Infosys’ blog on industry solutions, trends, business process transformation and global implementation in Oracle.

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June 30, 2021

Supply Chain Planning in post Covid World - how Anaplan thinks

 

Towards the end of the 2019, when tensions in the China-US trade war escalated and China was practically being held captive, then the whole world could not understand what a terrible time is awaiting for them due to Covid-19 outbreak. Gradually lockdown was announced in all the countries. When all countries were busy in building their infrastructure to fight against covid-19, this sudden lockdown put the whole supply chain system in a strange crisis. It seemed no one had signed up for this challenge but everyone has had to suddenly fall into competition. The sudden shutdown of production units and the increase in demand revealed weaknesses in the supply chains and production strategies. Shortages of essential items such as pharmaceuticals and medical supplies demonstrated their inefficiency  in meeting demand for these items. In this situation, companies had to develop a more resilient supply chain while keeping the main challenge in the form of market competition.

 

Management should first analyze its vulnerabilities before considering a series of steps. Although some steps may have been taken long before the pandemic actually struck. The visibility of demand, and the ability to make decisions at speed with the right players in the room are the utmost requirement.

 

Uncovered risks and address to mitigate

 

Identifying vulnerabilities: Risks may be hidden in many places, which may require a lot of digging. This is very much time-consuming and expensive process too. But it is much more important to be aware of a disarmament that can bring a business to a halt. Therefore, the mapping process should be aimed at categorizing groups as either low-risk, medium-risk, or high-risk. So, here in supply chain, high-risk can be considered as non-availability of an alternative sources to recover from the disruption. It also makes an impact that how long can you keep your manufacturing unit active without procuring raw materials? It's also a million-dollar question about the replenishment cycle which involves distribution channels, replenishment time, delivery cost and demand patterns.

In order to answer these questions, manufacturers should know whether their manufacturing capacity is flexible enough to reconfigure and redeploy as needed or whether it is highly customized and hard to replicate.

 

Diversifying Supply sources and manufacturing units: This is very important to address this point of diversifying supply sources and manufacturing units. Adding multiple locations instead of single factory, supplier or region always reduce the risk of halting the business. Management should also look into producing the materials within countries or adopt policy to expand atleast more than one country to avoid additional delivery times, international hazards due to trade war or any lockdown situation within that country due to pandemic. Thus, it will reduce the dependency on any particular region.

So, if we divide our focus according to time horizons then we have short term, mid-term and long term problems of supply chains to solve. This diversification of manufacturing units is a long term solution and alternative sources is a part of mid-term solution. During the immediate or short term risk mitigation process, organizations must intensify their focus on workforce planning since quarantine and travel restrictions mean a longer time period to ramp up to full capacity. Also, focus on tier-1 supplier risk and update inventory policy accordingly in order to focus on production scheduling agility.

 

Process Innovations and movement towards Automation: It has been seen that many industries have already started realizing their need to move from traditional forecasting to scenario based forecasting because the historical data of last few months sometimes are not helping them to get a good indication. They have started to unfreeze their organizational routines and revisit the design assumptions and other orthodox organizational processes. Focus has also been shifted to identify bottlenecks to build mitigation measures. More connected planning approach has been taken to achieve real time data in order to enable agile planning process. External indicators and predictive modelling are also being used for more accurate planning.

 

In the era of declining human interventions and more focus to social distancing, companies might invest more on robotic process which can reduce human interventions sharply in preparing products for shipping, with more accurately.




How Anaplan supports:

Business can plan effectively and manage supply chains, build connections, and enable partners to share business goals if supply chain planners can access and utilize one cloud-based platform. Leveraging Anaplan's connected planning environment can enable to centrally manage inventory, supplies, staffing in the new normal. Anaplan provides a widespread portfolio of applications to match between supply and demand, empower S&OP (sales and operations Planning) processes. Successful decision making within supply chain can significantly impact on cash flow, capital and distribution patterns. It also supports to reallocate reusable inventory in a rapidly changing environment. Comparing actuals vs forecasts, reassessing inventory requirements, evaluating emergency staffing with the ability to identify alternative suppliers & shipment flows of the product and providing new projections at the same time are the advantages of Anaplan. Gradually, Anaplan helps to move traditional supply chains to a digital supply aspect to dramatically improve in real-time end-to-end visibility, collaboration, responsiveness, agility and optimization planning.

                                 



June 28, 2021

A GAAP Compliance solution for Intercompany Accounting from Oracle eBusiness Suite

Accounting concepts revolve around the concept of Generally Accepted Accounting Principle/Policies often referred to as GAAP. The two most fundamental principles among these are

• Revenue recognition and
• Matching COGS (Cost of the goods sold)


In a typical manufacturing and distribution setup environment, intercompany dropship scenario is the need of the hour (Also referred as Factory Direct Process in some cases). In an intercompany drop ship case, the intercompany invoice creation is not interrelated or dependent on the external customer invoice creation. This can create a mismatch between the revenue and COGS at the Selling Operating Unit (OU) and hence will not be of GAAP compliance.

This PoV provides insights on how the standard features in Oracle E-Business Suite (Oracle) can help facilitate the Selling Operating Unit (OU) to fulfill this requirement in drop ship scenarios.

Today most of the multinational conglomerates have internal drop shipment processes as part of their manufacturing and order fulfilment processes. The group companies can effectively concentrate on their core strength areas such as manufacturing / distribution which act as separate entities within the chain.

The intercompany transaction flow setup in Oracle solves this need. The setup allows both transactional and financial relationship between two entities/OUs commonly known as starting OU and ending OU. Oracle also allows multiple intermediary nodes to come in-between these two OUs i.e. there can be intermediary OUs between the Starting OU and Ending OU to satisfy the conditions stated in the above example.

Sample Intercompany Transaction Flow Setup in Oracle with Intermediary Nodes:

Murali_Interco_Blog_Img1.PNG

In the Oracle intercompany drop ship sales order functionality, a sales order will be placed on one OU (herein referred as selling OU). However, the shipment for the same sales order will be from an inventory organization under a different OU (herein referred as distribution OU/shipping OU). As part of this process, selling OU will raise an invoice to the customer and the distribution OU will raise an intercompany AR invoice to the selling OU at an agreed transfer price. 

The selling OU will then record these invoices as intercompany AP invoices. Ideally, these transactions should happen automatically as soon as the shipment takes place.

However, if there are more than two OUs in the intercompany transaction flow and there is a need to generate multiple intercompany invoices for each set of OUs between the starting OU and ending OU, an additional solution called 'Advanced Accounting' will need to be used between these OUs.

These transactions are not dependent on the customer Invoice, raised by the selling OU. This may potentially cause mismatch between revenue recognition and COGS recognition at the selling OU level. The external invoice at the selling OU would have been put on hold or would not have been raised for various reasons such as consolidated invoicing at the end of the month, a billing hold event that would have occurred after the shipment, need for post billing customer acceptance etc. In all these cases, there is a possibility that COGS get recognized and accounted in the selling OU by way of automatic intercompany AP invoices before even before the revenue is recognized and accounted for. This is also not in line with the Generally Accepted Accounting Principle of revenue recognition and matching COGS.


The following chart represents the overstatement, understatement, and correct profitability of for a given period on sample basis:

Murali_Interco_Blog_Img2.PNG

Solution Overview

The following section provides a brief overview on the solution provided by Oracle for intercompany transaction flows:

Advanced accounting feature in the intercompany transaction process is primarily used when intermediary nodes are involved, and multiple intercompany invoices are to be created between different OUs for physical movement of the same goods. On enabling the Advanced accounting option between the OUs in the intercompany transaction flow, Oracle creates 'Logical Material Transactions' and 'Logical Accounting Entries'.

If more than two OUs are used in the intercompany transaction flow, the system automatically checks this 'Advanced Accounting' checkbox. For transaction flows that contain two OUs, users can select this check box to use advanced accounting. 

For this document, let us assume only two OUs are present in the intercompany transaction flow, understand the impact of advanced accounting and how it creates logical entries.

Accounting entries comparison: 

OU

Event

Accounting entries when 'Advanced Accounting' flag 

is NOT Enabled

Accounting entries when 'Advanced Accounting' flag 

is Enabled

Accounting

Dr

Cr

Remarks

Accounting

Dr

Cr

Remarks

Shipping OU

Shipping

Cost of goods sold

XX

 

 

Cost of goods sold

XX

 

 

Inventory

 

XX

 

Inventory

 

XX

 

Intercompany AR invoice

Intercompany receivables

XX

 

 

Intercompany receivables

XX

 

 

Intercompany revenue

 

XX

 

Intercompany revenue

 

XX

 

Tax

 

XX

 

Tax

 

XX

 

Selling OU

External Customer Invoice

 

 

 

Not generated in same period. Assumption -Post Billing Customer Acceptance

 

 

 

Not generated in same period. Assumption -Post Billing Customer Acceptance

 

Intercompany AP invoice

Cost of goods sold

XX

 

COGS is directly debited even if Customer AR Invoice is not generated in same period.

Inventory accrual

XX

 

 

 

 

Taxes

XX

 

 

Taxes

XX

 

 

 

 

Liability

 

XX

 

Liability

 

XX

 

 

At the time of shipping -

 

 

 

 

Inventory valuation

XX

 

considered as logical intercompany receipt.

 

 

 

 

 

 

Inventory accrual

 

XX

 

 

At the time of shipping -

 

 

 

 

Deferred cost of goods sold (DCOGS)

XX

 

considered as logical sales order issue.

 

 

 

 

 

 

Inventory valuation

 

XX

 


Now we can see that directly cost of goods sold is directly debited even before the external customer invoice has been created if Logical entries are not used. This does not show a clear and fair financial statement and here the profitability for that period/year is unduly decreased.

If Logical entries are used, we can notice a significant difference in the accounting entries of the selling OU. Here the DCOGS account would be shown as an asset in the balance sheet as equivalent of stock owned by the selling OU at a different location. This process ensures that costs are not booked unless and until the revenue is booked and shows a clear and fair financial statement where the profitability is not unduly increased or decreased.

This process ensures that both the revenue and matching COGS are accounted for and recognized during the same period.

The other side of the coin

Though Oracle provides this flexibility, it comes with its own set of disadvantages.  The disadvantages would be:

  • Firstly, and most importantly, it brings in lot of item maintenance overhead. All the items pertaining to the inventory organization (IO) of the shipping OU must be assigned to this logical IO of the selling OU, so that Oracle can create logical entries. This may be a big overhead considering the number of items and size of the organization. But this is generally overcome as mostly they would be common items between the plant and distribution centers.
  • Secondly, only one IO pertaining to selling OU can be used for logical transactions. If the selling OU has more than one IO, then only one IO can be selected for logical transactions purposes. The decision to choose one IO for this purpose would be a tough one to make especially if the IOs are based in different physical/geographical locations.

Conclusion

Oracle provides the flexibility to use advanced accounting in intercompany drop ship scenarios even if the intercompany transaction flow has only two OUs. This enables the customer facing OU/selling OU to follow the Generally Accepted Accounting Principle (GAAP) for cost matching concept, thereby synchronizing the revenue and matching costs. As we know that every coin has two sides, this must be a calculated decision considering the pros of GAAP compliance, correct revenue, and profitability reporting vis-à-vis the overheads in terms of item maintenance.


Acknowledgements

 I would like to thank Mr. Pramod (Pramod_Rijhwani@infosys.com) for doing a detailed review of this article and to Mr. Manish (Manish_Naik@infosys.com) for providing necessary feedback and guidance to enhance the content and to Mr. Raman for enlightening me with the ideas of Pros and Cons with this approach long time back . I would also like to thank Srikanth Sripathi, Somnath Majumdar, Raghavendra Shalva, Vimlesh Ankur, Vivek Goswami and Chinmay Jain to encourage and provide necessary guidance to publish this article.

References

Thanks for your time in reading this article! If you have any questions or comments, please feel free to post them here or send in a note to me @ murali_santhanam@infosys.com


June 25, 2021

Anaplan Business Continuity (BCP) & Disaster Recovery (DRP) Model

 

 

Anaplan Business Continuity (BCP) & Disaster Recovery (DRP) Model

 

Delta Airlines, California DMV, Breazeale Sachse & Wilson LLP etc. - these are few names which we don't get to hear much however all these companies have a common story to share.

So, what is this common story? The answer is simple - Improper business continuity & disaster recovery plan resulting in huge financial losses & goodwill.

We must understand the fact that no matter how careful we are, disaster can strike any business, anytime, anywhere. All we can do is take proper precaution & learn from experience.

 

What is Business Continuity?

In today's world, organizations need to protect themselves from unforeseen business interruptions & its financials impact. In simpler terms, a business continuity plan ensures that your business remains operational when a natural disaster or any other crisis affects your business.

For example - Year 2020 was a watershed moment for us due to the COVID pandemic. Many organizations had to move from Work from Office "WHO" to Work from Home "WFH" model while others had to shut shop temporarily or permanently due to improper business continuity plan. It's important to have a proper business continuity & disaster recovery plan in place to safeguard organization's asset, people & property.

 

Why Business Continuity & Disaster Recovery plan fails?

To be honest, no one would like to create a business continuity plan which is likely to fail eventually.

So, the question is why a well-defined thought-out plan fails? Let's talk about some common reasons on why business continuity & disaster recovery plan fails -


  • Improper risk assessment including cyber attacks

  • Lack of proper testing before deploying the plan

  • Undefined strategies

  • Ineffective recovery strategies including backups

     

Some key example where business continuity plan failed -

 

  • Delta Airlines - Back in 2016, the company suffered a huge IT infrastructure outage, resulting in $100 million loss in revenue. The disaster could have been avoided if the company had an effective data recovery strategy in place & a modern back up system

     

  • California DMV - In the same year, California DMV had a huge malfunction when their backup system went offline due to power outage. The DMV was offline for the consumer for several days damaging company's reputation

     

  • Breazeale Sachse & Wilson LLP - Back in 2005, Hurricane "Katrina" battered the east coast of the United Sates causing widespread damage & destruction. Breazeale Sachse & Wilson LLP, the law firm lost all their confidential documents because they used to keep everything in hard copies at site. This could have been avoided if they had a proper backup & recovery system

 

 

 

Now that, we understand what business continuity plan is & its importance, let us discuss on how Anaplan would like to address some these issues -

 

A.  How Anaplan Offices are spread across globe?

Anaplan has 17 offices covering multiple continents & time zones. Its global headquarter is based out of San Francisco, California; however, its cores development & technical support team is based out of York, UK. In event of any unforeseen circumstances, all development & technical team can work remotely using secure VPN connections, to provide ongoing support.

 

B.  Data Centers & Back up Model

Anaplan Infrastructure is primarily hosted on Equinix International Business Exchange (IBX) data centers, based out of Virginia, and Amsterdam with 24x7 x 365 coverage support. To ensure data integrity, all applications & customer data are stored within the data center itself.

All backups (Workspace & Models) are maintained at both primary data center & various AWS facility like Ireland or Oregon etc. In event of any disaster, the secondary infrastructure can be activated with minimal downtime & disruptions.

 

 

 

 

C.  Disaster Recovery Plan

In event of any major catastrophe resulting in complete loss of primary data centers, the backup AWS facility will be used as a recovery tool. Anaplan runs a disaster recovery plan on a quarterly level & it's well documented

 

D.  How to prevent Cyber and physical attacks?

To counter increasing number of cyber-attacks, Anaplan has contracted Verisign to mitigate DDoS. Any unauthorized connections can be restricted by built-in firewall. Customer can access Anaplan only via secure encrypted HTTPS / TLS connections. To ensure secure infrastructure, vulnerability scans& penetration tests are performed regularly.

The data centers have 24x7 monitoring including CCTVs, multiple authentication points, biometric scans etc. to ensure a complete secure environment.

 

Conclusion

Anaplan Infrastructure is quite resilient with primary & secondar backups to ensure that the business continuity doesn't get effected in event of any eventualities. In case of major disaster, the disaster recovery plan can be implemented by the support staff ensuring ongoing operations. It's also important to revaluate strategy in case if there are any short comings with the current system, so that the same can be dragonized & implement quickly.


June 15, 2021

Dive into model building and learn how to create Anaplan models

When one starts learning Anaplan, we should be familiar with the basic terminology to build good foundation with Anaplan. We often hear some basic words, and which will be throughout your Anaplan journey (APPHUB, WORKSPACE, MODELS, DIMENSIONS, LISTS, MODULES, LINEITEMS, DATA IMPORTS/EXPORTS, DASHBOARDS). There are many functions and resources in Anaplan which will help build models and start working with various types of data. To learn Anaplan, we will have to explore modelling and model building articles.

A separate workspace is given to each company and may contain its own users and any number of models. The basic structure of an Anaplan model is built by Lists, Line items and Modules which represents each aspect of a business. Dimensions in Anaplan can be linked and updated with data from another model whereas models are independent. A group of related items are called Lists e.g., ppl in a department, products, regions, or entities. These are the basic elements in Anaplan, as they define the structure and content of a model. A dimension is one which measures or defines the characteristic of your data. It can be calculated or changed to help answer business, observe market trends, or assess various situations for planning purposes. Modules are one of the components of Anaplan model and comprised of lists, pages, line-items, and timescales.

End users' primary interface is called as 'Dashboard'. A dashboard consists of grids and charts published from modules in a model. There is no limit for grids and charts in a dashboard you can have as many as you like, and these elements can be published from different modules. A separate view is created in a module to publish it to dashboard. Versions dimension enables you to compare actuals and forecast data. Charts will add good visual impact to your data and help us to spot areas of improvement and successes. Different kinds of charts are provided based on the data that we are working (Column charts, Bar charts, Pie charts, Line charts, waterfall charts, combination charts, Timeline charts, funnel charts). Based on the data that we have we can choose appropriate charts to create different kinds of reports.

There are two types of approaches while building the models, top-down or bottom-up. Either it is top-down or bottom-up approach, need to identify the business functionality. The basic lists that makeup the organization are regions, products, and ppl. Later you can keep on adding dimensions to the data to enable us to see the organization in various ways. List hierarchy helps to support model structure and workflow.

Users in a workspace might be common to all the models in that workspace, components that belong to the model such as dimensions are local to that model, but these components can be linked and update with data from other model. Model recalculates automatically when some change is made to the data. Data to the model is entered manually or using import actions or derived from other line items within the model using calculations. Data imports within models happen using command or import actions between models. Within the model based on the functional area, modules are grouped together to identify them easily.

In Anaplan one should follow certain best practices while creating lists, modules, and formulae. While building the logic, one should not use SUM and LOOKUP in the same formula as it hits the performance of the model. Minimum properties should be created in the lists or instead we can create separate modules for replacing those properties. Within the modules, try to use TEXT format for very less number of line items. In summary tab, using SUM will also impact the performance of the model. Using TIME RANGE and SUBSETS will help in increasing the model performance. Break the very big formulae into smaller by creating multiple line items thereby increasing the performance of the model. So, these are some of the optimizing technics in Anaplan.

Now, new UX has come up with few new additional features for the users. There is a provision to access multiple models and create a dashboard as per business requirement. Updates are reflected in new UX dashboard immediately as you update the views in the model that are initially used to build the dashboards. We will look forward to get new updates from Anaplan going forward.



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