As part of our CIO on retainer, IT Strategy, and systems implementations, we often encounter companies who have intercompany divisions which buy from and sell to each other. Companies often process these transactions as if they were truly part of a separate company, absorbing the transactional and processing overhead associated with a true third party arms length transaction. This often includes the following non-value added steps:

 

·         User Entry of a Purchase Order

·         Faxing of the Purchase Order from a Purchasing or Supply Chain organization to a related Customer Service organization

·         User Entry of a Sales Order

·         Print Invoice based on shipment

·         Fax or send invoice to related customer

·         Manual entry of AP voucher/invoice based on shipment and receipt

·         Manual AP check run

·         Manual AR cash application

For two divisions within the same company, these steps can be automated to reduce manual processing and overhead associated with these transactions. A few options to consider are below:

1.       Distribution Requirements Planning – most ERP systems have functionality to support the planning, requisitioning, and distribution/shipping of intercompany orders. This functionality usually assumes that there is no transfer pricing and introduces a different series of user functions and transactions from a standard purchasing and shipping process that would normally be used.

2.       Automated Intercompany Processing – at a number of clients, we have introduced various flavors of an automated Intercompany Process, which may include all or portions of the following:

a.       Automated replenishment orders generated periodically (daily weekly) in the form of system Purchase Orders

b.      Automated import, via an EDI process, of these Purchase Orders as Sales Orders

c.       Automated invoicing and elimination of hard copy printed invoice

d.      Automated Intercompany AP payment run and AR cash application

The second option above, although generally requiring the development of additional functionality, greatly reduces user involvement and eliminates many non-value added steps in the process.

If anyone is interested in reviewing these options and how Logan Consulting has implemented these solutions within its client base, you can contact me via email at tlovely@logan-consulting.com.

Tim Lovely

Principal, Logan Consulting