Friday, December 09, 2011

Business Units and Shared Service model in Fusion Procurement

Business Units (BU) definition: A business unit is a unit of an enterprise that performs one or many business functions that can be rolled up in a management hierarchy. A business unit can process transactions on behalf of many legal entities. Normally, it will have a manager, strategic objectives, a level of autonomy, and responsibility for its profit and loss. (1)

Prior to Oracle Fusion Applications, operating units in Oracle E-Business Suite were assumed to perform all business functions, while in PeopleSoft, each business unit had one specific business function. Oracle Fusion Applications blends these two models and allows defining business units with one or many business functions. (2)

In Fusion Procurement context we need to understand the function of the following types of BU’s”

  1. Procurement BU
  2. Requisitioning BU
  3. Sold-To BU
  4. Client BU

Procurement Business units: As the name suggests, Procurement BU’s are responsible for the procurement business function which involves vendor management, negotiation of contracts and purchase agreements, issue of order and subsequent administration.

Client Business Unit: Any BU that will be serviced by the Procurement BU needs to be set as the Client BU. In case of Shared Services model where the Procurement services are centralized to one BU, the Procurement BU will be serving all the requisitions from the Client BU’s.

Requisitioning Business Unit: As the name suggests Requisitioning BU is the business unit that raises the requisition for the goods or services that it needs to the Procurement BU. Sometimes, the Requisitioning BU may be responsible for the financial impact of the purchase, in which case it will also be defined as the Sold-To BU. In case there is another BU which takes the financial responsibility of the purchase then, this Sold-To BU will be different from the Requisitioning BU.

I’ll take an example to explain the above concept.

A mobile manufacturing company having global presence has its headquarters based in Norway (XYZ Norway). Its manufacturing division is based in India (XYZ India). The India operation sources its parts from the branch based in Singapore (XYZ Singapore) which does the centralized purchase of chips from different manufacturing companies based in Taiwan and Japan. However, the payment to the supplier is done by headquarter in Norway. In this case the Requisitioning BU would be XYZ India, Purchasing BU would be the XYZ Singapore BU and the Sold-To BU would be XYZ Norway

Another example to make this clearer. I’ll take the example one of my colleagues Suchismita, uses to explain the concept;

In a normal family, when the teenage daughter while returning home sees the designer shoe on the shop’s display, and promptly she approaches her mother with the request, knowing very well that her need would be fulfilled. The mother being a simple homemaker approaches the dad, and the dad being a doting father purchases the shoe and gives to the daughter.

If we take the above example, the daughter is the Procurement BU as she is buying the shoe from the supplier (shoe store). The mother is the requisitioning BU and the father is the Sold-To BU as he is taking the financial responsibility of the purchase. (3)

Following is the list of setups to be done to ensure this works in the system.

  1. Select the Procurement Service Providers for the selected BU
  2. Assign either one or many out of the Procurement, Requisitioning and Receiving business functions to the respective BU
  3. Configure the Procurement Business Function for the BU and Configure the Requisitioning Business Function for the BU
  4. Select the Procurement BU at the Supplier Address
  5. Select the Client BU and Sold-To BU at the Supplier Site Assignment

In today’s scenario, businesses find it beneficial to channel purchases through international subsidiaries instead of directly dealing with suppliers. The reasons range from country specific legal requirements to favorable tax treatment to having better margins due to economies of scale because of centralizing procurement. Fusion Procurement provides this feature seamlessly which in hindsight seems quite intuitive.

Bibliography

  1. Oracle® Fusion Applications Procurement Implementation Guide. Retrieved from http://docs.oracle.com/cd/E15586_01/fusionapps.1111/e20383/toc.htm
  2. Oracle® Fusion Applications Financials Implementation Guide. Retrieved from http://docs.oracle.com/cd/E15586_01/fusionapps.1111/e20375/toc.htm
  3. Suchismita Pattnaik, Linkedin profile: http://in.linkedin.com/in/suchismita.

1 comment:

Anonymous said...

Thanks for the post. Useful.

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Krishanu's Oracle Applications Blog - Oracle Apps consulting services scenario in India. Also, an inside view of Oracle Apps outsource services in India. Also the blog features new developments in Oracle Apps and my learning's in this field. The views expressed are my own only and not of my employer Wipro Technologies. The views and opinions expressed by visitors to this blog are theirs and do not necessarily reflect mine.