Inter-Site Profitability—Exercises

Basic Data Setup

IFS Detroit is mainly a selling site and only stores the parts most frequently sold. Some parts are rarely ordered by external customers, which is why they are ordered internally from the manufacturing site in Pittsburgh when they are needed. Some of the parts are sent via Detroit and some are sent directly to the end customer. Both Detroit and Pittsburgh sites belong to the same company.

To the teacher: It is important that the addresses used for message handling are set up correctly in the Setup Connectivity window. For instance: the message addresses used in the exercise below, IFSC and IFSS respectively, must have a Site ID connected in the Message Receiver tab in the Setup Connectivity window to work properly.

Enter Delivery Address

Purpose: The purpose of this exercise is to enter delivery addresses for the Pittsburgh and Detroit sites.

Windows:
Company/Address

1. Query for one of your companies.
2. Enter an address XXPD for Pittsburgh and XXDD for Detroit.
3. Set the address type to include delivery.
4. On the same tab, enter a value in the Company's Own Address ID field (sometimes referred to as EAN) for Detroit (the ordering site). When working with internal transit deliveries, this ID provides a possibility to recognize addresses between sites and companies; i.e., the address is known and will not be marked as single occurrence. When you later will enter data for Detroit as an internal customer, be sure to use the same ID on the Customer/Address tab.

General exercise for Company Setup

Select Inter-Site Profitability

Purpose: The purpose of this exercise is to specify that inter-site price postings should be automatically generated when internal customer orders are delivered. Without these postings, inter-site profits cannot be analyzed.

Windows:
Company/Distribution/Order

1. Select the Inter-site Profitability check box.

General exercise for Company Setup

Enter Site

Purpose: The purpose of this exercise is to enter sites and picking lead time.

Windows:
Site
Sites per User

1. Open the Site window.
2. Create XXP as a new site for Pittsburgh and XXD as a new site for Detroit.
3. Enter a picking lead time for each site.
4. Connect the above entered delivery addresses to the correct site.
5. Open the Sites per User window and connect the two sites to your user ID.

General exercise for Enter Sites

Required Data

Purpose: The purpose of these exercises is to complete the general setup for the Detroit and Pittsburgh sites, and the posting control for the inter-site price postings.

Windows:
Supplier
Inventory Part
Inventory Locations
Sales Part
Supplier for Purchase Part
Purchase Part
Customer
Supply Chain Matrix for Customer
Supply Chain Matrix for Site
Posting Control

Required Setup Data for the Pittsburgh Manufacturing Site

Windows:
Customer
Inventory Part
Sales Part
Inventory Locations
Receive Inventory Part

1. Create the Detroit site as an internal customer in the Customer window. Name it XXICD. Enter details on all the relevant tabs, at least the required information.
2. Open the Address tab. Enter the same ID used on the site's address above (Company/Address) for Detroit's delivery address in the Customer's Own Address ID field. When working with internal transit deliveries, this ID provides a possibility to recognize addresses between sites and companies; i.e., the address is known and will not be marked as single occurrence.  
3. On the Order/Misc Customer Info tab, enter your user ID as EDI coordinator and also enter order type QO. Make sure that order type QO works automatically through the order process. 
4. Select the Internal Customer check box under Internal Customer Info, and enter XXD as a customer site.
5. On the Message Setup tab, enter the EDI messages for delivery notification (DIRDEL) and order response (ORDRSP). Indicate MHS as media code and IFSC as address, and select the Method Default check box.
6. At the Pittsburgh site, create part nos. XX-18-300, Gear, and XX-18-411, Differentials, as manufactured inventory parts in Inventory Part window. Make sure that both parts have the availability checkbox selected. Enter an estimated material cost of 3 for both parts.
7. At the Pittsburgh site, create part nos. XX-18-300, Gear, and XX-18-411, Differentials, as regular stored sales parts in the Sales Part window. Both sales parts should have the Sourcing Option field set to Inventory Order. XX-18-300 should have the price 9 and XX-18-411 should have the price 3.
8. Create one arrival and one picking location in the Inventory Locations window, and receive some parts into the picking location in the Receive Inventory Part window.

General exercise for Enter Customer
General exercise for Enter Sales Part
General exercise for Enter Inventory Part
General exercise for Enter Inventory Locations
General exercise for Receive Inventory Part

Required Setup Data for the Detroit Ordering Site

1. Enter Pittsburgh as an internal supplier in the Supplier window. Start by entering the site as a regular supplier and name the supplier XXISP. Enter details on all the relevant tabs, at least the required information
2. On the Purchase/Misc Supplier Info tab, indicate Pittsburgh as an internal supplier by selecting the Internal Supplier check box and indicating XXP as a supplier site.
3. Also on the Purchase/Message Defaults tab, select the Automatic Approval check box and enter your user ID as approval user.
4. On the Message Setup tab, connect the purchase order EDI messages ORDERS and ORDCHG. Indicate MHS as media code and IFSS as address, and select the Method Default check box.
5. Part no. XX-18-300, Gear, is a stored internally purchased part that is sent via Detroit before it is delivered to the end customer. At Detroit site, create an inventory part in the Inventory Part window. Enter an estimated material cost of 5 for the part.
6. Enter a picking location (XX-PP1) in the Inventory Locations window. In the Inventory Part window, connect the part to the location.
7. Continue to enter the sales part in the Sales Part window. The price should be 10.
8. Open the Supplier for Purchase Part window, and connect the purchase part with the internal supplier Pittsburgh. On the Inspection Info tab, specify Receive into Inventory as the receive case.

Note: A purchase price has to be entered but will not be considered by the inter-site profitability analysis. It is only the sales part price that is included in the analysis; and therefore the demand site has to verify that the correct sales price has been used by the supply site.

9. Part no. XX-18-411, Differentials, is an internally purchased part that is delivered directly to the end customer from Pittsburgh. At Detroit site, create an inventory part in the Inventory Part window. Enter an estimated material cost of 5 for the part.
10. Create a sales part in the Sales Part window. Click Use Sourcing Rule in the Sourcing Option field under Sourcing. Connect the sourcing rule AID (Any Internal Supplier - Direct). The price should be 10.
11. Connect the part to the internal supplier Pittsburgh in the Supplier for Purchase Part window.
12. Create the external customer XX-390 C.S.C. Madrid in the Customer window.
13. Create the external customer XX1010 C.S.C. Paris in the Customer window.
14. For both external customers' delivery address, enter data in the Customer's Own Address ID, sometimes referred to as EAN. When working with internal direct deliveries from another site, this ID provides a possibility to recognize addresses between sites and companies; i.e., the address is known and will not be marked as single occurrence.
15. Enter ship via and external transport lead time for transportations from XXD to C.S.C. Madrid, and from XXP to C.S.C. Paris, in the Supply Chain Matrix for Customer window.
16. Enter ship via, external transport lead time, and internal transport lead time for the transportation between XXP and XXD in the Supply Chain Matrix for Site window.

General exercise for Enter Purchase Part
General exercise for Enter Supplier
General exercise for Enter Customer
General exercise for Enter Sales Part
General exercise for Enter Inventory Part
General exercise for Enter Inventory Locations
General Exercise for Supplier for Purchase Part
General Exercise for Setting Up Site to Customer Supply Chain Parameters for Trading
General Exercise for Setting Up Site to Site Supply Chain Parameters for Trading

Required Setup Data for Posting Control in Your Company.

1. In the Posting Control window enter the posting types M159, M160, M161, M162, M163, M164, M165, and M166. Use the code part Account and the control type C5 to separate all inter-site price postings for site XXP and XXD on different internal accounts.

Note: In the exercise below, only the predefined Inter-site Profitability Report available from Info Services will be used. This report does not depend on the posting control setup. However, each posting type must be given an account for the transaction to be completed. When building the report with Report Generator the posting control is vital and should be set up by an accounting expert.

General exercise for Posting Control

Main Exercise

Purpose: The purpose of this lesson is to learn how the inter-site price postings are applied and how they can be analyzed.

Ordering Parts Internally

Detroit Site

Windows:
Purchase Order

1. Site XXD wants to buy two pieces of part no. XX-18-300 from the internal supplier XXISP. Create a purchase order at the Detroit site in the Purchase Order window.
2. Release and send the order.

Pittsburgh Site

Windows:
Incoming Customer Order
Customer Order
Inventory Part in Internal Order Transit
Inventory Transactions History

1. Open the Incoming Customer Order window and search for your purchase order in Internal PO No field. Approve the message so that the customer order is created. Right-click and then click Customer Order to open the created order.
2. Release the customer order. Refresh the order, and check the status of the customer order. Note that in the Inventory Part in Internal Order Transit window, the parts are delivered to order transit.
3. Query for the part XX-18-300 in the Inventory Transactions History window. The INTREV transaction has been created on site XXP with the value 18 (two pieces with the price 9 for each). The INTREVR transaction has been created on site XXD with the value 18. The INTCOS transaction has been created on site XXP with the value 6 (two pieces with the inventory value of 3 for each). The INTCOSR transaction has been created on site XXD with the value 6.

Detroit Site

Windows:
Register Purchase Order Arrivals
Quick Order Flow Handling

1. Open the Register Purchase Order Arrivals window, and search for your purchase order. Right-click and then click Receive from Internal Order Transit. Select which row to include in the receipt, and enter the inventory quantity to receive. Receive the purchase order into inventory.

Ordering Parts via Internal Purchase Order, Direct

Detroit Site

Windows:
Customer Order

1. C.S.C. Paris, XX1010, wants to buy two pieces of part no. XX-18-411. Create a customer order in the Customer Order window at the Detroit site with the NO order type, and release it.
2. Select the customer order line. Right-click, point to Pegged Objects and then click Purchase Info to see the purchase order that has been created and sent to the supply site.

Pittsburgh Site

Windows:
Incoming Customer Order
Customer Order
Inventory Transactions History

1. Open the Incoming Customer Order window, search for your purchase order in Internal PO No field, and generate an internal customer order by approving the message. Right-click and then click Customer Order to open the created order.
2. Release the customer order. Refresh the order, and check whether the status is Invoiced/Closed.
3. Query for the part XX-18-411 in the Inventory Transactions History window. The INTREV transaction has been created on site XXP with the value 6 (two pieces with the price 3 for each). The INTREVR transaction has been created on site XXD with the value 6. The INTCOS transaction has been created on site XXP with the value 6 (two pieces with the inventory value 3 for each). The INTCOSR transaction has been created on site XXD with the value 6.

Detroit Site

Windows:
Incoming Delivery Notification
Quick Order Flow Handling
Print Customer Invoices

1. Open the Incoming Delivery Notification window and search for the purchase order in Order No field. Check whether the message has been approved and the direct delivery has been registered.
2. Search for the external customer order. Create and print the invoice for the order.

Evaluate Inter-Site Profit

Windows:
Order Report

1. In the Order Report window, select the Inter-site Profitability Report from the list. Enter the site XXP and the current period.

Note: Report results depend on whether customer orders other than those above have been delivered from your company during the current period.

2. The internal sales amount is 24. The internal cost of the sale amount is 12. Which makes both the gross and net profit 12. No external sales or internal purchases have been done on this site.
3. Order the Inter-site Profitability report again. Enter the site XXD and the current period.
4. The external sales amount is 20. The external cost of the sale amount is 10. The internal purchase cost amount is 24. The internal cost of sales received from the other sites is 12; which brings the gross loss to 2. Cost differences have been posted because of the inventory valuation changes when the parts were moved from site XXP to site XXD. The cost difference is 8; which makes the net profit 6.
5. Study the reports. What is the company profit? [(7*2) + (2*2)] = 18.

Correct Inter-Site Price Postings

Windows:
Customer Order Lines
Customer Order
Sales Part
Inventory Transactions History
Order Report

1. The inter-site profitability report is studied for site XXD, and it is felt that the internal price for the part XX-18-300 is too high. Site XXP agrees to lower the price to 6, on all future orders and the orders that have been delivered already.
2. In the Sales Part window, query for the part XX-18-300 on site XXP. Change the price to 6.
3. In tthe Customer Order Lines window, query for the order line for the part XX-18-300 that was created earlier. Right-click and then click Customer Order.
4. In the Customer Order window, right-click on the part XX-18-300 line and then click Create Corrective Inter-site Price Postings.
5. Enter 6 as the correct weighted average price. Note that total price difference is automatically calculated to -6. Click OK. 
6. Query for the part XX-18-300 in the Inventory Transactions History window. Now the INTREV- transaction has been created on site XXP with the value 6 (two pieces each with a price difference of 3), and the INTREVR- transaction has also been created on site XXD with the value 6.
7. In the Order Report window, order the Inter-site Profitability report for both the sites XXP and XXD. Check the report to view the effect of the inter-site price posting correction.

Return for Rework Internally

Detroit Site

Windows:
Purchase Order

1. Site XXD wants to buy two pieces of part no. XX-18-300 from the internal supplier XXISP. Create a purchase order at the Detroit site in the Purchase Order window.
2. Release and send the order.  

Pittsburgh Site

Windows:
Incoming Customer Order
Customer Order
Inventory Part in Internal Order Transit
Inventory Transactions History

1. Open the Incoming Customer Order window and search for your purchase order. Approve the message so that the customer order is created. Right-click and then click Customer Order to open the created order.
2. Release the customer order. Refresh the order and check whether the status of the customer order is Invoiced/Closed.

Detroit Site

Windows:
Register Purchase Order Arrivals

1. Open the Register Purchase Order Arrivals window, and search for your purchase order. Right-click and then click Receive from Internal Order Transit. Select the row you want to include in the receipt, and enter the inventory quantity to receive. Use the receive case Receive into Arrival, Inspect at Arrival, and enter 2 as the quantity to inspect.
2. Return the two pieces for rework.

Pittsburgh Site

Windows:
Return Material Authorization
Inventory Transactions History
Customer Order

1. Create a new return material authorization for the customer XXICD on the supply site. Create a line for two pieces of XX-18-300. Connect the line to the internal customer order line that was previously used to deliver the parts.
2. Release and approve the return material authorization for credit.
3. Receive both pieces into a stock location suitable for returned goods.
4. XXD and XXP has agreed that no internal profit should be made on the first delivery, since the parts were not according to specifications. Right-click on the line and then click Create Corrective Inter-site Price Postings. Enter 3 as the correct weighted average price. Click OK. 

Note: Using 3 as the correct price makes sure that no inter-site profit is made on the delivered customer order, since the internal cost of the sale was 3.

5. Create a new customer order for XXICD on site XXP, and deliver two pieces according to the specifications.

Note: Instead of correcting the inter-site price postings on the return material authorization, the price on the new customer order for the reworked parts can be adjusted to 3 before delivery. The internal profit on the first order would then be kept, and no internal profit would be made on the second order for the reworked pieces. The affect on the Inter-site Profitability report would be the same, assuming that both deliveries and returns took place in the same period.

Detroit Site

Windows:
Register Purchase Order Arrivals
Order Report

1. Open the Register Purchase Order Arrivals window, and search for your purchase order. Right-click and then click Receive from Internal Order Transit. Select the row you want to include in the receipt, and enter the inventory quantity to receive. Receive the parts into a picking location.
2. In the Order Report window, order the Inter-site Profitability report for both site XXP and XXD, to view the effect of return for rework handling.

Note: This method of handling a return for rework will contribute to the internal revenue but not to any sites' gross profit. A site generating a lot of internal cost of sales without any gross profit either has too low internal prices or carry out too much rework free of charge (reason for that could of course be that too many deliveries of bad quality have been made).