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Purchasing System Configuration

Normally while converting legacy systems to oracle, or implementing a new brand oracle ERP to a company. There are lot of steps and set ups involved for each and every module.

Let us consider for an example we are configuring the PURCHASING system, there are some specific setups which need to be be in place to have the PURCHASING module to work as expected.

Attached is the document which let you know the set up check list for the PURCHASING.

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Intercompany Setups in R12

Inter company Transactions are the transactions between two legal entities related to same Organization. Following are the setups need to be defined for Inter company Transactions.

Selling Operating Unit: Vision Japan
Shipping Operating Unit: Vision Operations

Step1: Define Transaction Type
Responsibility: Receivables Manager, Vision Operations
Navigation: Setup → Transactions → Transaction Type
Define New transaction type as shown below.
 
Step2: Assign Document Sequence to new Transaction Type (Defined in Step1) 
Responsibility: General Ledger Manager, Vision Operations
Navigation: Setup : Financials → Sequences → Document → Assign
Assign a document sequence to the transaction type ‘Intercompany’ as shown below.
 
Step3: Define Intercompany Transaction Flow and Intercompany Relations

Responsibility: Inventory Manager, Vision operations

Navigation: Setup → Organizations → Intercompany Transaction Flows
Define Intercompany Transaction flow and Intercompany Relations as shown below.

Mandatory Setups to Check:
1. Make Sure there are no security rules defined when shipping the item from other Operating unit and Auto Accounting rules are defined(for Selling OU) to default the balancing segment values with Table Name as Standard Lines(Which will get the values from Standard line item or Inventory Item used)

Path for Security Rules:
Responsibility: General Ledger Responsibility
Navigation: Setup → Financials → Flexfields → Validation → Security → Define
Path for Auto Accounting:
Responsibility: Receivables Responsibility
Navigation:  Setup → Transactions → Auto Accounting

2. Make Sure Shipping parameters are defined for both Shipping and Selling operating units.
 

Responsibility: Order Management Responsibility
Navigation: Shipping → Setup → Shipping Parameters
3. Make Sure that the COGS account is assigned to the Transaction Type used for SO in Selling Organization.
Responsibility: Order Management Responsibility
Navigation: Setup-> Transaction Type 

4. Make sure that a value is assigned for System parameter ‘Inventory Item For Freight’

Responsibility: Order Management Responsibility
Navigation: Setup → System Parameters → Values
Intercompany Transaction Process:
1. Create and Book Sales Order:
Responsibility: Vision Japan Order Management Responsibility
Navigation: Orders, Returns → Sales Orders
Create a Sales Order with Vision Operations Shipping Warehouse and book the order as shown below.
 

2. Release the Order and Ship the Item
Responsibility: Vision Operations Order Management Responsibility
Navigation: Shipping → Release Sales Orders → Release Sales Orders
Release and ship the order. Then notice the transaction status as ‘Shipped’ or ‘Interfaced’ on Shipping Transactions form as shown below.
Navigation: Shipping → Transactions
 
3. Run Workflow Background process
Responsibility: Vision Japan Inventory Responsibility
Navigation: Workflow Background Engine
Run Workflow Background Process.
4. Run Auto Invoice Master Program to create Customer Invoice
Responsibility: Vision Japan Receivables Responsibility
Navigation: View → Requests → Auto Invoice Master Program
The invoice created is shown below.
Navigation: Transactions → Transactions
5. Create Intercompany AR Invoice
Responsibility: Vision Operations Inventory Responsibility
Navigation: Reports → Intercompany Invoicing
Run the Program ‘Create Intercompany AR Invoices’ to create Intercompany AR invoice.
6. Import Intercompany AR invoice
Responsibility: Vision Operations Receivables Responsibility
Run Auto Invoice Master Program with parameter Source as ‘Intercompany’. The Intercompany invoice created is shown below.
Navigation: Transactions → Transactions
7. Create Intercompany AP Invoice

Responsibility: Vision Japan Inventory Responsibility

Navigation: Reports → Intercompany Invoicing
Run the Program ‘Create Intercompany AP Invoices’ to create Intercompany AP invoice.
8. Import Intercompany AP invoice
Responsibility: Vision Japan Payables Responsibility
Run Payables Open Interface Program with parameter Source as ‘Intercompany’. The Intercompany AP invoice created is shown below.
Navigation: Invoices → Inquiry → Invoices

Possible Errors while making Intercompany Transactions:
1. Please correct the revenue account assignment 
2. INCIAP – Create Intercompany AP Invoices Terminated By Signal 11 Error
3. Can not retrieve payment term from bill-to site information
4. Returned warning from extra function
Solution: Check Mandatory Setups Section.
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Accounting setup in Oracle General Ledger – R12

Accounting setup is used to set up the accounting structure which controls transaction processing across Oracle Financial Applications . With Accounting setup manager we can define and maintain the accounting setup for Legal Entities,

              Ledgers,
              Operating Units,
              Subledger Accounting,
              Intercompany and Intracompany Balancing, and
              Reporting Currencies
Responsibility:   General Ledger
Navigation:       Setup : Financials : Accounting Setup Manager → Accounting Setups
Click on Create Accounting setup to setup the Accounting structure.
There are three steps in Accounting setup process.
1. Assign Legal Entities: 
Here we may create or assign existing LE to the accounting structure. We need not assign legal entity if there is no legal entity context.

If legal entities are involved, we need to define separate accounting setup for each legal entity, which require it’s own primary ledger. So ledgers have to be defined for each legal entity separately.

The need for other legal entity depends on Chart of Accounts, calendar, Currency, Accounting Method and Ledger processing options. If a legal entity requires any one of the above attributes to be different, a separate primary ledger is required.

Chart of accounts refers to the number of segments that a Chart of accounts structure consistes of.
Calendar refers to the type of accounting calendar that a legal entity uses. Ex: Monthly or Quarterly Calendar.
Currency refers to the primary currency that a legal entity belongs to.
Accounting Method refers to the subledger accounting methods based on the different accounting standards that a legal entity operates.
Ledger Options refers to the options that control how journals and transactiones are processed for a ledger.
Ex: Journal approval, Suspense account, Average balances, Intracompany balancing option, etc.

If we assign Legal entities to the accounting structure, we must assign specific balancing segment values to legal entities to identify and secure transactions by legal entity.

2. Define Accounting Representations: 
Here we need to define Primary and Secondary ledgers to make the Accounting representation.

Primary Ledgers are mandatory. We need to define the primary ledger for each legal entity and accounting setup.

Secondary ledgers are optional.  Secondary ledgers have to be assigned to the accounting setup or primary ledger to maintain multiple accounting representations for the same legal entity. A secondary ledger can differ in one or more of the following attributes from primary ledger.
Chart of Accounts,
Currency,
Calendar,
Accounting Convention

Secondary ledgers can be maintained at different levels such as:
Subledger level
Journal level
Balance level
Adjustments

In this step we can map the ledgers to  chart of accounts and assign currency, calendar, subledger accounting method and reporting currency.

Reporting currencies have to be assigned when you want diferent currency representation to primary or secondary ledgers.  Reporting currencies must share same chart of accounts,calendar,accounting method and ledger processing options as their source ledger. Reporting currencies can be assigned at different levels.
Subledger level
Journal level
Balance level

We can not use subledger level reporting currencies for secondary ledgers.

3. Save Accounting structure: This step is to review and complete the accounting setup.
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Oracle Consigned Inventory setups

Setups to be done:

     1. Create Purchase Item and Org level check in
         a) Purchasing tab : Enable Use Approved Supplier and List Price
         b) General planning tab : Enable Consigned
         c) Costing tab: Enable Costing and Inventory asset value
         d) Assigned to Specific org.
  1. Supplier is defined as well as Supplier Site
    a) Ship to and Bill to : Purchasing
    c) Pay on: use
    d) Invoice summary level : Consumption advice
  2. Inventory set up :
    a) INV: Setup → Transaction → Consigned /VMI Consumption. 
    1) Consigned tab is checked.
    2) Transaction type: Subinventory Transfer
    3) From Subinventory : Expense Subinventory
    4) To Subinventory : Asset Subinventory
    5) Owning party and other details has been specified.
  3. Create and Approved BPA
    a) Create Blanket agreement ans the BPA has been Approved
    b) Agreement number has been attached to ASL attribute
    c) Consigned from supplier has been selected.
    d) Zero days as billing cycle.
  4. Receipts has been performed in expense Subinventory
    – Receipt routing : Direct delivery
    – No accounting impact has been taken place.
  5. Receive it at the expense SI mentioned
    – The location field is not mandatory (normally for a direct receipt) as it a consigned material.
  6. Consigned transaction has been performed
    – Transfer to regular.
    – Subinventory selected has expense Subinventory
    – Owning party has been defaulted
    – Qty has been specified
  7. I can see that line has been split in on-hand qty and also the accounting impact is correct.
    – The line would have got split into two indicating both our material and the party’s material.
  8. Create consumption advice request has been processed.
  9. Now the problem is when I perform consigned transaction the item should be transferred from expense sub inventory to Asset Subinventory(FG in my case) automatically but i can’t see this happening
    (goods are not transfer to asset sub inventory has I set in my consignment setup) and also I need to ship the goods from here.
  10. Profile : INV: Allow Expense to Asset Transfer = Yes.
  11. Run the concurrent Pay on Receipt Auto Invoice
    – again add it your request group
    – with a transaction source of “ERS_AND_USE” for our inventory receipt number. – This will take the data from the “Consumption Advice” and populate the interface tables of Oracle payable Responsibility.
    – Pay on receipt will also automatically spawn the child concurrent “Payables Open Interface Import” for pulling the data from the interface table to the Base table of Oracle payable Responsibility.
  12. Switch resp to Payable and enquire the creation of unvalidated, distributed Invoice
    – [Nav: Invoices=> Inquiry=> Invoices] for our supplier. Check the balance owed to him also [a button in the bottom of the inquiry form].
  13. Validate the Invoice and create accounting
    – Creation of liability owed to the supplier.
    – Check for funds available in the bank and make a full payment from our internal bank in our payment document and make final accounting.
    – This will facilitate passing of the accounting entries to Cash Management for re-conciliation and manual adjustments,
    – If necessary before posting to General Ledger.
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Intercompany Invoicing Setups

1. For a single process flow (one procure-to-pay cycle or order-to-cash cycle), you can model Oracle to generate intercompany invoices between two or more operating units. The building block of intercompany invoicing is the setup of intercompany transaction flow.
The intercompany transaction flow establishes the physical flow of goods and financial flow relationship between two operating units. The intercompany transaction flow establishes the relationship between one operating unit (known as Start Operating Unit) and another operating unit (known as End Operating Unit) about the actual movement of goods. Similarly, it also establishes the invoicing relationship between Start Operating Unit and End Operating Unit.
2. Intercompany transaction flow is of two types – shipping flow and procuring flow. You need to setup intercompany transaction flow of type shipping when selling operating unit is different from shipping operating unit. You need to setup intercompany transaction flow of type procuring when buying operating unit is different from receiving operating unit.
 
3.1 By enabling advanced accounting for an intercompany transaction flow, you would be able to generate multiple intercompany invoices between different operating units for the same physical movement of goods.
Oracle supports intercompany invoicing for both shipping and procuring flows. However, you need to use the ‘Advanced Accounting’ option for enabling intercompany invoicing for procuring flow even if it involves only two operating units. If you do not enable ‘Advanced Accounting’ option at the intercompany transaction header, then no logical transactions will be generated and no intermediate nodes can be defined
3.2 You need to define intercompany relations between each pair of operating units in the intercompany transaction flow. When advanced accounting is enabled for an intercompany transaction flow, you will be able to define multiple intercompany relationships between different operating units. If advanced accounting is set to No, then an intercompany transaction flow can have only one intercompany relation (it is between start operating unit and end operating unit).
 
At each pair of intercompany relationship, you will define the intercompany accounts, and currency code to be used on AR and AP invoices.
Note that in Figure 3.1 – Intercompany Transaction Flow, physical goods never flow through intermediate operating unit. Oracle creates ‘Logical Material Transactions’ between the operating units, based on which intercompany invoices between multiple operating units are raised.
3.3 No logical transactions will be created when you do not choose ‘Advanced Accounting’. For example, the transactions in Figure 4 can be broken down as depicted in Figure 6.
 
Logical transactions are useful to record financial transactions between two operating units without physical movement of goods. For example, in Figure 3.2 – Logical Material Flow, Vision Japan is an intermediate operating unit through which no physical goods flow. However, it is a financial intermediate node, which is involved in intercompany invoice flow. To facilitate accounting in the intermediate OUs, logical intercompany receipt and issue transactions are created. Similarly, logical receipt and logical sales order issue transactions are created for those receipts and issues that are not accompanied with physical receipt and issue of goods.
3.4 Advanced Accounting’ option is not available for internal requisitions – internal sales order business flow. Though you can set the ‘Advanced Accounting’ flag at Intercompany Transaction Flow header to ‘Yes’, system ignores the flag and does not generate any logical transactions. This means you cannot have an intermediate financial node in the intercompany transaction flow. Also, you cannot have intercompany invoicing for internal sales order with direct transfer (in shipping network between the inventory organizations) as an option. You have an flexibility to switch off intercompany invoicing for internal sales orders by setting the profile ‘INV: Intercompany Invoice for Internal Orders’ to No.
Intercompany invoicing is possible for inter-org transfers of type ‘In-transit’ only through ‘Internal sales Orders’. No intercompany invoicing is possible if you perform org transfers between two inventory orgs belonging two different operating units without ‘internal sales Orders’. Also note that intercompany invoice cannot be raised for inter-org transfers of type ‘Direct Transfer’ through Internal sales Orders.

Customer and Supplier relationship
Intercompany invoicing is widely used in multinational organizations. Sometimes you will find that these companies engage in a customer – supplier relationship.
For example, in above Figure you need to define Vision Japan as a customer in Vision China operating unit. Similarly, Vision China should be defined as a supplier in Vision Japan. When you define an intercompany relationship between Vision Japan and Vision China, actually you are establishing an internal customer and supplier relationship. Similar is the case for every intercompany relationship in an intercompany transaction flow. However, at present intercompany invoicing does not support any sales credit check.
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