Trade Operations

Create trade operations to capture landed cost charges associated with purchase order receipts of material. A trade operation is an entity that is used to group landed cost charges expected to be incurred for material shipments.

You can create a trade operation for a shipment to capture the landed cost charges incurred for that shipment. You can then add purchase order schedules to the trade operation or associate advance shipment notices (ASNs) to the trade operation so that the corresponding purchase order schedules are automatically added. Trade operations are created on the Manage Trade Operations page of the Receipt Accounting work area.

Create a Trade Operation Template to pre-populate the charge lines in trade operations for repeat purchases. Templates define the structure for the trade operation, such as charges, reference types, routes, currency, and taxes. Both inclusive and exclusive taxes are supported for landed costs. If you've a determined set of charges that you incur on regular shipments, you can define a trade operation template to automatically create the charge lines corresponding to these charges.

To create a trade operation, perform the following steps.

1. In the Receipt Accounting work area, select the Manage Trade Operations task.

2. Select Create from Scratch under the Create Trade Operation menu.

3. Enter appropriate values for the required fields and click Save and Close.

   Field	Description
   Procurement BU	The procurement business unit for the charge.
   Name	Name for the trade operation.
   Description	An optional description of the trade operation
   Document Currency	Select the required currency.
   Currency Conversion Rate Type	Select the defined currency conversion rate type.
   Allocation Quantity Type	The applicable options are listed here: Purchase Order Schedule Quantity: This is the default value and the landed costs are calculated based on the quantity mentioned in the purchase order schedule. Shipment Quantity: The quantity mentioned in the advance shipment notices (ASNs) associated with the trade operation is used to calculate the landed costs. This option is useful when the purchase order schedule quantity is fully received across multiple partial shipments. Also, you must have an ASN-based receiving process to utilize this setting.
   Route	Optionally you can select a route for the trade operation.

Note: The Allocation Quantity Type parameter is available only if you've opted in to the Allocate Landed Cost Charges Using ASN Quantity feature.

If you are using the Shipment Quantity as the Allocation Quantity Type, then here's a recommended process flow. You must have an ASN-based receiving process to utilize this setting.

1. Approve Purchase Orders: Purchase orders are published by the buyer to the suppliers.
2. Create ASNs: ASNs are created by suppliers for the purchase orders getting shipped.
3. Create Trade Operations: Trade operation is created with Allocation Quantity Type set to Shipment Quantity for the purchase orders shipped together to capture all charges incurred on the shipment.
4. Add ASNs to Trade Operation: This ensure that purchase orders corresponding to the ASNs are automatically associated with trade operations and charges are estimated based on shipment quantity. If you're using the Shipment Quantity option, you can't manually add the purchase order schedules.
5. Receipts: The receipt information is automatically copied to the trade operation based on ASNs. Also, the allocation process prorates the estimated amount to receipt based on shipment quantity.
6. Invoices: The invoice is automatically associated to the charge lines based on the charge references. The invoice amount is fully absorbed into receipt quantities based on the ASNs.

Depending on your use case, you must set the Allocation Quantity Type parameter. If the purchase order schedule quantity is fully received in partial shipments across multiple periods or if the purchase order schedule quantity might not be fully received, then set the parameter value to Shipment Quantity. By using Shipment Quantity as the Allocation Quantity Type, you get these benefits:

• More accurate landed cost for inventory valuation and COGS, because the landed cost charges are captured only when the shipment information is available and allocated based on the shipment quantity.

• Full absorption of the invoice amount to the receipt quantity.

• By adding ASNs to trade operation, purchase order schedule and shipment quantity is automatically added to charges.

Add Shipment Information to Trade Operation

For trade operations created with Allocation Quantity Type set to Shipment Quantity, you can associate the ASNs with the trade operation.

1. Edit the trade operation and click Manage Shipment Information.
2. On the Search and Add: Shipment Information dialog, search and select the required ASNs and click Save and Close.

After the ASNs are associated with the trade operation, the corresponding purchase order schedules are automatically associated with the charge line. You can also see the shipment quantity from the ASN and the ordered quantity from the purchase order schedule.

Note: To ensure that charges are correctly applied to receipt quantity, all receipts must be created through ASNs when Allocation Quantity Type is set to Shipment Quantity.

Example of Landed Cost Absorption

Here's a simple example explaining how the landed costs are absorbed based on the Allocation Quantity Type setting in the trade operation. Here are the charge line details:

• Charge Name: Freight
• Charge Basis: Aggregate
• Charge Amount: 1000.00
• Allocation Basis: Equally

This table shows the landed cost absorption when the Allocation Quantity Type is set to Purchase Order Schedule Quantity.

PO Schedule	Allocated Charge	Shipment Quantity	PO Schedule Quantity	Per Unit Charge	Receipt Quantity	Charge Absorbed
1005379/1/1	500.00	10	20	25.00	10	250.00
1005380/1/1	500.00	20	40	12.50	20	250.00

In this case, you'll notice that for the first PO schedule the charge absorbed in 10 (receipt quantity) * 25.00 (per unit charge computed based on purchase order schedule quantity), which is 250.00. The same is true for the second PO schedule. The total freight charge of 1000.00 is partially absorbed across the two purchase order schedules.

This table shows the landed cost absorption when the Allocation Quantity Type is set to Shipment Quantity.

PO Schedule	Allocated Charge	Shipment Quantity	PO Schedule Quantity	Per Unit Charge	Receipt Quantity	Charge Absorbed
1005379/1/1	500.00	10	20	50.00	10	500.00
1005380/1/1	500.00	20	40	25.00	20	500.00

In this case, you'll notice that for the first PO schedule the entire charge is absorbed. That's 10 (receipt quantity) * 50.00 (per unit charge computed based on shipment quantity), which is 500.00. The same is true for the second PO schedule. The total freight charge of 1000.00 is fully absorbed across the two purchase order schedules.