Inter-Site Profitability

General

Each site within a company can have its own profit center. Use the Inter-site Profitability feature on the Company/Distribution/Order tab to perform the profitability analysis on all the sites within a company. By ordering profit center reports, the financial managers or site managers can study profit/loss performance at site level.

The inter-site profitability analysis is based on internal customer orders delivered to the other sites that belong to the same company as the supplying site, If the Inter-Site Profitability option on the Company/Distribution tab has been selected, the transactions and posting types dedicated only to inter-site profitability will be triggered when internal customer orders are delivered. Parts moved to another site belonging to the same company using the Transport Task or Move Inventory Part windows will not generate inter-site price postings.

A prerequisite to analyzing sites as profit centers is that internal prices must have been used and controlled on the supplying sites. The normal price search used on customer orders will be used to find an internal price. The sales price on the internal customer order line will be used to post internal revenue on the supply site and the internal revenue received on the demand site. The inventory part value on the supply site will be used when posting internal cost of sale on the supply site and also when posting the internal cost of sale received on the demand site. 
Therefore, it is the delivery of the customer order on the supply site that triggers the inter-site profitability transactions on both the supply site and the demand site. You do not wait for the goods to be received on the demand site for the internal purchase to be registered, i.e., as soon as something is sold, it is also purchased by the other site. This follows how the inventory value is transferred to the demand site as soon as the delivery is made from supply site.

You can indicate whether to use the inter-site profitability feature for a company. By default, it is not used for new companies. Regardless of whether it is used, the inventory valuation is not affected in any way. Inventory valuation and the movement of inventory values between sites are executed in the same way regardless of inter-site profitability usage.

Inter-Site Profitability Transactions with Posting Types Used

It is important to pay attention as to when the use of this feature is started. Starting it on in the middle of a period does not give the user any valuable information about the inter-site profitability of that period. Preferably it should be started between periods, e.g. at month-end or year-end.

If the Inter-site Profitability function has been selected on the Company/Distribution/Order tab, the new transactions will be created automatically. In Posting Control window, posting types must be set up for the postings used by the inter-site profitability transactions. Otherwise, the postings will contain errors. The postings created by the transactions are analyzed with a profit center report generated with the report generator in IFS/Financials. The posting control must be set up to assist the report generation of a profit center report. There is no default setup made for the inter-site profitability posting control or report generation. Typically control type Site will be used in order to differentiate the inter-site profitability postings.

Example of Profit Center Report Created with IFS/Report Generator

Scenario:

1. Site X purchases goods from an external supplier. Inventory value for the part on site X is 3.
2. Site Y purchases 1 part of the goods from site X. Sales price from site X to site Y is 9. Inventory value for the part on site Y is 5. (Site Y is the demand site and site X is the supply site.)
3. An external customer purchases 1 part of the goods from site Y. Sales price from site Y to external customer is 10.

There is also a simplified report available in Order Report, called the Inter-site Profitability report. When using the simplified report, only one site's profitability is displayed. The simplified report is based on the inventory transaction history, which means that a high volume of inventory transactions could make this report slow to order. If there is a high volume of inventory transactions, the simplified report should not be used. Furthermore, the simplified report will not consider date changes that are done with the Modify Date Applied option available in the Inventory Transactions History window. Therefore, a Profit Center report generated with the report generator in IFS/Financials is the recommended report to use for thorough analysis.

Example of Inter-Site Profitability Report Available in Info Services

Scenario is the same as in the previous example. The report is ordered for site X.

In the above example, a transit delivery was made to site Y. Also direct deliveries registered for internal customers belonging to the same company as the supply will generate inter-site profitability transactions.

None Inventory Parts

Non-inventory parts will not generate any inter-site price postings. The reason for this is that purchase prices for non-inventory parts have no correlation to the non-inventory sales part cost, and no cost differences are booked.

Control Types

All eight inter-site profitability postings occur at the same time (when an internal customer order is delivered), but the transactions and corresponding system events belong to different sites. The INTREV and INTCOS transactions are posted on the supply site. The INTREVR and INTCOSR transactions are posted on the demand site. INTREVR and INTCOSR belong to the demand site, but they are created and marked by an order reference existing on the supply site. The control type is identified by the site on the transaction; and not by the site to which the order reference belongs. 

The following example explains this further:
On the supply site, a CO1 internal customer order will be registered for the demand site of inventory part X. Part X belongs to the product family A on the supply site, and the product family B on the demand site. The inter-site postings should be controlled using the control type Product Family. When the delivery is made for CO1, postings will be made on both the demand and supply sites. The postings on the supply site will get the control type A. The postings on the demand site will get the control type B.

Control types that are not available on both the demand and supply sites cannot be used as control types for the inter-site postings. For example, the Sales Group control type is not available because the sales group can only be found on the supply site and not on the demand site.

Corrective Inter-Site Price Postings

If the price on an internal customer order line was not correct at the time of the delivery, it is possible to adjust the inter-site postings afterwards. By using the Create Corrective Inter-site Postings operation on the customer order line, it is possible to increase or decrease the internal revenue generated for a customer order line.

To create corrective inter-site price postings, a weighted average price is calculated for all previously booked inter-site price postings for the customer order line. The weighted average price is compared with the entered correct price, which gives the price difference to be posted. If the price difference is positive, both the inter-site revenue on the supply site and the internal purchase debts on the demand site will be increased. If the price difference is negative, both the inter-site revenue on the supply site and the internal purchase debts on the demand site will be decreased.

Corrective Inter-Site Profitability Transactions with Posting Types Used

When calculating the weighted average price, it is done per inventory unit and all previously booked inter-site price postings are considered. The weighted average price is calculated as: [(INTREV₁ quantity*price) + (INTREV₂ quantity *price) + (INTREV_n quantity *price) + (INTREV+₁ quantity*price) + (INTREV+₂ quantity *price) + (INTREV+_o quantity *price) – (INTREV-₁ quantity*price) – (INTREV-₂ quantity *price) – (INTREV-_p quantity *price)] / (the total delivered quantity on CO line).
n is the number of INTREV transactions, o is the number of INTREV+ transactions, and p is the number of INTREV- transactions created for the customer order line.

Return for Rework

When return for rework is done on the demand site, those parts are later received on a return material authorization on the supply site. After the parts have been reworked, they can be delivered again to the demand site on a new internal customer order. If corrective inter-site postings are not applied manually, the reworked parts will get inter-site price bookings posted twice (first for the original delivery and second when delivering the reworked parts).

If the rework should be paid for by the supply site or the demand site is often an open discussion. The demand site might have to pay for all the rework because they had not communicated their demands on the part design well enough; or it could be that the supply site should pay for the rework because they have delivered poor quality goods. Therefore, generating internal profit (which is the case if the internal revenue is greater than the internal cost of sale) on returned order lines might not always be considered correct. Therefore, the Create Corrective Inter-site Price Postings function is also available on return material authorization lines. To use this function, the return material authorization line must be credit approved and connected to a customer order line. By using corrective inter-site price postings, it is possible to ensure that each return is considered as appropriate by the profit center analysis. The internal revenue can be adjusted so that the returned order lines give the correct internal profit. The internal cost of sale cannot be adjusted.