Operating Unit Warehousing Discussion about operating-unit

[gdgellatly]

btw those journals are just one approach, the could just as easily be

On delivery

Account	DR	CR	Segment
Inventory		100	S1
Xfer Margin (P & L account)		10	S1
Inter OU Debtors (or balancing)	110		S1
Stock Output	110		S2
Inter OU Debtors (or balancing)		110	S2

To record delivery of goods with a cost of $100 on behalf of S2

On invoice

Account	DR	CR	Segment
Stock Output		110	S2
COGS	110		S2
Sales		200	S2
Debtors	200		S2

To record invoice of goods by S2

Which is cleaner from a transaction perspective, but more difficult from elimination. It also introduces an issue in relation to costing.

[JordiBForgeFlow]

Graeme, when I designed the Operating Units I researched a lot on Segment Reporting and IFRS8, and took it into consideration. I believe that using the self balancing operating units the system is compliant with IFRS8. In fact, I found that it is as advanced as SAP's (the big one) segment reporting approach. I agree aspect of generating revenues. Now an OU can generate profit only if it sells to external customers. And you could meet that of the other OU is an external customer. But I think that with an inter-OU invoicing module we could easily solve the issue. I would not change to operating segments. I thought about it long before making a decision, and it is not justified. I took the same naming that Oracle does. Anyway, I am happy that we're having such debate! On Nov 12, 2017 9:05 AM, "Graeme Gellatly" <[email protected]> wrote: btw those journals are just one approach, the could just as easily be On delivery Account DR CR Segment Inventory 100 S1 Xfer Margin (P & L account) 10 S1 Inter OU Debtors (or balancing) 110 S1 Stock Output 110 S2 Inter OU Debtors (or balancing) 110 S2 *To record delivery of goods with a cost of $100 on behalf of S2* On invoice Account DR CR Segment Stock Output 110 S2 COGS 110 S2 Sales 200 S2 Debtors 200 S2 *To record invoice of goods by S2* Which is cleaner from a transaction perspective, but more difficult from elimination. It also introduces an issue in relation to costing. — You are receiving this because you were mentioned. Reply to this email directly, view it on GitHub <#104 (comment)>, or mute the thread <https://github.com/notifications/unsubscribe-auth/AHU_Vgjxc4IxLW5Z7PFk0SPgz_mmTlv5ks5s1qaxgaJpZM4Qay6N> .

[gdgellatly]

Hi Jordi,

Just an FYI I'm mocking up a final version of the above, and trying to keep it all compatible, but in doing so have found that the entire Odoo 11 stock valuation is essentially broken, so awaiting on bug fixes as how they fix it will change the code a lot.

[JordiBForgeFlow]

Yes, stock valuation.. OMG.... Ask them howndo you revaluate inventory?... I am so scared about this change...

…

On Nov 13, 2017 9:16 PM, "Graeme Gellatly" ***@***.***> wrote: Hi Jordi, Just an FYI I'm mocking up a final version of the above, and trying to keep it all compatible, but in doing so have found that the entire Odoo 11 stock valuation is essentially broken, so awaiting on bug fixes as how they fix it will change the code a lot. — You are receiving this because you were mentioned. Reply to this email directly, view it on GitHub <#104 (comment)>, or mute the thread <https://github.com/notifications/unsubscribe-auth/AHU_ViQMrZ_-dhvEHabJ0t9beqy3fIqEks5s2KO2gaJpZM4Qay6N> .

[gdgellatly]

Jordi,

Check this bug report, they are fixing a lot of valuation things right now so its a good chance to get those requests in, but oh my reading some of the changes there have been some big oversights.

odoo/odoo#20892

[gdgellatly]

@jbeficent Below is the document I sent into senior management with the final approach that got signed off. As you can see, it is possible to do, without the warehouse restrictions and this is the way I am going. In essence we have 2 self balancing accounts rather than one. One is on the P&L, the other is a Payable in current liabilities (I chose payable because otherwise if a KPI was on ROA or ROE for an operating unit they could in theory massage the number if it was a receivable).

---Begin mail
I spoke briefly about these during the meeting, and the deeper I get, the answer to more and more problems they are. But they are really hard work to get just right.

For the most part our segments will be geographic, with a Head Office segment as well to handle recharges, rebates, royalties etc.

Using operating units we can for example have Christchurch only see Christchurch customers, only Head Office and Waikato see Waikato's centrally billed customers. Same goes for things like delivery orders, possibly even production lots etc.

By going geographic we can assign ownership of a warehouse to an operating unit. and in any case our segments are geographic.

But this gave me a problem, and in trying to resolve it, I think I've come up with an elegant solution to both it and another problem. The 2 problems relate to what happens when one Operating Unit, sells goods 'belonging' to another operational unit i.e. out of their warehouse. For this example I use Wellington and Central.

Wellington sells $100/$200 of goods (cost/sale) out of Centrals warehouse. So centrals stock reduces by $100, but the corresponding sale goes on Wellingtons P&L.

At first I thought this was a selfmade problem, but when I looked deeper it revealed a second problem. Not only is Wellington not paying for the goods, but their P&L is also not reflecting all the other P&L expenses they take advantage of at Central (e.g. Factory Labour, Depreciation, Freight etc).

So in order to resolve this in a Balance Sheet and P&L neutral way (not to mention stock costing), I thought about emulating the way we handle current intercompany and apply a transfer price, while keeping top level balances identical (IOW you can't profit just from selling stock to each other).

So in this scenario we'll assume intercompany pricing (as good as any to use for transfer pricing) and we end up with a journal entry that looks like this.

	DR	CR	BU
Inventory		100	Central	Asset
Inventory	100		Wellington	Asset
Inter OU Contribution		10	Central	Cost of Sales – Factory Cost or split
Inter OU Contribution	10		Wellington
Inter OU Balances	110		Central	(effectively combined Debtor Creditor)
Inter OU Balances		110	Wellington	(effectively combined Debtor Creditor)

Note the effect of this transaction - Internally Wellingtons inventory increased by $100, Central's decreased by $100 but externally stock didn't change.

Externally the other 2 accounts will always balance to zero, but Wellington has paid $10 towards Central's overheads, and owes Central $110 for the stock it took.

Periodically (say end of month) the internal OU Balance account could be reset to zero for each OU with either an internal subvention or cash/bank transaction, something like (assuming a single bank account and no actual payment made) although it is strictly unnecessary but useful for reflecting actual cashflow.

DR Bank 110 Central
CR Bank 110 Wellington
DR IOU Balances 110 Wellington
CR IOU Balances 110 Central

As for the rest of the related transactions they look the same - all against the Wellington OU

Delivery
DR Stock Output 100
CR Inventory 100

Invoice
CR Stock Output 100
DR Cogs 100

Sales CR 200
GST CR 30
Debtors DR 230

Payment
DR Bank / CR Debtors

So the benefits we have.

• More accurate P & L better reflecting the operating units actual costs
• No balance sheet or P & L effect at top level
• No cost effect (i.e. average cost doesn't change)
• 100% IFRS 8 Compliant with no required adjusting entries for reporting.

The only real downside I saw is you could possibly say is that COGS doesn't reflect the transfer price, in terms of measuring customer profitability at an OU level but when you think about it (and I did for a very long time), it shouldn't. The extra $10 would have not been reflected if Central had sold directly, and Wellington has paid for that $10. So from an entity accounting perspective I'm pretty sure we are straight.

Have I missed anything?
-- End mail

In addition, if you apply this concept right through to all the things that happen from both a segment and multicompany reporting perspective the you can have journal entries like such.

Management Fees CR 100 Head Office, DR 80 Wellington, DR 20 Central
IOU Payable DR 100 Head Office CR 80 Wellington, CR 20 Central

Essentially provided we keep the net balances of an account unchanged we can reallocate cost anywhere. In the management fees case it is a gross simplification, because there would be a corresponding set of entries which are allocating the costs plus a contribution margin if any.

[JordiBForgeFlow]

@gdgellatly it is great! I played a bit with this concept in v7, but finally did not pursue the topic futher.

[gdgellatly]

@jbeficent I have a working alpha implementation. It is very basic and has some mocked out methods but it works for the sale from one ou, with shipping from another. https://github.com/gdgellatly/operating-unit/tree/operating_unit-ng . I was going to change name to avoid conflict, but realistically no one but me uses my repos anyway, and I don't put at apps so just reverted those changes.