How to Design Modern Enterprises in Oracle Cloud

Sep 30, 2021

ORACLE | 4 min READ

Organizations today are faced with rapidly changing business scenarios resulting from external events, increased globalization, mergers and acquisitions, and changing requirements from regulatory authorities. Companies need a robust, scalable, and adaptable cloud enterprise design to meet these challenges and satisfy management/legal reporting requirements. The foundational enterprise design thus becomes the key in determining the success of any cloud implementation.

Kartik Subbaraman

Practice Director

Cloud

Birlasoft

The cloud enterprise structure consists of five critical components

1. Enterprise

An enterprise is an umbrella organization that consists of a set of legal entities under it. As a best practice, a single enterprise organization is created per cloud instance.

2. Legal entities

A legal entity is any company or organization that is legally recognized and can own, trade assets, and employ people. The legal entities are configured based on the legal and statutory requirements in the jurisdiction in which the organization is registered; for example, in the European Union, a company can be registered in one EU member country and do business in all member countries.

3. Ledgers

A ledger is a bookkeeping entity that records all accounting transactions for the legal entities under it. The following types of ledgers can be defined in Oracle Cloud ERP:

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Primary ledger: This is the main record-keeping ledger. It is created with a standardized model chart of accounts (COA), calendar, and accounting methods of the global enterprise. However, the currency varies based on the local country of operations.

Secondary ledger: The secondary ledger is an optional setup linked to a primary ledger to track alternative accounting. A secondary ledger can differ from its primary ledger in its COA, calendar, currency, accounting method, or processing options. Organizations typically configure a secondary ledger when a local division of an organization in a country:

Follows a different COA (China, France, Mexico), calendar (India, Brazil), accounting methods (France), or processing rules dependent on industry/government regulation
Needs to consistently pass adjustment journal entries to comply with local regulations or accounting practices

Reporting ledger: The reporting ledger is another optional setup, which is an additional currency representation of a primary ledger. Reporting currencies are used if organizations only need to maintain an accounting representation that differs in currency alone.

Best practices in ledger design

Organizations ideally should have different primary ledgers for every country/industry in which they operate. Ease of operations, currency considerations, business needs, segregation of duties, and local/legal requirements make this design a best practice.
The currency of the primary ledger can vary depending on the country, with reporting ledgers used for corporate reporting. This enables standard accounting representation, ease of consolidation, and common baselines for management/statutory reporting.
As much as possible, organizations should have a global standardized COA, calendar, and account rules for all primary ledgers across the organization.
A secondary ledger should be used for local/legal reporting needs. It is not advisable to pass entries or make adjustments in the primary ledger for local reporting purposes (unless they are minimal).
The focus should be on optimizing the number of ledgers. The effort and complexity of maintenance, intercompany accounting, reporting, and consolidation increase with the number of ledgers used

How to Design Modern Enterprises in Oracle Cloud

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4. Business Unit

Business units in Oracle Cloud ERP are used for:

Partitioning transactions: Transactions associated with a business unit are segregated from transactions processed in other business units
Securing transactions by assigning business units to specific users
Sharing reference data (e.g., payment terms) that can be shared across multiple business units

Key considerations for business unit design include:

Data access security: Separate business units are required when

You need to keep one organization's data distinct from another organization's data
You need to keep an operation's data private from the users/management of another operation

Shared services: If your organization is planning on a shared services model, you'll likely need additional business units to enable procurement, supplier payments, or customer payments, depending on the way the shared service unit is structured

Legal reporting/document sequencing requirements: Countries that closely regulate sub-ledger data by the legal entity would need a business unit per legal entity for document sequencing and reporting requirements

5. Inventory organization

An inventory organization is an entity that manufactures or distributes products and tracks inventory transactions and balances. Examples include manufacturing plants, warehouses, distribution centers, and sales offices. It's a best practice to create separate inventory organizations when:

You need to keep inventory data of each branch/location separate from other locations
You need to keep an operation's data private from the users/management of other operations (for example, R&D data is often highly restricted)
Only limited items are assigned to specific plants (for example, a captive power plant may not have product items assigned to it)
A branch/location wants to track and record its inventory (track ownership) separately
Movement of goods from a location (e.g., sales depots, bonded warehouses, consignment agents) requires statutory documentation (e.g., running serial numbers)
A branch/location must perform specific activities like manufacturing, maintenance, warehouse management, etc.
You need to assign distinct lot/serial numbers for items based on location/ownership.

Creating a flexible and robust enterprise design requires a careful balance between the organization's business needs, best practice considerations, regulatory obligations, and the multiple features offered by Oracle Cloud ERP. A well-thought-out, flexible enterprise design tailored to the organization's needs is critical for today's dynamic environment.

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