26th April 13

Enabling Global Manufacturing Using Oracle Inter-Company Processes

Agenda▪ Overview▪ Objective▪ System Landscape▪ Project Scope▪ Process Flow▪ Key Solution Features▪ Mexico Requirements▪ Challenges▪ Key Benefits▪ Q & A

Overview▪ Cummins Power Generation (CPG), a Business unit of Cummins Inc. (NYSE: CMI,

2012 Revenue = $17.3B), recently decided to transition one of its product lines to San Luis Potosi (SLP), Mexico from Fridley, MN

▪ This move aligns with company’s strategy to “become a truly global business” and expands CPG’s global manufacturing footprint

SLP

▪ System Challenges▪ Requirement to not impact our

customers, which meant keeping Fridley, MN systems involved in operations

▪ Operations in Mexico would be conducted as a Maquila*, greatly increasing the complexity of the move

*Maquila: similar to a free trade zone in Mexico, where foreign companies are allowed to temporarily import raw material for assembly, processing, or manufacturing to be subsequently exported

Objective▪ We had 5 major critical success factors for this initiative

▪ Fridley to remain as the customer facing organization for all inquiries and ordering

▪ Meet Maqulia and Mexican regulatory requirements▪ No initial changes to the existing supply base for raw materials

/components. ▪ First initiative at Cummins PGBU to link global supply chain in the

fulfillment of customer orders▪ Minimal impact to the existing Oracle solution footprint

Oracle Intercompany functionality used to successfully meet the above business objectives

4

ORACLE R12

PLM System

Core Financial System

US OU (FRD) UKPOC OU (SLP)

PowerCom (Web Ordering System)

OBIEE Reporting Layer

System Landscape

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ModulesGL, AR, EB-Tax, Costing

WIP, Engineering, BOM,

Quality, OM (Powercom),

Advanced Pricing, Inventory,

Purchasing, iSupplier Portal,

Supplier scheduling, E-

Commerce Gateway, ASCP &

GOP, Oracle Shipping, Mobile

apps, HRMS, PLM(Legacy),

OBIEE

Business processes

➢ Order to Invoice

➢ Design to Production

➢ Forecast to Plan

➢ Plan to Build

➢ Core Finance

➢ Procure to Pay

➢ Record to Report

Infrastructure

➢ Cummins Global Desktops (CGDs)

➢ Print Smart Printers

➢ Non CGDs (RF Scanner, Bar Code Printers)

➢ LAN

➢ WAN

➢ Wireless

Project Scope

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Process Design SummaryBusiness Process Changes Global Processes Reused New Common Process

Enhancements

Finance➢ Intercompany transaction flows➢ Inbound/outbound Proforma

InvoicesASCP

➢ Sourcing rules to support automation of IR-ISO

Manufacturing➢ Inventory transactions will have

customs implications

Warehouse Management➢ Oracle Shipping, Inventory &

MSCA instead of WMS

Procurement➢ Sourcing rules to support

automation of IR-ISO

Order Management➢ Lines from multiple warehouses on

the sales order➢ Automation of internal sales orders

from purchase requisitions

Finance➢ Credit check Bolt on➢ CBS Integrations

ASCP➢ Automatic Scheduling of Customer

Order

Manufacturing➢ WIP job processing

Warehouse Management➢ Line Mapping functionality

Procurement➢ Global Purchase Order & Release

Templates

Order Management➢ Existing Holds functionality

Finance➢ Automation of Intercompany

accounting➢ Update to COGS workflow ASCP

➢ Calculate planning percentages for Mexico

Manufacturing➢ Nameplate changes

Warehouse Management➢ Export documentation

Procurement➢ Use of Internal requisitions

Order Management➢ Fridley order acknowledgement

modified to support multiple warehouses

Key Solution Features▪ Internal Drop Ship Order (IDS)

▪ Intercompany flow setup between selling and shipping OU ▪ Change the warehouse on the sales order in Fridley to drive the manufacturing from Mexico. ▪ Manufacturing and Shipping done from Mexico▪ Customer is invoiced from US OU while Intercompany invoicing between US and Mexico

▪ Internal Requisition – Internal Sales Order (IRISO)▪ Shipping network setup done between the two orgs ▪ Planning creates the requisition in Mexico based on the sourcing rule setup. ▪ ISO created in US OU against the requisition▪ Manufacturing and Shipping done from US▪ Intercompany invoicing between US and Mexico

Key Solution Features▪ Transfer Pricing

▪ Oracle Advanced Pricing used to calculate transfer price ▪ Intercompany pricelists created with cost plus markup using formula▪ Separate pricelists created for IDS and IRISO transactions▪ Freight charge modifier created to apply freight charges at the time of delivery.

▪ Advanced Accounting▪ Accounting transactions for IDS created in both the operating units using the new feature of advanced accounting▪ COGS entries generated in both selling and shipping organization including logical accounting entries

▪ Integration with 3PL logistics▪ Consolidation of shipment before export/import to SLP▪ Two step receiving process▪ Supplier pickup and delivery planning automation

Mexico Requirements▪ Documentation for importing goods into Mexico

▪ Inbound Proforma Invoice document (Virtual /Direct)

▪ Documentation for exporting goods from Mexico▪ Outbound Proforma Document (Virtual /Direct)

▪ Integration with SAICE system▪ Information about the BOM data for all the material coming in and out of Inventory to be interfaced with SAICE system.

▪ Integration with Customs Broker▪ Inbound and Outbound VUCEM documents to be emailed/uploaded in Customs Broker system

▪ Analytical reports for re-conciliation of Proformas generated.

Implementation Challenges▪ Business readiness for New Plant Start up ▪ IT project delivered in phases with limited functionality rolled out in initial phase. ▪ Large number of RICEW changes to existing components due to hard coding.▪ Functional currency for Mexico OU changed from USD to MXP after SIT.▪ Delay in finalizing Maquiladora / customs requirements ▪ Integration to core financials – Core Finance system is still on 11i due to which Inter-company AP invoice interfaces had to be modified▪ Training of new users in Mexico – Training documentation had to be converted in Spanish

Product Challenges▪ Multi-currency not enabled in current R12 environment hence we could not use currency conversion in Pricelist resulting in Interface Trip stop erroring out.

Solution: Used currency conversion in pricing formula to resolve the issue

▪ Intercompany COGS Accounts – COGS account for shipping OU for IDS transaction default based on the ‘Intercompany Transaction’ setup where as the requirement from business was to pick the account codes from item master.

Solution: Customization of the COGS workflow and SLA functionality used to derive the account codes from item master

▪ Due to security rules defined for specific responsibilities ship confirmation was failing as accounting transactions for IDS are happening across multiple OUs

Solution: Deferred the Interface trip stop and ran it from Appworx chain with responsibility which does not have any security rules mapped to it

▪ Additional freight charge line getting interfaced in AR interface tables Solution: Working with Oracle to modify the setups to resolve the issue

▪ Currency on ISO can only be functional currency – The requirement was to generate the intercompany invoices in USD

Solution :Created pricelists in USD and used conversion formula

▪ Implementation of LPN functionality without WMSSolution: LPN functionality of Oracle shipping was invoked from MSCA (custom)

Key Benefits▪ Automation of Order Entry and Procurement processes (IRISO)▪ Streamlining of supply chain by fulfilling orders from multiple OUs using Oracle inter-company processes▪ Realizing the benefits of lowered tax through the Maquiladora program▪ Lowered manufacturing costs

Thank you

Appendix

Maquiladora Definition

▪ A Maquiladora (Spanish pronunciation: [makilaˈðoɾa]) or maquila (IPA: [maˈkila] is the Mexican name for manufacturing operations in a free trade zone (FTZ), where factories import material and equipment on a duty-free and tariff-free basis for assembly, processing, or manufacturing and then export the assembled, processed and/or manufactured products, sometimes back to the raw materials' country of origin.

▪ Currently about 1.3 million Mexicans are employed in one or more of approximately 3,000 Maquiladoras.

▪ The term Maquiladora, in the Spanish language, refers to the practice of millers charging a maquila, or "miller's portion" for processing other people's grain

▪ Under the Maquiladora program, UK companies operating out of Mexico will get additional tax benefit

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Intercompany Setups

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Pricing Setup

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Pricing Setup

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Pricing Setup

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Shipping Network

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