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

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

3. Learning Objectives Learn how to defer costing of transactions through use of the Cost Cutoff Date (CCD) Realize the importance of CCD when updating standard costs Understand lessons learned: –Potential temporary adverse effects on Inventory balance reports –Impact on intercompany A/R invoicing

4. Today’s Speaker: Eric Guether IT Director at Opnext in Eatontown, NJ Manages Opnext’s Oracle EBS 11i system Provides user support for some 11i modules, Oracle Alerts and Discoverer 9i Desktop Member of OAUG and NJOAUG Began career as an accountant and then CPA

5. Who Is Opnext? Lasers! –Designer & maker of active fiber optic components Spin-off of 2 Hitachi businesses –Headquarters in Eatontown, NJ –Manufacturing in Yokohama & Komoro, Japan Global sales to customers such as Lucent, Alcatel, Cisco, Siemens, Kodak, NEC, and Hitachi Running multiorg, single global instance of EBS 11i –11.5.10.2 (CU2) American English with Japanese national language support (NLS) –Financials, OM, Inventory, Purchasing, Cost Mgmt., Discrete MFG & Master Scheduling/MRP

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

7. Business Case Company practice is to update standard costs every 6 months as of: –October 1 st [Cost Period: Oct. 1, 2006 to March 31, 2007] –April 1 st [Cost Period: April 1, 2007 to Sept. 30, 2007] New costs not finalized until after April 1 st / October 1 st –Oracle’s Assumption: Most companies have new costs finalized before the start of the new cost period and just want to defer transaction costing on first 1 or 2 days of new cost period At Opnext, standard cost updates typically occur around April 10 th / October 10 th

8. Dilemma Before Release 11.5.7 Standard costs in Oracle do not have effective dates How to value those early April / Oct. transactions at the new costs after the standard cost update? Still must value March- / Sept.- dated transactions at the old period costs even if created in early April / Oct. Cannot simply shut-off the Cost Manager –Might stop the costing of March / Sept transactions created in early April / Oct, such as Pending trx resolved on 1 st day of new month

9. Off-line Workaround in 11.5.3 Record early April / October inventory, WIP, shipping, and PO receiving transactions off-line (outside of EBS 11i) until the completion of standard cost updates Retroactively record (enter) early April / October transactions in EBS 11i after standard cost updates Issues –Extra, unnecessary work to record offline –Unreliable / unusable inventory quantities in EBS 11i for a week or more –Shipping and export documents prepared manually (not via EBS 11i) for a week or more –Violated automated business process controls

10. Solution: Cost Cutoff Date Inventory organization parameter Introduced in release 11.5.7 Entirely met Opnext’s needs –Completely eliminated the need to record transactions outside of EBS 11i Controlled by the simple entry of one Cost Cutoff Date for the org

11. Parameter Setup Organization Parameters –> Costing Information tab

12. Functionality Intended to keep “new period” transactions uncosted until you finish your standard cost updates for the org If the Cost Cutoff Date = 01-APR-2007, then transactions with G/L Date of: –01-APR-2007 or later will not be costed –31-MAR-2007 or earlier will be costed, even if created on or after April 1 st

13. Cost Update Sequence Complete all March trx by early April –Valued at current frozen costs = “old” costs Begin entry of April-dated trx on 01-APR Close the March period in early April Perform std. cost updates (early/mid April) –Uncosted transactions are not revalued Change the CCD to a later date –Example: 01-OCT-2007 Cost Manager then costs all existing April- dated transactions at updated frozen costs

14. When the CCD is deferring the cost of a transaction, the transaction has: –A record on the MTL_MATERIAL_TRANSACTIONS table Allows the transaction quantities to be recognized by the EBS 11i modules –Its COSTED_FLAG = ‘N’ Indicates the record has not yet been costed As long as the flag = ‘N’, no accounting entries [“distributions”] have been created yet Database Perspective

15. Example # 1: INV Misc. Receipt Scenario where CCD will defer costing Receive 5 units of item LASER123 Standard Cost –$1,200 per unit through end of March –$1,000 starting April 1 st (updated on 04-APR) Transaction date, 01-APR-2007, is equal the cutoff date of 01-APR-2007 Creation date = 01-APR-2007

16. Example # 1 Transaction

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

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

19. Example # 1 Distributions

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

21. INV Trx Affected by CCD partial list; not complete Miscellaneous / Account Alias Transactions Subinventory Transfer Interorg Transfer Receiving Pick Confirm Ship Confirm / Sales Order Issue Create Intercompany AR Invoices

22. Other Trx Affected by CCD partial list; not complete Purchasing module –PO Receiving (including PPV) –Returns to Supplier WIP module –Discrete WIP assembly completion –Discrete WIP component issue –Work order-less completion

23. Example # 2: PO Receiving Receive & deliver to Inventory (no inspection) Receive 200 units of item DIODE-5002 PO Unit Price = $0.90 Standard Cost –$1.25 per unit through end of March –$1.00 starting April 1 st (updated on 04-APR) Transaction date, 02-APR-2007, is after the cutoff date of 01-APR-2007 Using the CCD, the receipt is costed at $1.00 per unit, triggering a purchase price variance (PPV) of $-0.10 per unit [PO price $0.90 - $1.00 cost]

24. Example # 2 Transaction

25. Example # 2 Chart

26. Example # 3: Work Order-less Completion Work Order-less Completion (WOC) –Transaction Type = WIP Assembly Completion Three Transactions in One –Receive 10 units of final product TRM999 into inventory –Consume 10 units of component LASER123 from inventory –Create accrual distribution for Outside Processing (OSP) resource charge Transaction date 03-APR-2007 > CCD

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

28. Example # 3 Costs Component Standard Cost –$1,200 per unit through end of March –$1,000 starting April 1 st (updated on 04-APR) Outside Processing Charge –$50 per unit through end of March –$30 starting April 1 st (updated on 04-APR) Final Product Standard Cost –Derived from Assembly Cost Rollup –$1,250 through end of March [$1,200 + $50] –$1,030 starting April 1 st [$1,000 + $30]

29. Example # 3 Transaction

30. Example # 3 Cost Rollup

31. Example # 3 Results Transaction costing is deferred in: –INV module for final product completion –INV module for component consumption –WIP module for OSP routing resource charge Final product costed at new period cost of $1,030

32. Lessons Learned: Reports Opnext Warning! –When so many transactions are uncosted for days or weeks, some INV reports might show inaccurate historical balances: Transaction Value Historical Summary Transaction Balance Historical Summary –Cause: Reports fail to estimate cost of some uncosted WIP and PO Receipt transactions when backing into historical balance –Issue resolves itself as soon as CCD changes and uncosted transactions become costed Oracle Support never acknowledged this

33. Report With Error Uncosted WIP component issue of LASER7777 for $480,000 is missing from Job or Schedule column 28-FEB value of $-480,000 is incorrect; should be zero

34. Lessons Learned: Intercompany Invoicing The “Create Intercompany AR Invoices” program does not create a record until its parent record has been costed –Parent record = “Sales order issue” material transaction type [action = “Issue from stores”] The CCD indirectly defers creation of intercompany A/R invoices in the new cost period when it directly defers the costing of the parent record Deferring of I/C A/R invoice creation allows Opnext to update the price list used for I/C invoicing in early April or October

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

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

37. Additional Resources Metalink note # 213628.1: “What is the Cost Cutoff Date?” Metalink bug # 3585271: “INVTRHAN: HISTORICAL DATA QTY=0 BUT THE VALUE IS > 0” Metalink bug # 3480557: “11I INCIAR GETS APP-5706 WHEN RUN ON END DATE OF PRICES APP-05706” ORAtips October 2005 Article: 11i Inventory’s Cost Cutoff Date – Defer Costing Until Your Standard Costs Have Been Updated! by Eric Guether OAUG Connection Point 2004 presentation: Workorderless Completion for Simple Outside Processing in 11i WIP by Eric Guether