer order receipt event is raised
by Logistics. Then, the execution process identifies the financial flow and orchestrates the
tasks to create financial transactions.

The orchestration process performs the following tasks as specified in the financial flow:
• Determines task sequence
• Creates trade distributions
• Creates intercompany invoices
• Retrieves transaction status and references
Oracle Fusion Supply Chain Financial Orchestration determines the tasks to be performed
and the sequence of those tasks based on the financial orchestration flow definition. When
the task generating event is received on the transfer of title of goods, the financial tasks for
accounting trade distributions and intercompany invoices are generated. Upon accounting of
the trade distribution or creation of the intercompany invoices, Costing, Receivables, and
Payables send the response to Oracle Fusion Supply Chain Financial Orchestration with the
status and transaction reference.

For the example, the following tasks will be generated as part of the financial flow.
I. Forward Flow
1. China is the Selling entity, that is, China is selling to Singapore.
Trade Events
a) Trade In-Transit Issue in China
b) Trade Receipt Accrual in Singapore
c) Trade In-Transit Receipt in Singapore
Intercompany Invoices
d) IC AR Invoice in China
e) IC AP Invoice in Singapore
2. Singapore is the Selling entity, that is, Singapore is selling to the US.
Trade Events
a) Trade In-Transit Issue in Singapore
b) Trade Receipt Accrual in the US
c) Trade In-Transit Receipt in the US
d) IC AR Invoice in Singapore
e) IC AP Invoice in the US

II. Return Flow
1. The US is returning to Singapore.
Trade Events
a) Trade In-Transit Return in Singapore
b) Trade Receipt Return Accrual in the US
c) Trade In-Transit Receipt Return in the US
d) IC AR Credit Memo in Singapore
e) IC AP Credit Memo in the US
2. Singapore is returning to China.
Trade Events
a) Trade In-Transit Return in China
b) Trade Receipt Return Accrual in Singapore
c) Trade In-Transit Receipt Return in Singapore
d) IC AR Credit Memo in China
e) IC AP Credit Memo in Singapore
For the return flows, any tasks created in the forward flow will be reversed to the extent of the
return quantity. The transfer price will not be derived afresh for return flows but will be derived
from the tasks created for the forward flow.
The following reversal tasks will be created for the return flow:
• Costing transactions: Supply Chain Financial Orchestration interfaces with Costing to
reverse the original outbound costing for the ownership change events, intercompany
receivables, intercompany payables, intercompany revenue, and intercompany accrual.
Supply Chain Financial Orchestration also transfers the Transaction ID of the original
costing transaction that was reversed for the return flow.
• AR Credit Memo: AR credit memos will be interfaced to AR for return flows if the
documentation and accounting rule provides for AR/AP invoicing. The AR Credit memos
will be referenced to the original AR invoice generated for the forward flow.
• AP Debit Memo: AP debit memos will be interfaced to AP for return flows if the
documentation and accounting rule provides for AR/AP invoicing. The AP debit memos
will be referenced to the original AP invoice generated for the forward flow.

05 minutes Practice
10 minutes Total
You can use a dedicated work area to monitor and manage financial transactions.
The Monitor Financial Orchestration Execution page provides a complete view of the event
orchestration from the moment the event is captured in Supply Chain Financial Orchestration
until the completion of tasks related to accounting transactions and generation of
intercompany invoices. You can search for transactions based on the status of event
orchestration, item, business process type, and source order, such as sales order or purchase
order.
The Monitor Financial Orchestration Execution page provides increased visibility of the
execution status of financial tasks. You can view task details at each transaction level in a
separate window, including tasks performed, task status, selling and buying business units,
and the transaction reference of the intercompany invoices.
You can manage exceptions using this single UI. The events with exceptions are highlighted
for resolution. The following actions are supported for submitting event actions for
reprocessing:
• Submit All
• Submit Selected
• Submit Unreferenced
The Submit Unreferenced option allows you to submit events of referenced return business
flows for processing which have failed because the forward business flow is not complete.
This UI has a comprehensive set of search parameters that provides more flexibility for
retrieving transactions, and the ability to view details of all financial transactions that were
generated for a specific physical transaction. This can be accomplished based on the Event
Type or Business Process Type.
For example, to view the status of the Transfer Order Receipt event, you would specify the
event type to be Interorganization Receipt.
Source event details include the financial orchestration flow that was selected during the
orchestration process.
The source document details are displayed, including the source and destination
organization, and other transaction details like quantity and event date.
Navigation: Navigator > Financial Orchestration > Monitor Financial Orchestration Flows

Task details can be viewed using the View Tasks icon.
The task details panel displays the orchestration tasks, task status, selling and buying
business units, and the transaction reference number of the intercompany invoices.
The task status for orchestration tasks in the financial route is displayed in this section.

In this demonstration, you will see how to navigate through the work area and look at a 360-
degree view of the supply order.

00 minutes Practice
10 minutes Total

Oracle Fusion Supply Chain Financial Orchestration creates the buy and sell trade events
that occur between internal business units, and interfaces those transaction events to Cost
Management. Cost Management then processes the cost accounting for these transactions.
Cost Accounting processes these trade accounting events independently of physical
execution events, allowing you to structure legal and financial ownership and tax accounting
structures according to legal requirements, while physically shipping goods directly to the
intended destinations.

This is an example of internal transfers across BUs, where the physical flow is separate from
the financial flow. The goods are shipped directly from BU1 to BU3. However, the financial
flow involves BU2, which is the intermediate node. Now let’s understand in detail different
events that get generated and how they get accounted in Costing.

There are two broad types of internal transfers: transfers within a business unit and transfers
across the business units. Internal transfers can use a direct transfer mode or an in-transit
transfer mode.
Inter BU transfers
The execution of complex trade flows is orchestrated by the Oracle Fusion Supply Chain
Financial Orchestration application. As part of this execution, Supply Chain Financial
Orchestration creates the trade accounting events tasks and interfaces them to Cost
Management. These trade events typically represent the buy and sell accounting events and
are processed based on the transfer price. The transfer pricing option is defined as part of the
Financial Trade Agreements in Supply Chain Financial Orchestration. A different pricing
option can be defined for each node pair in the trade agreement.
When a Supply Chain Financial Orchestration agreement is not defined/available, trade
events are modeled in Costing, and are processed at cost. There will not be any intermediate
node accounting for such transfers, and the accounting is very similar to that for intra BU
transfers.

Intra BU transfers
For intra BU transfers where Supply Chain Financial Orchestration is not involved, trade
events are modeled in Costing. Transfers within a business unit can be of the following types:
• Transfer across inventory organizations within the same BU
• Subinventory transfers
Transfers within a business unit are always at cost with simple due to/due from accounting.
The accounting flow is very similar to a simple interorganization transfer at cost.

As part of trade accounting, the system tracks the cost from the origination point to the last
point in the trade flow. Apart from tracking costs, the system also tracks internal markups
using the cost element of type Profit in Inventory defined as part of the Costing setup
In the previous example, at every leg of the trade flow, the internal profit from the previous leg
is included in the inventory:
• Goods in inventory of Vision Operations at a cost of $60.00 are shipped to Vision Italy
at a transfer price of $100.00.
• Internal profit of $40.00 is included in the inventory cost of $100.00 received at Vision
Italy, which is finally transferred to the destination Vision India at a transfer price of
$120.00.
• Goods are received at Vision India at a landed cost of $120.00, which further breaks
down to:
- Original material cost of $60.00
- Internal profit of Vision Operations included in inventory $40.00
- Internal profit of Vision Italy included in inventory $20.00

00 minutes Practice
30 minutes Total
Note: Slide has animation. To be run in slide show mode.
There are two broad types of trade accounting:
• With intercompany invoicing enabledF
• Without intercompany invoicing enabled
Cost distributions and accounting are generated as follows:
• Physical events accounting is purely inventory movement accounting, and is always the
same irrespective of whether or not invoicing is enabled.
• The accounting for non-Oracle Fusion Supply Chain Financial Orchestration flows is
independent of accounting for Oracle Fusion Supply Chain Financial Orchestration
flows.
• Accounting of intercompany accrual (if invoicing is enabled) or interorganization payable
(if invoicing is not enabled) is maintained in the Receipt Accounting subledger.
• In-transit accounting is maintained in the Cost Accounting subledger.
• Accounting of intercompany COGS (if invoicing is enabled) or interorganization
receivable (if invoicing is not enabled) is maintained in the Cost Accounting subledger.

• With intercompany invoicing enabled
flows.

flows.

flows.

flows.

flows.

Cost Management supports complex internal transfers wherein multiple business units are
involved. The In-Transit Inventory Valuation Report in Costing helps the enterprise analyze
the financial value of goods in transit at any given point of time. The in-transit valuation
includes asset items as well as expense items that are in transit.
Navigation: Navigator > Scheduled Process > Schedule New Process > In-Transit Valuation
Report


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05 minutes Lecture and Demo

Advanced Supply Chain and Fulfillment Techniques Course 1 - 9

Advanced Supply Chain and Fulfillment Techniques Course 2 - 3

Advanced Supply Chain and Fulfillment Techniques Course 2 - 6

Advanced Supply Chain and Fulfillment Techniques Course 3 - 3

Advanced Supply Chain and Fulfillment Techniques Course 3 - 5

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Advanced Supply Chain and Fulfillment Techniques Course 3 - 7

Advanced Supply Chain and Fulfillment Techniques Course 3 - 8

Advanced Supply Chain and Fulfillment Techniques Course 4 - 4

Advanced Supply Chain and Fulfillment Techniques Course 4 - 5

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Advanced Supply Chain and Fulfillment Techniques Course 4 - 7

Advanced Supply Chain and Fulfillment Techniques Course 4 - 11

Advanced Supply Chain and Fulfillment Techniques Course 4 - 12

Advanced Supply Chain and Fulfillment Techniques Course 4 - 13

Advanced Supply Chain and Fulfillment Techniques Course 4 - 14

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Advanced Supply Chain and Fulfillment Techniques Course 4 - 16

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Advanced Supply Chain and Fulfillment Techniques Course 5 - 3

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Advanced Supply Chain and Fulfillment Techniques Course 7 - 3

Advanced Supply Chain and Fulfillment Techniques Course 7 - 4

Advanced Supply Chain and Fulfillment Techniques Course 7 - 5

Advanced Supply Chain and Fulfillment Techniques Course 7 - 6

Advanced Supply Chain and Fulfillment Techniques Course 7 - 7

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Advanced Supply Chain and Fulfillment Techniques Course 7 - 9

Advanced Supply Chain and Fulfillment Techniques Course 7 - 10

Advanced Supply Chain and Fulfillment Techniques Course 7 - 11

Advanced Supply Chain and Fulfillment Techniques Course 8 - 4

Advanced Supply Chain and Fulfillment Techniques Course 8 - 5

Advanced Supply Chain and Fulfillment Techniques Course 8 - 6

Advanced Supply Chain and Fulfillment Techniques Course 8 - 8

Assignment of cost profiles to items –

Advanced Supply Chain and Fulfillment Techniques Course 8 - 11

Advanced Supply Chain and Fulfillment Techniques Course 8 - 12

Advanced Supply Chain and Fulfillment Techniques Course 8 - 13

Advanced Supply Chain and Fulfillment Techniques Course 8 - 14

Advanced Supply Chain and Fulfillment Techniques Course 8 - 16