Internal Material Transfers (Chapter 3) 20C

Overview of Internal Material Transfers

An internal material transfer is an automated or manual transfer request of materials within or between organizations. Transfer orders transfer inventory for interorganization, intraorganization, and intercompany flows. Transfer orders represent demand and supply in a single document. You can transfer material to an inventory destination or an expense destination. The transfer order serves as the orchestration document representing demand and supply for an internal material transfer. Transfer orders are routed directly through Oracle Fusion Shipping, or through Oracle Fusion Order Management.

This diagram provides an overview of internal material transfers.

Here's an overview explaining how internal material transfers work:

Transfer source

Transfer requests can come from multiple sources such as back-to-back, planning, inventory min-max planning, self-service requisition lines, the Create Supply Request page, Supply Order web service, and spreadsheet uploads.
Determine transfer order or purchase order

Oracle Fusion Supply Chain Orchestration provides visibility to supply and demand, in addition to providing rules to determine if a transfer order or purchase order is created
Transfer price and tax calculation

Oracle Fusion Supply Chain Financial Orchestration calculates the transfer price and integrates with tax for tax calculation.

For requisition lines, Self Service Procurement calls Supply Chain Financial Orchestration directly when creating transfer orders to get the price to use for approvals and budgetary control purposes.
Create new transfer order document and fulfill transfer orders

Create your transfer order documents in Oracle Fusion Inventory Management.
Perform pick, ship, receive, put away, and return processes

You can process transfer orders using the standard pick, pack, ship, deliver, and return processes through Oracle Shipping, Receiving, and Inventory Management.
Perform automatic costing and accounting

Oracle Fusion Cost management orchestrates the costing and accounting of internal material transfers automatically.

Note: Optionally, you can fulfill transfer orders using Oracle Fusion Order Management. Order Management users have visibility to internal and external orders.

Internal Material Transfer Setup Tasks

An internal material transfer is an automated or manual transfer request of materials within or between organizations.

You can perform your internal material transfer setup in the Setup and Maintenance work area.

This table describes all of the setup tasks and whether each task is required or optional for the implementation of internal material transfers.

Set Up Task	Offering	Required or Optional	Description
Manage Supply Chain Financial Orchestration Transfer Pricing Rules	Supply Chain Financial Orchestration	Required	Manage financial orchestration transfer pricing rules and set options to determine how the transfer price is calculated.
Manage Supply Chain Financial Orchestration Flows	Supply Chain Financial Orchestration	Required	Create and maintain the financial trade agreement to orchestrate the financial transactions between trade routes.
Manage Item Cost Profiles	Supply Chain Managerial Accounting	Required	Assign cost profiles to items at the cost organization and cost book level.
Manage Cost Elements Rules	Supply Chain Managerial Accounting	Required	Define the Profit in Inventory cost element to track internal profit earned through internal transfer flows.
Manage Default Cost Profiles	Supply Chain Managerial Accounting	Required	Create and edit cost profiles that can be automatically assigned to items at the cost organization, cost book, or item category level.
Manage Supply Order Defaulting and Enrichment Rules	Manufacturing Supply Chain Materials Management Offering	Required	Create, review, update, and delete rules that default and enrich supply order attributes. This is required only if you plan to fulfill transfer orders using Oracle Fusion Order Management.
Manage Supply Execution Documentation Creation Rules	Manufacturing Supply Chain Materials Management Offering	Required	Create, review, update, and edit rules that determine if an internal material transfer should be executed using a transfer order or a purchase order.
Manage Intersubinventory Parameters	Manufacturing Supply Chain Materials Management Offering	Required	Configure intersubinventory parameters to perform internal material transfers between two subinventories within a single organization. This is required only if you are performing intraorganization transfers.
Manage Interorganization Parameters	Manufacturing Supply Chain Materials Management Offering	Required	Enable the Transfer Order Required option to execute a transfer order between the source and destination organization.
Manage Receiving Profile Options	Manufacturing Supply Chain Materials Management Offering	Optional	Set receiving profile options to use the receipt confirmation feature.
Manage Consumption Rules	Manufacturing Supply Chain Materials Management Offering	Optional	Create, review, and update consumption rules for interorganization transfers between inventory organizations.
Manage Shipping Lookups	Manufacturing and Supply Chain Materials Management Offering	Optional	Set up freight cost types before setting up the shipping cost types used to identify the additional transfer order charges that can be associated with a transfer order line.
Manage Shipping Cost Types	Manufacturing and Supply Chain Materials Management Offering	Optional	Set up shipping cost types to identify the type of charge that applied to a transfer order line.
Manage ATP Rules	Supply Chain Planning Offering	Optional	Set up ATP rules to define order promising behavior. Specify: Promising mode to determine how supply availability is considered Supply and demand source types to be considered during promising Usage of advanced promising features, such as capable to promise and profitable to promise
Self Service Procurement Feature	Procurement Offering	Optional	Enable the internal material transfer feature to create internal material transfer requisition lines.

Internal Material Transfer Process Flow

The life cycle of an internal material transfer spans several tasks and products from initiation of the transfer source through the costing and accounting of the transfer. The internal material request and fulfillment process ranges from simple processes to extremely complex processes, spanning multiple legal entities, across geographies, and involving multiple shipment points.

This figure shows the life cycle of internal material transfer and the products responsible for each task.

Transfer Sources

You initiate internal material transfers from transfer sources.

This table shows the transfer sources from which you can create internal material transfers.

Transfer Source	Description
Min-max planning	Automatically create internal material transfers from min-max planning.
Back-to-back	Automatically create internal material transfers from back-to-back transfers.
Planning	Automatically create, reschedule, and cancel internal material transfers from planning.
Supply Order web service	Manually create, update, and cancel internal material transfers through a supply request web service.
Template upload	Manually create, update, and cancel internal material transfers through a supply request file-based data import spreadsheet template.
Requisitions lines	Manually create internal material transfers from requisition lines in Self Service Procurement.
Create Supply Request page	Manually create internal material transfers on the Create Supply Request page which you can access from the Manage Item Quantities page. This allows entry of ad-hoc internal material transfers directly from Inventory.

Note: You cannot create an intraorganization inventory destination transfer from requisition lines.

Generate Internal Material Transfer Recommendations (Supply Chain Orchestration)

The process starts with creating a transfer source. Multiple automatic and manual transfer sources are supported including min-max planning, back-to-back, spreadsheet upload, Supply Order web service, planning, self-service procurement requisition lines, and the Create Supply Request page from the Manage Item Quantity page.

Sourcing tools enable you to manually create internal material transfer requisition lines in Self Service Procurement and create supply requests from the Manage Item Quantity page. These sourcing tools provide a default source organization and allow access to source organization rankings and available to promise quantities. Oracle Fusion Supply Chain Orchestration works with Oracle Fusion Global Order Promising and Oracle Fusion Inventory Management to identify the source organization rankings based on pre-established rules.

Enrichment Rules (Oracle Fusion Supply Chain Orchestration)

During the supply creation process, Oracle Fusion Supply Chain Orchestration evaluates the Supply Execution Documentation Creation Rules to determine if an internal material transfer should be executed using a transfer order or a purchase order.

Manage and Fulfill Transfer Orders (Oracle Fusion Inventory Management)

A transfer order is created automatically from the various transfer sources. The transfer order represents demand and supply in a single document. Both interorganization and intraorganization transfers are supported by Oracle Fusion Inventory Management.

Pick, Pack, Ship, Receive, and Put Away (Oracle Fusion Shipping, Receiving, and Inventory Management)

You can perform processes such as pick, ship, receive, put away, and return against a transfer order document. Warehouse managers have full visibility to shipments and receipts associated with a transfer order. You can update attributes on a transfer order such as source organization, requested delivery date, and requested quantity.

You can also use self-service receiving for the receiving of requisition sourced transfer orders.

Financial Orchestration (Oracle Fusion Supply Chain Financial Orchestration)

Oracle Fusion Supply Chain Financial Orchestration (SFO) allows the supply chain controller to model financial flows between business units involving different pricing and accounting requirements. The Supply Chain Financial Orchestration framework provides an estimate of the transfer price for creation of transfer orders to transfer goods between internal organizations. Once the transfer price is calculated, Supply Chain Financial Orchestration calls the tax application to determine the tax applicable on the transfer price.

For internal material transfer requisition lines, Self Service Procurement calls Supply Chain Financial Orchestration directly when creating transfer orders to get the estimated price to use for approvals and budgetary control purposes.

Cost Accounting (Oracle Fusion Cost Management)

Oracle Fusion Cost Management has an infrastructure in place to trigger costing and accounting of internal transfers automatically. Internal material transfer transactions such as Transfer Order Shipment and Transfer Order Receipt are interfaced to Cost Management. Trade events are interfaced from Supply Chain Financial Orchestration to Cost Management. Cost Management also provides the ability to analyze the gross margin earned for internal sales transactions separately.

Note: Once the product is shipped and delivered, Cost Management obtains the transfer price at that point in time and uses it for costing, budgetary control, and encumbrance accounting purposes.

Note: You can optionally fulfill internal material transfers through Oracle Fusion Order Management. Order Management enables the orchestration of transfer orders across fulfillment systems. Order Managers can centrally monitor the fulfillment of transfer orders and sales orders, and prioritize shipments across these orders.

Considerations for Internal Material Transfer Document and Enrichment Rules

Oracle Fusion Supply Chain Orchestration provides two setup user interfaces to enable the supply chain orchestration process:

Manage Execution Document Creation Rules
Manage Supply Order Enrichment Rules

Manage Execution Document Creation Rules

Use the supply execution document creation rules to determine if an internal material transfer should be executed using a transfer order or a purchase order for an organization.

During the supply creation process, if based on the supply execution document creation rules, it is determined that the supply document should be a purchase order, these updates are made:

Supply type on the internal material transfer request is updated to Buy.
Supplier and supplier site associated to the source organization is used to create supply documents.

Note: You cannot set up documentation rules to create purchase orders for internal material transfers sourced from requisition lines. You make the decision on whether or not to create an internal material transfer or purchase order requisition line at the point of entry of the requisition line in Oracle Self Service Procurement.

Manage Supply Order Enrichment Rules

Use the supply order defaulting and enrichment rules to route shipments of items on an internal material transfer request through Oracle Fusion Order Management. This allows the order manager to view transfer orders, as well as regular customer sales orders, on the Order Workbench, and prioritize shipments from the Order Workbench when needed.

You can set up a business rule for your organization that runs at the time of supply creation and sets the value of the order management shipment option. During transfer order creation, the process evaluates the order management shipment option to determine if the transfer order line should be directly interfaced to Oracle Fusion Shipping, or if it should pass through Oracle Fusion Order Management (and from Order Management to Shipping).

Note: Internal material transfer requests that originate from back-to-back sales order demands cannot be routed through Oracle Fusion Order Management. Also, return transfer orders and intraorganization transfer orders cannot be routed through Order Management. In addition, expense destination transfers that originate from a requisition cannot be routed through Order Management.

How the Internal Material Transfer Price Is Calculated

You can estimate the transfer price when creating a transfer order to transfer goods between internal organizations.

Settings That Affect The Transfer Price

The transfer price is based on the answers to these questions:

Is the transfer order crossing business?
What are the transfer pricing options?
Do the shipping and receiving inventory organizations for the internal material transfer belong to a single business unit?

How The Transfer Price Is Calculated

The application calculates the transfer price according to these rules:

If the transfer order is crossing business units, the transfer price is calculated based on the transfer pricing method specified in the configurable transfer pricing rules for the financial route between the shipping organization and the receiving organization.
If transfer pricing options are enabled, you can derive the transfer price based on the shipping organizations transaction cost, Oracle Fusion Pricing, or a third-party pricing service.
If, for the internal material transfer, the shipping and receiving inventory organizations belong to a single business unit, then Oracle Fusion Supply Chain Financial Orchestration uses the cost of the item in the source organization as the transfer price.
If, the transfer source is a requisition line, Oracle Fusion Self Service Procurement calls Supply Chain Financial Orchestration directly when creating transfer orders to get the price.

Once the transfer price is calculated, Supply Chain Financial Orchestration calls the tax application to determine the tax applicable on the transfer price.

Setup of Interorganization Parameters for Transfer Orders

Use the Manage Interorganization Parameters task to configure rules for interorganization transfer orders and define the relationships between source and destination inventory organizations. Transfer orders represent demand and supply in a single document. You can transfer material to an inventory destination or an expense destination.

Here are some important interorganization parameters for transfer orders:

Inventory destination transfer type
Inventory destination receipt routing
Transfer order required
Expense destination receipt required
Expense destination receipt routing
Cancel backorders

In the Setup and Maintenance work area, use the Manage Interorganization Parameters task to set up your interorganization parameters:

Offering: Manufacturing and Supply Chain Materials Management
Functional Area: Inventory Management
Task: Manage Interorganization Parameters

Inventory Destination Transfer Type

Specify either direct or in-transit. This option determines how material should be transferred between two inventory organizations.

Inventory Destination Receipt Routing

Specify the receipt routing for in-transit inventory destination transfer types. Receipt routing options include Standard, Direct, and Inspection.

Transfer Order Required

Indicate whether a transfer order is required for each transfer.

Expense Destination Receipt Required

Indicate whether or not a receipt is required in the destination inventory organization for expense destination transfers going to that destination location. If you select this option, a receipt is required on interorganization expense destination transfer orders between the from and to organizations. If you do not select this option, then the transfer order is considered received and delivered at the time of shipment. This field is available for Expense destination types only.

Expense Destination Receipt Required

Specify the receipt routing for expense destination transactions. Receipt routing options include Standard, Direct, and Inspection.

Cancel Backorders

Specify whether or not you want to automatically cancel the remaining quantity on a backordered transfer order line. This option enables you to cancel the remaining quantity on a transfer order line that would normally be backordered when orders cannot be filled due to shortages.

The three possible values for the Cancel Backorders option are shown in this table.

Cancel Backorders Option	Description
Cancel remaining quantities	Automatically cancel the remaining quantities on transfer order backorders.
Do not cancel remaining quantities	Do not automatically cancel the remaining quantities on transfer order backorders.
Default to source inventory organization level	Use the default set at the inventory source organization level to determine whether or not to automatically cancel the remaining quantities on transfer order backorders.

Setup of Intersubinventory Parameters for Transfer Orders

Use the Manage Intersubinventory Parameters task to configure parameters for transferring material between two subinventories within an organization. You can perform transfer orders for an inventory or expense destination transfer. Set this attribute on the Manage Intersubinventory Parameters page.

Here are some important intersubinventory parameters for transfer orders:

Organization
Destination type
Destination subinventory
Source subinventory
Receipt required at expense destination
Inventory destination transfer type
Receipt routing

In the Setup and Maintenance work area, use the Manage Intersubinventory Parameters task to set up your intersubinventory parameters:

Offering: Manufacturing and Supply Chain Materials Management
Functional Area: Inventory Management
Task: Manage Intersubinventory Parameters

Organization

Enter the destination organization.

Destination Type

Specify inventory or expense destination. The value in this field identifies how transfer order shipments and receipts are handled for the two different destination types.

Inventory destination transfer orders require movement to a destination inventory warehouse location. Expense destination transfer orders allow you to transfer material from an inventory warehouse location directly to your location for immediate usage.

Destination Subinventory

You must enter a destination subinventory when the destination type is Inventory. This field is available for inventory destination types only.

Source Subinventory

Enter a source subinventory for inventory destination types. You can optionally enter a value for expense destination types. The combination of organization and source subinventory must be unique. You also have the option to choose All for the source subinventory.

If you enter a source subinventory for an expense destination type, then the parameters on this row apply to all intraorganization expense destination transfer orders sourced from the entered subinventory. If a subinventory isn't entered, than the parameters on this row become the default parameters for the organization, and the parameters are applied to any intraorganization expense destination transfer order that's sourced from a subinventory that doesn't have a specific intersubinventory parameter row defined.

Receipt Required at Expense Destination

Indicate whether or not a receipt is required in the destination inventory organization for expense destination transfer orders going to that destination location. If selected, then a receipt is required on transfer orders originating from the subinventory on that parameter row. If this option isn't selected, then the transfer order is considered received and delivered at the time of shipment. This field is available for Expense destination types only.

Note: If the source subinventory for a intraorganization expense destination transfer order isn't found at shipping time and a default parameter row hasn't been setup, then the Receipt required at expense destination option defaults automatically to not selected and the transfer order is considered received and delivered at the time of shipment.

Inventory Destination Transfer Type

Specify either direct or in-transit. Determines how material should be transferred between two inventory organizations. Available for inventory destination types only.

Receipt Routing

Specify the receipt routing for in-transit inventory destination transfer types. This option is also available for intraorganization expense destination transfer orders if the receipt is required at the expense destination. Receipt routing options include Standard, Direct, and Inspection.

Subinventory Parameters for Transfer Orders

Transfer orders represent demand and supply in a single document. When goods are not completely available at the time the transfer order is being fulfilled, processing can automatically cancel the remaining quantity on a transfer order line that would normally be backordered.

Use the Manage Subinventories and Locators task to set the Cancel Backorders option at the destination subinventory level. This option specifies whether the cancel decision is made at this level for transfer orders that are being delivered to a specific destination subinventory.

The three possible values for the Cancel Backorders option include:

Cancel remaining quantities

Automatically cancel the remaining quantities on transfer order backorders.

Do not cancel remaining quantities

Do not automatically cancel the remaining quantities on transfer order backorders.

Use next level in hierarchy

Depending on the transfer order type, the inventory organization or interorganization parameter is used to determine whether or not to automatically cancel the remaining quantities on transfer order backorders.

Intraorganization transfer order uses inventory organization
Interorganization transfer order uses interorganization parameter

In the Setup and Maintenance work area, use the following to set the Cancel Backorders option at the destination subinventory level:

Offering: Manufacturing and Supply Chain Materials Management
Functional Area: Inventory Management
Task: Manage Subinventories and Locators

FAQs for Implementing Internal Material Transfers

What's the difference between a physical and accounting only internal material transfer return?

If the physical return of material is required, the transfer order is interfaced to Oracle Fusion Shipping.

If the physical return isn't required (accounting-only internal material transfer return), the transfer order isn't interfaced to Oracle Fusion Shipping.

A transfer order type of Return is created for both scenarios (with or without physical returns).

How can I fulfill transfer orders for items on an internal material transfer through Oracle Fusion Order Management?

Configure a business rule in the Manage Supply Order Enrichment Rules user interface.

Set up a business rule that runs at the time of supply creation and sets the value of the order management shipment option. During transfer order creation, the process evaluates the order management shipment option to determine if the transfer order line should be directly interfaced to Oracle Fusion Shipping, or if it should pass through Oracle Fusion Order Management (and from Order Management to Shipping).

How can I set up the expense destination receipt required option for transfer orders?

Set this option on the Manage Interorganization Parameters page for interorganization transfer orders, and on the Manage Intersubinventory Parameters page for intraorganization transfer orders. Access these pages from the Setup and Maintenance work area, in the Manufacturing and Supply Chain Materials Management offering.

What's the difference between inventory and expense destination transfer orders?

Expense destination transfer orders transfer material from an inventory warehouse location directly to the buyer's location for immediate usage. With expense destination transfers, there is no put away transaction in inventory since the item is expensed, and the destination inventory is not incremented. Returns are not allowed, and serial and lot numbers are not tracked in receiving.

Inventory destination transfer orders require movement to a destination inventory warehouse location. With inventory destination transfers, you have a shipment in the source organization that decrements the source location's inventory, and a put away transaction in the destination organization that increments the destination location's inventory.

Can I use the source organization's business unit for sales orders created from transfer orders?

Yes, when using Supply Order Defaulting and Enrichment Rules to route transfer orders through Oracle Order Management Cloud, you have the option to align the sales order requisitioning business unit with the source organization's business unit.

Normally, when you create a sales order from a transfer order, you use the destination inventory organization's business unit on the sales order. Creating the sales order in the source organization's business unit lets the organization actually shipping the requested goods accurately track the internal order through its lifecycle. This also enables you to accurately manage and account for orders through their lifecycle.

In the case of multiple lines and source organizations, the first line of the transfer order determines the business unit on the sales order.