How Oracle Supply Chain Financial Orchestration Supports Profit Margin, Accounting, and Interco-Invoice Generation
Many successful organizations take advantage of globalization in order to increase profits and gain a competitive edge. In the ideal world, there will be multiple entities involved in the product development process. The internal distribution company will take care of the sale of products, then request that the manufacturing organization create and ship the product to the end customer. The product’s technical ownership and patent may lie with a different entity entirely. After setting up different entities as part of their global strategy; however, it can become challenging for businesses to handle the complex profit margin structures they’ve developed which must comply with various local authorities.
These profit-sharing structures can be very complex. Take this example organization:
- Entity One takes orders from their customer in Asia.
- Entity Two manufacturers the product.
- Entity Three is invested in the design and development of the product.
- Entity One sells the product to the end customer with a profit of 13%, irrespective of the sale price.
- Entity Two sells the product to the technology owner with Cost + Markup. Profit needs to be shared accordingly.
That’s where Oracle Supply Chain Financial Orchestration (SFO) comes in. Oracle SFO supports automated profit sharing while adhering to local accounting and policies. This helps businesses avoid manual adjustments between different entities and supports compliant processes by auto-generating intercompany AR and AP invoices. Most importantly, SFO provides a single view of the cost and profit margin between different entities.
Considering Oracle SFO? First a case study
Organizations considering SFO implementation must begin by reviewing:
- Local and international compliance policies
- Accounting and costing standards for each entity
- Different pricing strategies for global sales
- The physical flow of material versus the financial flow
- Profit-sharing structures
To understand these considerations more clearly, let’s dive into a case study. Our client, Cohu, has a global sales process. The company exists in multiple countries across the globe, registered with different legal entities and profit center business units under one enterprise. Cohu has complex financial orchestration flows which are separated by the physical flow of material and the financial route between the selling, manufacturing, and technology-owning entities. It is difficult for Cohu to maintain these flows, perform intercompany transactions, and account for and share profit between these entities while adhering to local compliance policies.
If we examine their process more closely, we’ll see that the physical flow of inventory takes place between the Cohu US Delta (Selling Entity), located in the USA, and the Cohu MY Melaka (Manufacturing Entity), located in Malaysia. The Manufacturing Entity sends the physical product to the Selling Entity’s customers across the Globe. The Manufacturing Entity also sends the financial information and transfers ownership of the product in the financial books to Cohu DE Rasco (Technology Entity), which is located in Germany, owns this technology, and invested in the R&D of the product. Each organization is a separate legal entity in Cohu’s global enterprise structure. Because these organizations are located in different countries, they each require separate accounting and tax reporting. Inspirage implemented Oracle Fusion Supply Chain Financial Orchestration to capture, process, and perform an accurate account of these events. The events occur during an intercompany transaction. By utilizing SFO, Cohu was able to:
- Automate intercompany invoice generation and payment,
- Optimize operational efficiency by centralizing order management functions, and
- Reduce implementation costs and cycle time.
Inspirage can help
Inspirage understands these challenges and will help your business achieve seamless supply chain operations using Oracle’s Supply Chain Financial Orchestration solution. If you are unsure about moving to Oracle Cloud due to gaps between your business requirements and Oracle’s Cloud offering, it’s possible that we have already built a solution to bridge that gap. If not, we can customize something to fit. We will do the work behind the scenes, so you can focus on growing your business. Please visit the Oracle Cloud Marketplace to see a complete listing of Inspirage Solutions.
As the Integrated Supply Chain Specialists, with recognition from Gartner, IDC, and winners of Oracle’s ERPM (Enterprise Resource Planning & Management) & Supply Chain Management Cloud Partner of the Year (Global) awards in recent years, Inspirage is uniquely qualified to be your success partner. Whether you are upgrading your on-prem system or have decided to move to the cloud where continuous improvement is built-in, our team is prepared to guide you on your transformational journey. Contact us to learn more.
