With the recent announcement of Tariffs by the USA, DSPs Nick Harris and Husein Fazal have been reviewing what organizations need to change in Oracle ERP/E-Business Suite to meet the challenge of Tariffs for their Supply Chain.
If you have a similar challenge, please don’t hesitate to reach out to Eclipsys and DSP. In the meantime, here is our Top Ten Guide to Managing Tariffs.
This guidance will help you understand the steps you need to take to ensure that tariffs are appropriately reflected in your Oracle ERP system, providing an accurate picture of your inventory costs.
1) Review Costing Method
- Determine which costing method you are using (e.g., Standard Costing, Average Costing, or FIFO).
- Standard Costing: You may need to adjust the standard cost to include tariff costs if tariffs affect your product cost.
- Average Costing: Tariff costs will be spread over the inventory and reflected in the average cost of items.
2) Create Tariff Costs as an Expense Type
- Set up a new expense account for tariff costs in the Chart of Accounts.
- You will need to define the tariff expense category and associate it with an appropriate expense account in your General Ledger (GL).
3) Update Item Costs
- Inventory costs need to reflect the impact of the tariff. This can be done by adjusting the item costs or adding a separate tariff cost as a component of the overall cost.
- Run Cost Rollup to calculate the impact of the tariff on your final products.
- Use Oracle Cost Management to revalue on-hand inventory and update the cost of goods sold (COGS). In cases of changes in tariffs, the increase in cost needs to be incorporated into the COGS for accurate cost analysis and inventory valuation.
4) Use Landed Cost Management
- For greater control over tariffs and freight charges, consider using Oracle Landed Cost Management (LCM).
- LCM allows you to capture all associated costs like tariffs, taxes, and freight, and it assigns those costs to inventory.
- Create new landed cost types for tariffs (e.g., "US Tariff") and associate them with the relevant suppliers, purchase orders, or shipments.
5) Configure Tariff Costing Rules
- If you are using Landed Cost Management, configure the costing rules to allocate tariff costs to the inventory.
- The tariff can either be applied directly to the item’s cost or as an additional landed cost on top of the base cost. Ensure it matches the nature of the tariff (whether it's a percentage of the product cost or a fixed amount).
6) Supplier and Purchase Order Configuration
- On your purchase orders, ensure that the tariff costs are correctly entered and tracked. These may be manually entered or automated through integration with external systems that track tariffs.
- Ensure the tariffs are associated with the correct inventory items or suppliers so the cost flows accurately into the inventory valuation.
7) Tax and Reporting Setup
- Since US tariffs are subject to specific tax treatments, make sure your tax configuration is set up to handle the impact of the tariff cost.
- Configure the system to track and report tariff-related costs for regulatory reporting and financial analysis.
8) Validate and Reconcile Costs
- Ensure that the total cost of the items, including the tariff, is correctly reflected in the inventory valuation.
- Run reconciliation reports to ensure that the tariff costs are included in the inventory balances and the overall cost of goods sold (COGS) is accurate.
9) Review and Update Customer Pricelists
- Review customer pricelists to ensure that they reflect the change to COGS associated with the tariff costs so that profit margins can be maintained.
10) Monitor Tariff Changes
- Tariffs are subject to change based on government policies. Set up regular reviews to adjust tariff rates in the system and apply any changes to item costs or purchase orders.
To be clear, this is not formal advice but high-level guidance. Please contact our experts for a more tailored response to your business.
