Multi Org(Multiple Organizations)

The Oracle Applications organization models define organizations and the relationships among them in arbitrarily complex
enterprises. This organization model serves as the cornerstone for all of the Oracle Applications products. It dictates how transactions
flow through different organizations and how those organizations interact with each other.

Generally, a complex enterprise has several organization structures, such as Internal, Accounting, and Human Resources. You are able
to define different structures to customize Oracle Applications according to your business needs.

Basic Business Needs

Oracle Applications provides you with the features you need to satisfy the following basic business needs:

1. Use a single installation of any Oracle Applications product to support any number of organizations, even if those
organizations use different sets of books.
2. Define different organization models
3. Support any number of legal entities within a single installation of Oracle Applications.
4. Secure access to data so that users can access only the information that is relevant to them.
5. Sell products from a legal entity that uses one set of books and ship them from another legal entity using a different set of
books, and automatically record the appropriate intercompany sales by posting intercompany accounts payable and accounts
receivable invoices.
6. Purchase products through one legal entity and receive them in another legal entity.

Major Features
Multiple Organizations in a Single Installation
You can define multiple organizations and the relationships among them in a single installation of Oracle Applications. These
organizations can be business groups, sets of books, legal entities, operating units, or inventory organizations.

When you run any Oracle Applications product, you first choose an organization—either  implicitly by choosing a responsibility, or
explicitly in a Choose Organization window. Each window and report then displays information for your organization only.
Organizations that share the same functional currency, Accounting Flexfield structure, and calendar can post to the same set of books.

Secure Access
You can assign users to particular organizations. This ensures accurate transactions in the correct operating unit.

Sell And Ship Products From Different Legal Entities

You can sell from one legal entity and ship from another, posting to each organization’s set of books.

Receive Goods Into Any Inventory Organization

You can enter purchase orders and assign for receipt any inventory organization that uses the same set of books. Your purchase order
operating unit and receiving inventory organization must share the same set of books to receive against a purchase order.

Automatic Accounting for Internal Requisitions

You can create an internal requisition (sales order) in one organization, then ship from another organization, with correct
intercompany invoicing.

Multiple Organizations Reporting

You can set up your Oracle Applications implementation to allow reporting across operating units by setting up the top reporting
level. You can run your reports at the set of books level, legal entity level, or operating unit level\

Purchase products through one legal entity and receive them in another legal entity.

What is are the setup steps for the above.

 Create a BPA in LE1.

Make it Global
Create a standard PO in LE2 with reference to the BPA in LE1
Receive the material in LE2
Types of Organizations

You can define organizations and the relationships among them.

You create sets of books using the Define Set of Books window in Oracle General Ledger. You define all other types of organizations
using the Define Organization window.

1. Business Group
The business group represents the highest level in the organization structure, such as the consolidated enterprise, a major division, or
an operation company. The business group secures human resources information. For example, when you request a list of employees,
you see all employees assigned to the business group of which your organization is a part.
Note: This is true in all applications except the HR applications, which support more granular security by a lower–level organization
unit, the security profile. Multiple sets of books can share the same business group if they share the same business group attributes,
including HR flexfield structures.

2. Set of Books
A financial reporting entity that uses a particular chart of accounts, functional currency, and accounting calendar. Oracle General
Ledger secures transaction information (such as journal entries and balances) by set of books. When you use Oracle General Ledger,
you choose a responsibility that specifies a set of books. You then see information for that set of books only.

3.1 Legal Entity

A legal company for which you prepare fiscal or tax reports. You assign tax identifiers and other legal entity information to this type
of organization.
Note: There are currently only a few features provided for legal entities, such as intrastat movement reports and
intercompany invoice generation.

3.2 Balancing Entity

Represents an accounting entity for which you prepare financial statements. This is a segment in the Accounting Flexfield structure
(usually the Company segment) at which all accounting entries must balance. There may be multiple companies within the same
structure, and each of these must balance within itself. Each legal entity can have one or more balancing entities. You can use
Flexfield Value Security rules to restrict data entry of balancing segment values by legal entity
or operating unit.

4. Operating Unit
An organization that uses Oracle Cash Management, Order Management and Shipping Execution, Oracle Payables, Oracle
Purchasing, and Oracle Receivables. It may be a sales office, a division, or a department.
An operating unit is associated with a legal entity.
Information is secured by operating unit for these applications. Each user sees information only for their operating unit. To run any of
these applications, you choose a responsibility associated with an organization classified as an operating unit.

5. Inventory Organization
An organization for which you track inventory transactions and balances, and/or an organization that manufactures or distributes
products. Examples include (but are not limited to) manufacturing plants, warehouses, distribution centers, and sales offices. The
following applications secure information by inventory organization:
Oracle Inventory, Bills of Material, Engineering, Work in Process, Master Scheduling/MRP, Capacity, and Purchasing receiving
functions.
To run any of these applications, you must choose an organization that has been classified as an inventory organization.

6. HR Organization
HR organizations represent the basic work structure of any enterprise.
They usually represent the functional management, or reporting groups that exist within a business group. In addition to these internal 
organizations, you can define other organizations for tax and government reporting purposes, or for third part payments.

7. Organizations in Oracle Projects

Oracle Projects allows you to define organization hierarchies to reflect your company’s organizations structure. You can add Oracle
Projects–specific organization types to the organization hierarchy (for example, projects organizations or Expenditure organizations)
to help you to better manage your project control requirements. You assign project and expenditure hierarchies to operating units.

8. Asset Organizations
An asset organization is an organization that allows you to perform asset–related activities for a specific Oracle Assets corporate
depreciation book. Oracle Assets uses only organizations designated as asset organizations
Accounting / Distribution / Materials Management Organization Model

Using the accounting, distribution, and materials management functions in Oracle Applications, you define the relationships among
inventory organizations, operating units, legal entities, and sets of books to create a multilevel company structure, as shown in below
Figure.

 
Legal Entities Post to a Set of Books
Each organization classified as a legal entity identifies a set of books to post accounting transactions.

Operating Units Are Part of a Legal Entity

Each organization classified as an operating unit is associated with a legal entity

Inventory Organizations are Part of an Operating Unit

Each organization classified as an inventory organization references an operating unit.

Inventory Organization Determines Items Available to Order Management

The Item Validation Organization parameter specifies which Oracle Manufacturing organization is used to validate inventory items.
You must define all transact able items in this organization. Some inventory item attributes for Receivables and Order Management,
including Tax Code and Sales Account, are specific to an operating unit or an accounting flexfield structure. Therefore, you should
define an item validation organization for each operating unit.

Inventory Organization Determines Items Available to Purchasing

The inventory organization you specify in the financial options for each operating unit determines the items available in Purchasing.
You can only choose an inventory organization that uses the same set of books as your operating unit.
Human Resources Organization Model

With Oracle Human Resources, you can define multilevel organization hierarchies, with a business group at the top of each hierarchy.
When you define new organizations, they are automatically assigned to the business group associated with your current session. Each
organization is part of a business group. The business group is usually the top box on an enterprise organization chart, as shown in
below figure.

 
The business group is the largest organization unit you set up in Human Resources to represent your enterprises as an employer. After
defining one or more business groups for your enterprise, you set up one or more government reporting entities (GREs) within each
business group. The GRE is the organization that federal, state, and local governments recognize as the employer.

Below this level, you represent the groupings in which employees work, such as branches, departments, or sections, by means of
internal organizations. To enable the assignment of employees to an internal organization, you classify the internal organization as an
HR organization.

You can define external organizations in the same way as internal organizations, so that you can represent organizations that are not
part of your enterprise (such as training vendors or tax offices). The major difference between internal and external organizations is
that you cannot assign people to an external organization.

Security Control

Controlling Secure Access

Data Security
You can limit users to information relevant to their organization. For example, you can limit access for order administration clerks to
sales orders associated exclusively with their sales office.

Inventory Organization Security by Responsibility

You can specify which inventory organizations are available to users in each responsibility. The Choose Inventory Organization
window automatically limits available inventory organizations to those authorized for the current responsibility.

Responsibility Determines Operating Unit

Your responsibility determines which operating unit you access when you use Oracle Applications. When you use Oracle Payables,
Receivables, Order Management and Shipping Execution, Purchasing, Projects, and Sales Compensation you see information that is
relevant to your operating unit. All transactions you create are automatically assigned to your operating unit.

Sell And Ship Products From Different Legal Entities

Sell from One Legal Entity, Ship from Another Legal Entity
When you enter sales orders, you can choose any inventory organization as the shipping warehouse. The shipping warehouse may be
in a different legal entity than the operating unit that enters the sales order, and it may post to a different set of books.

Use the Choose Organization Window to Choose Inventory Organization

After you choose your responsibility to perform materials management functions using Oracle Inventory, Work in Process, Bills of
Materials, Master Scheduling/MRP, Capacity, or Purchasing, you must use the Choose Organization window to pick an inventory
organization.
Intercompany Accounting
Automatic Intercompany Sales Recognition
Sales orders created and shipped from one legal entity to a different legal entity automatically generate an intercompany invoice to
record a sale between the two organizations.

Posting Intercompany Invoices to Different Accounts

You can define different accounts for Trade and Intercompany Cost of Goods Sold and Sales Revenue to eliminate intercompany
profit.

Report at the Legal Entity or Set of Books Level

In addition to reporting at the operating unit level, you can report at the legal entity or set of books level.
Setting up Multi Org

Adding a New Operating Unit

The following steps are required to add new operating units to your organizational structure:
1.1 Revise the Organization Structure.
1.2 Define Sets of Books (optional).
1.3 Define Locations.
1.4. Define Organizations and Relationships.

2.1 Define Responsibilities.

2.2 Set Profile Options for Each Responsibility linked to the new Operating Unit.
1.1. HR: Business Group
1.2  HR: Security Option
1.3: HR: User Type (FOR accessing HRMS functions)
1.4  HR: Cross Business Group
2.1. GL: Set of Books(11i)
2.1  GL:%Ledger%  (R12)
2.3  GL: Data Access Set. This profile option to control the ledgers that can be used by Oracle General Ledger.
3.1. MO: Operating Unit
3.2. MO: Security Profile (R12)
3.3. MO: Default Operating Unit
4.1 Tax: Allow Override of Tax Code
4.2 Tax: Invoice Freight as Revenue
4.3 Tax: Inventory Item for Freight
5.1 Sequential Numbering
5.2 INV: Intercompany Currency Conversion
2.3 Run the Replicate Seed Data concurrent program.

3.1 Define Inventory Organization Security.

3.2 Define Intercompany Relations (optional).
3.3 Implement the Application Products.

4.1 Secure Balancing Segment Values (optional).

4.2 Run the Setup Validation Report (recommended).
4.3 Implement Document Sequencing (optional).
4.4 Set the top reporting level (optional).
4.5 Set up conflict domains (optional).
Multiple Organizations Overview - R12

The Oracle Applications organization model defines organizations and the relationships among them in arbitrarily complex
enterprises. This organization model serves as the cornerstone for all of the Oracle Applications products. It dictates how transactions
flow through different organizations and how those organizations interact with each other.

Multi-Org is an application and database enhancement that enables multiple business units(operating units) in an enterprise to use a
single installation of oracle applications products while keeping transaction data separate and secure.

Major Features of Multi-org

Multiple Organizations in a Single Installation
You can define multiple organizations and the relationships among them in a single installation of Oracle Applications. These
organizations can be ledgers, business groups, legal entities, operating units, or inventory organizations.

Secure Access
You can assign operating units to a security profile and then assign the security profile to responsibilities or users. If multiple
operating units are assigned to the security profile, then a user can access data for multiple operating units from a single
responsibility. This ensures that users can only access, process, and report on data for the operating units they have access to.

Data Security
You can limit users to information relevant to their organization. For example, you can limit access for order administration clerks to
sales orders associated exclusively with their sales office.

Inventory Organization Security by Responsibility

You can specify the inventory organizations that are available to users in each responsibility. The Choose Inventory Organization
window automatically limits available inventory organizations to those authorized for the current responsibility.

Responsibility Determines Operating Unit

Your responsibility determines which operating units you can access when you use Oracle Applications. If you only want a
responsibility to access only one operating unit, then set the profile option called MO: Operating Unit. If you want a responsibility to
access multiple operating units, then define a security profile with multiple operating units assigned and assign it to the MO: Security
Profile profile option. Additionally, if using the MO: Security Profile profile option, you can also set the MO: Default Operating Unit
profile option to specify a default operating unit that will default in transaction entry pages.
Types of Organizations
You can define organizations and the relationships among them. You can define security for either an organization hierarchy or list of
organizations.

Business Group
The business group represents the highest level in the organization structure, such as the consolidated enterprise, a major division, or
an operation company. The business group secures human resources information. For example, when you request a list of employees,
you see all employees assigned to the business group of which your organization is a part.

The business group drives the legislation used for human resources and payroll purposes. If the implementation involves
employees in multiple countries, then it will likely require several different business groups, one for each country where employees
are located. This assumes that the company does not seek to customize multiple legislative requirements into one business group.

The HRMS best practice recommends that a new business group should represent a country or regional level partition of data. All
companies that operate in the country or regions should be represented as legal employers in the business group.

SOB/PL
Set of books in 11i consists of 3Cs - Chart of Account, calendar, currency
Primary ledger in R12 consists of 4Cs
See the child chapter to this
http://www.oracleug.com/user-guide/basics-oracle/define-sob

Legal Entity

A legal company for which you prepare fiscal or tax reports. You assign tax identifiers and other legal entity information to this type
of organization.
You can define legal entities using Legal Entity Configurator or Accounting Setup Manager in General Ledger.

 
Operating Unit

 An organization that uses Oracle subledgers, such as Oracle Cash Management, Order Management and Shipping Execution,
Oracle Payables, Oracle Purchasing, Oracle Receivables, and related products. It may be a sales office, a division, or a
department.
 In R 12 Operating units are not associated with legal entities. Operating units are assigned to ledgers and a default legal
context.
 Information is secured by operating unit for these applications using responsibilities. Each user can access, process, and report
on data only for the operating units assigned to the MO: Operating Unit or MO: Security Profile profile option. The MO:
Operating Unit profile option only provides access to one operating unit. The MO: Security Profile provides access to
multiple operating units from a single responsibility
 You can define operating units from the Define Organization window in Oracle HRMS or from Accounting Setup Manager in
General Ledger.

Inventory Organization

 An organization for which you track inventory transactions and balances, and/or an organization that manufactures or
distributes products. Examples include (but are not limited to) manufacturing plants, warehouses, distribution centers, and
sales offices.
 The following applications secure information by inventory organization: Oracle Inventory, Bills of Material, Engineering,
Work in Process, Master Scheduling/MRP, Capacity, and Purchasing receiving functions. To run any of these applications,
you must choose an organization that has been classified as an inventory organization.
 You can create ledgers using the Accounting Setup Manager in Oracle General Ledger and define organizations using the
Define Organization window.

HR Organization
HR organizations represent the basic work structure of any enterprise. They usually  represent the functional management, or
reporting groups that exist within a business group. In addition to these internal organizations, you can define other organizations for
tax and government reporting purposes, or for third party payments.

Information Shared Across Organizations

The following information is global. It must be set up once for the enterprise:
• Flexfield definitions
• Customer Header (customer site is at the operating unit level)
• Supplier Header (supplier site is at the operating unit level)
Balancing Entity

A balancing entity is one for which you prepare a balance sheet as a balancing segment value in the Accounting Flexfield structure. In
any OU, you can have multiple balancing entities and each of these must balance within itself.

In oracle applications, all intercompany entries are automatically created within the SOB to ensure that companies are never out of
balance. A legal entity can have one or more than one balancing segments. For example, you may have multiple companies defined in
your COA reporting to a single legal entity.
How to decide Legal Entities and OUs
There two things one should consider while creating legal entities
1. The number of fiscal and tax report the organization has to produces - for each distinct values we should create one legal entity.
2. The number of entities for which the company produce balance sheet - for each distinct values we should create one legal entity.

An operating unit is a financial entity in a business group that engages in transactions with outsiders and for which you want to track
the financial transactions.
OU deals with 5 subledgers - OM, AR, PO, AP and GL
Security and Subledgers decides how many operating units one should create in a business group.

Each company defined in your COA may have multiple divisions which you produce balance sheets. In that case, it is likely that each
company in the COA is setup as a legal entity and each division is setup as an OU.

 
Securing values
Oracle Applications does not automatically secure balancing segment values within your COA with specific legal entities or OU. You
can create security rules to ensure this security requirement. For example, you can ensure that the payables team may access invoices
of a specific division. If security rules are not defined, access to all divisions will be available.
 

To explain different balancing entities, assume that there is one GL SOB, balancing segment value is the company segment, and that
there are three companies 10, 20 and 30. You should ensure that OUs are associated with responsibilities, and each responsibility is
associated with one and only one OU. In the case the company 10 is a legal entity in which two divisions Div1 and Div2 are defined
as OUs. You can create a security rule to ensure that when users log in with a particular responsibility, they should only be able to
enter transactions with company 10, and the users from company 20 and company 30 should not be allowed.
 
Organization

Define the following organizations as per the requirement of business

i. Business group
ii. Legal Entity
iii. Operating Units
iv. Organization

External organizations (for example, tax offices, insurance carriers, disability organizations, benefit carriers, or recruitment agencies)
Internal organizations (for example, departments, sections or cost centers)

Creating an Organization
1. Enter a name for your organization in the Name field. A check is performed to see if organizations with the same name already
exist.
All Oracle applications you install share the information entered in the Organization window. Therefore organization names must be
unique within a business group, and business group names must be unique across your applications network.
You can create two organizations with the same name in different business groups but this can cause confusion later, if the HR: Cross
business group profile option is set to Yes and you decide to share certain information across all business groups. If you decide to
create two organizations with the same name, be sure that this will not cause you problems in the future.

2. Optionally, select an organization type in the Type field.

Organization types do not classify your organization, you use them for reporting purposes only. The type may identify the function an
organization performs, such as Administration or Service, or the level of each organization in your enterprise, such as Division,
Department or Cost Center.

3. Enter a start date in the From field. This should be early enough to include any historical information you need to enter.
Note: You cannot assign an employee to an organization before the start date of the organization.

4. Enter a location, if one exists. You can also enter an internal address to add more details such as floor or office number.
If you are using Oracle Payroll in the US, every organization to which employees can have assignments, including business groups,
must have on record a location with a complete address. This is because the system uses the location of the organization of the
employee's primary assignment to determine employee work locations for tax purposes. This does not apply to GREs, because the
assignment to a GRE exists in addition to the assignment to an organization.
For Dutch users only, if you are setting up external organizations for a tax office, a social insurance provider or a private health
insurance provider, you must enter the postal address and contact details using the NL_POSTAL_ADDRESS Location EIT.
Note: If you are an Oracle Inventory user, then you must not assign a location to more than one organization classified as an Inventory
Organization.

5. Enter internal or external in the Internal or External field. You cannot assign people to an external organization.
Examples of external organizations that may require entry are disability organizations, benefits carriers, insurance carriers,
organizations that employees name as beneficiaries of certain employee benefits, and organizations that are recipients of third party
payments from employees' pay.

 
 
Inventory : Setup -> Organizations -> Organization

Enter Organization Classifications & Additional Information

1. Business Group

Business Group Information.

Budget Value Defaults.
Work Day Information.
Benefits Defaults.
PTO Balance Type.
Recruitment Information.
Payslip Information.
Self Service Preference Information.
2. Attaching Set of Books to Legal Entity

3. Attaching Set of Books & Legal Entity to Operating Unit

4. Attaching Operating Unit to organization

Define SOB

To define Business group, LE, OU, Organization, HR Organization etc check out below link
http://www.oracleug.com/user-guide/oracle-inventory/organization

SOB is a special organization in multi-org model. It’s a financial entity that shares a particular chart of account, functional currency
and financial accounting calendar. A General Ledger (GL) secures transaction information by SOB.

An SOB is the highest level that affects the accounting aspects of business. One BG can be associated with multiple SOBs, but one
SOB can be associated with only one BG. Each SOB has 3Cs.

 
  
When you use GL, you need to choose a responsibility that specifies a particular SOB(with the profile - GL SET OF BOOKS NAME).
This allows you to get information for that SOB only. In Oracle applications, you can create an SOB using the set of books window in
GL. In the set of books window, you can define all other types of organization using the organization window.

With the multi-Org enhancements, multiple SOBs can use the same global item master organization. This is because the item master
organization is used for item definition and not for item accounting information. All accounting-related attributes in the item master
are controlled at the item level or organization level.
HRMS with Oracle Financial

The organization information used in HR is as follows

1. Business Group
2. HR Organization

The HR organization classification used in oracle financials applications are as follows

1. GRE/Legal Entity
2. Operating unit
3. Company Cost Center(Used in financials DBI)
4. Auditable Unit(Used in ICM module)
5. Assets Organization (Used in Financial Payables : Assets)
Multi-org Security model

The organization models in Oracle Applications define organizations, their relationships, and the transactional flow among
organizational structures. With the multi-org security model, you can customize Oracle Applications according to your business needs.
In this topic, you learn about features of multi-org security model.

In the multi-org security model, each user within the organization is assigned responsibilities. These responsibilities are in turn
attached to operating units (OUs) or inventory organizations. In this security model, the responsibility is the key because different
responsibilities have distinct ways of securing the data contained in them.

For example, within general ledger (GL), data security is provided by the GL set of books (SOB). Additionally, each asset can be
secured by setting up a hierarchy of asset books within an asset. Similarly, within manufacturing  applications and INV,  security is
provided by inventory organizations (IOs) and for Fixed Assets (FA), security is provided by Corp Book.
The security for data Human Resource (HR) is implemented by the Business Group (BG). Similarly, data security for order
management (OM), Accounts Receivable (AR), Account Payable (AP), Purchase Order (PO), Cash Management (CE), Project
Accounting (PA), and Sales Compensation (SC) is provided by OU.

Inter Company

More and more companies are doing business globally, and taking advantage of the operations and tax benefits that can be achieved
by running operations throughout the world. These companies have multiple operating units and organizations around the world.
When goods are shipped or received, the financial ownership through these organizations does not necessarily follow the physical
movement of goods. Oracle Applications support three main logistics needs of global organizations – Central Distribution, Central
Procurement and Drop Ship.

 Central Procurement (P2P)

 Central Distribution (IR ISO)
 Drop Ship

    1.  External (O2C)

     2. Internal (O2C)

A corporation manages its global operations in various countries through a network of subsidiaries, separate legal entities, licensees
and several associated label franchisee. This complex network of operations is necessitated to take care of local legal and fiscal
environment, which prevail in each of those countries.
Consider the below example:
Vision Operations (V1) is based in USA. It has a 100 % owned subsidiary company called Vision Asia (VA). VA in turn has two
subsidiaries – Vision Japan (VJ) and Vision China (VC). VJ has manufacturing facilities in Osaka (O1) and distribution center at
Tokyo (T1). Due to tax advantages, V1 sources all the goods from china through VJ. Though the financial transactions between V1
and VC are routed through VJ, logistic movement of goods takes place directly between V1 and VC.

Continuing the above example, Vision Operations (V1) has another subsidiary company called Vision Singapore (VS), 100 % that it
owns. Individual plants procure components from their own suppliers. VS centralizes all the commodity (like steel, Aluminum etc.,)
procurement needs of Vision Operations across Overview of Intercompany Invoicing 1 world and procures the material on behalf of
all VJ and its subsidiary plants and places purchase orders on its suppliers. However, material is directly shipped from the suppliers to
all the manufacturing plants.

Fig1
A key requirement for the global implementation of Oracle applications in such a complex business environment is the ability to
process "intercompany transactions," where one business unit (across OUs)invoices another for transfer of goods and services.
Often these intercompany transactions involve transactions related to general expenses, funds transfer, salary transfers, asset transfers,
royalty payments and product transfers.
For example, the organization structure depicted in figure 1 can be modeled in Oracle applications as depicted in Figure 2.

Following are the key implementation points you need to look into:

 Understand the corporation business entities and the relationship between them. Identify selling-shipping relationships and
procuring-receiving relationships.
  Understand Oracle multi org structure and the building blocks in data structure.
 Breakup the business relationships into manageable process flow and map it to various entities in Oracle applications.

Intercompany Invoicing Overview

Intercompany invoicing is done when one organization offers products / services to another operating unit. For example, when a
customer order is processed through the order cycle and then invoiced, the selling organization records journal entries to accounts
receivable, revenue, and as applicable tax and freight. The shipping warehouse records journal entries to its inventory asset and cost of
goods sold accounts. When this scenario involves a selling organization in one business unit but a shipping warehouse in a different
business unit, additional accounting must take place. The shipping organization needs to bill the selling organization at transfer price,
and the selling organization needs to make the corresponding payment.

Note that intercompany invoicing is possible only between two operating units. You cannot invoice between two inventory orgs if
they belong to the same operating unit. The intercompany AR invoice is the transaction used by Oracle to record intercompany
receivable accounting for the shipping organization: debiting intercompany AR (at transfer price), tax, and freight and crediting
intercompany revenue.

The intercompany AP invoice is the transaction used by Oracle to record the payable accounting for the selling organization: debiting
intercompany COGS (at transfer price) and freight and crediting the intercompany payable account. Ideally, these transactions should
happen automatically and as soon as possible after the shipment takes place. This can be done using the intercompany invoicing
process within Oracle applications.

Oracle supports intercompany invoicing when:

  Shipping operating unit is different from selling operating unit and

  Receiving operating unit is different from procuring operating unit.

Basic Business Needs

Oracle Applications provides you with the features you need to satisfy the following basic business needs.

 Enter sales orders from one operating unit and assign a shipping warehouse under a different operating unit.
 Automatically create intercompany payable and receivable invoices to record intercompany revenue, payables and receivables.
 Eliminate intercompany profit in the general ledger.

Major Features
Automatic Intercompany Sales Recognition
You can assign a shipping warehouse under a different operating unit to a sales order. The system automatically records an
intercompany sale between the shipping organization and the selling organization by generating intercompany invoices.
Segregating Trade and Intercompany COGS and Revenue
You can define different accounts for Trade and Intercompany COGS and Sales Revenue to eliminate intercompany profits’ Transfer
Pricing. You can establish your transfer pricing in intercompany invoices through Oracle Order Management and Shipping
Execution’s price lists.

Extensible Architecture
At key event points in the programs, stored procedure callbacks have been installed, including invoice and invoice line creations, and
the transfer pricing algorithm. You can insert PL/SQL code to append or replace existing program logic to fulfill your specific
business requirements.

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.

Q. What if there are many internal customers? How should we map the inter company relations in the transaction flows? Please
advise.

Our client manages consignment inventory at the customer locations. To fufill the customer consignment locations we
designed IRISO process where every customer is defined as an internal customer and each internal customer is associated with
their internal location and subinventory. Now the challenge is how do we create intercompany relations for all the customers??
Any thoughts? Please Advise.

A. For COnsignment, you will have to create each of the customer locations as Subinventories instead of inventories as the
number will huge based on how many customers you have.

Just create 1 shipping network for the inventory org and while placing IR select the correct location code assigned to Sub
Inventory and Customer Site.

System will link the Customer site and Subinventory through location code
Transfer Price

Transfer Price is the price at which an item is transferred from one operating unit to another operating unit. Transfer price is also
usually called as “Arm’s length Price” and is generally guided by the originating country’s accounting standards.
Logic for transfer price determination for shipping flows is explained in Figure . However, for procuring flow, you can specify
whether the transfer price is same as the PO price in intercompany transaction flow. This means that an operating unit sells at the same
price at which it procured the item to another operating unit. If you specify that the transfer price is not same as the PO price in the
intercompany transaction flow, then system uses the same logic as depicted in . For procuring flow, you specify the pricing option
(transfer price or PO price) separately for asset and expense items.

You can make use of the external API feature of the intercompany invoicing to develop your own custom logic for determining
transfer price. For example, if you want to use the cost price as the transfer price, then build your custom logic to fetch the cost price.
The name of the external API is MTL_INTERCOMPANY_INVOICES.get_transfer_price and the name of the file is INVICIVB.pls
located at $INV_TOP/patch/115/sql. Ensure that the API returns transfer price along with currency code.

Please ensure that the transfer price is not 0. Oracle expects that the transfer price should be greater than 0. You will be able to create
an intercompany AR invoice but will not be able to create an intercompany AP invoice resulting in intercompany reconciliation
discrepancy. You need to set the profile “QP: Security Control” to ‘Off’, to generate logical transactions and for raising the
intercompany AR invoice.