O2C Cycle – (Order To Cash Cycle)

About O2C:

O2C stands for Order To Cash which starts from the order management where we receive/Import the Purchase Order from the customers. The purchase order contains the information about the requirements details of the products, based on which we would be creating a Sales Order.

Below are the Pre-requisites for raising a Sales order:

The customers who raise the Purchase order are the once that are been defined in the TCA. The Items/Products that are been requested from the customer are the once that are defined in the Item Master which is been maintained in the Inventory Module. The price of the Items are been defined in the Price List along with the Modifiers (Offers and Discounts) which are maintained in Advance Pricing. Warehouses are to be defined where actually we stock the items. How we need to ship the products are been defined under Shipment Methods that are maintained in the Inventory Module. Sales Person information is also maintained in the Accounts Receivable or Order Management Modules.

Note: Customer provides the Request Date (RD) and we define the Schedule Ship Date (SSD)

First when the order is been taken the Order is in Entered State where in all the details of the Order Header and Order Lines are been entered in the system, then the order moves to Booking Stage.

In Booking Stage the scheduled Ship Date is been decided by considering the Ordered Quantity and then matching/comparing with the On Hand Quantity.

If the On Hand Quantity and the Ordered Quantity is same then Scheduled Ship Date and the Requested Date would be the same date else based on the ATP (Availability To Promise) check is done to decide the scheduled ship date. The ATP rules is based on the Demand source (Sales order) and the Supply Source which is nothing but the Purchase Order (Items not available may purchased from another vendor and supplied to the Customer) or another Inventory Organization or Work In Progress (Manufacturing Plant)

Once the booking process is completed all the information on the Product/Items are moved to the Shipping Department.

The task for the Shipping Department starts from actual moving the order from the Warehouse to the point where the Product/Items are been finally delivered to the Customer.

Below is the explanation for the process that is followed by the Shipping Department:

To have a better understanding of this let us consider a Scenario where in an Inventory organization has warehouses that are located at various locations, at each location of the warehouse there are stores where actually the Items are been placed. Items may be located at various stores here the task is to gather all the Items/Products that are required for a Sales Order at one place so that it would be packed and shipped all together. This is done once the details of the Item Quantity, Ship From, Ship To are moved from the Booking Process to the Store for Picking.

Note: Inventory Organization may be a Store, Distribution Center or Manufacturing Plant.

Once all the Items are been placed at one location, then these Items are then moved to the Staging Area where the packing and loading the Items and then to be transferred to the vehicle is been executed to do so the Shipping Department initiates Launch Pick Release here the system creates Move Order Transaction in the warehouse. The warehouse then Allocates Move Order, decides how much quantity are to be moved from one store to another and finally to the Stage Area. The system then generates move order Pick Ship Report based on which the Items are been Moved to the staging area.

This process of moving the Items from the Stores to the staging area is “Picking Process”.

Once the Goods reaches the Stage Area then transit of goods is done using Transact Move Order but here there is no change in the Physical Quantity of the Items which remains the same as the items are still in the stores.

Next step would be Shipping Execution where the Items are loaded in the vehicle for delivery also known as SHIPPED Stage here the delivery details are been created which has the information about the Initial Ship From and Ultimate Ship To location details along with the Items and the Quantity information.

Based on the Delivery Details the TRIP (Travel Plan) is decided, here the delivery Details gets associated to the Trip.

Once the Products/Items are ready for Shipment then the system generates the following reports

  1. Commercial Invoice    (This contains information about the Quantity and cost but not the other details like Tax,     Fright charges etc)
  2. Bill Of Lading
  3. Vehicle Lading Details      (Documents about the Vehicle)

Once the Product/Items are been delivered to the specified destination the Trip is CLOSED, else an exception is been raised. Now when the Trip has closed and the Items are physically moved out of the warehouse then the Inventory is reduced and the “Interface Trip Stop” process runs.

The next process would be the Costing Process

Here only the Purchase Cost (Unit Price or the cost incurred to manufacture the Item) factor information is been entered in the Table MTL_INTERFACE, then a “Workflow Background Process” is initiated which considers the information from table MTL_INTERFACE and moves the cost factor to the Cost management to generate the COGS report (COST OF GOODS).

At this stage the Accounting entry would be

COGS A/c

To Inventory Material Cost A/c

Now the next step would be running the “Auto Invoice Master Program” as the Account Receivables are not aware of the sales order transaction. The Auto Invoice Master Program picks all the lines whose shipped status (Trip Status) is closed and inserts a record into AR_TRANS_INTEFACE table. Once this is done another program is initiated that is Auto Invoice program that picks up the records from the interface table and generates the Invoices.

The accounting transaction is

Receivable A/c

To Revenue

The print of the invoice is sent to the customer, customer then makes the payment and for this payment we create a cash receipt.

The accounting entry:

Confirm Cash A/c

To Receivables

Once we remit the cash receipt into the bank for clearance then the entry would be

Remitted A/c

To Confirm Cash

Later the remitted receipt moves to the cash management module and when we reconcile the receipt the entry is

Cash A/c

To Remittance

Following are the Various Statuses in the O2C Cycle

  1. Entered
  2. Booked
  3. Picked
  4. Awaiting Shipment
  5. Shipped
  6. Closed

This ends the Order to cash cycle.

Advertisements
Comments
7 Responses to “O2C Cycle – (Order To Cash Cycle)”
  1. raghu says:

    good informative analysis,thanks dude

  2. srinivas says:

    Very useful……
    Thanks

  3. prasoon96 says:

    thank you very much sir ji…………………..

  4. ADK says:

    Very well explained !!

  5. satish says:

    Excellant post , very clearly explained

  6. Debonik says:

    Very Good Article !!

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: