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How to Manage Both Commercial and Government Manufacturing Contracts In the Same Business

Implementing Project Contracts With Hard Pegging Addresses the Challenge

Introducing federal government contracts into a business that is primarily high volume commercial products without changing the business model can be challenging. Companies need to comply with federal contracting regulations but avoid unnecessary restrictions on their commercial product business. High volume commercial product business is usually supplied from a common inventory. Comparatively, government contracts require full cost traceability and contract regulation “flow downs” to suppliers. This poses a challenge to the business. The following discussion illustrates how this challenge can be addressed using standard Oracle E-Business Suite solutions.

In this case, the business utilizes Oracle Order Management to track and execute commercial product orders. Oracle E-Business Suite Advanced Supply Chain Management, Manufacturing Suite, Project Manufacturing and the Projects Suite is used along with the Oracle EBS Financials Suite for demand, supply, and cost management and financial recording and tracking. In most cases products are built from forecast and demand is met from a common supply. To facilitate a common supply, inventory items are set to soft peg and the supply chain plan options for reservation level are set to Planning Group with the hard pegging level set at Project. Demand is pushed either from forecast or from Order Management sales orders. Cost traceability from the supplier purchase order through order fulfillment is not a requirement; therefore, items can be set to soft peg and products can be built from forecast and maintained as common inventory.

Government contracts require that identified contractual clauses for government regulations are flowed down to suppliers. To prove this requirement is met, items purchased to fulfill the government contract must be traced back to the purchase order the item was received against. The combination of Oracle Project Contracts functionality and the configuration of a new inventory organization are used to meet the requirements of flow-downs and full cost traceability back to the government contract.

Oracle Project Contracts is used for the contract repository to maintain all types of contractual data including award details, organization data, customer information, contract articles or clauses, terms and conditions, and contract line and deliverable details. The Change Management functionality is used to track contract modifications. The Funding Workbench functionality is used to track detail funding allocations. The flow-down matrix functionality is used to identify contractual data to flow down to other business areas like Procurement, Work In Progress, Project Billing and Shipping.

Oracle Project Contracts provides key integration with Oracle Projects, Planning, Shipping and Procurement. Project Contracts integration with Projects associates the project number to the contract. The Deliverable Tracking System (DTS) component within Project Contracts is a robust solution used to track contract deliverables and initiate the planning, procurement, shipping and billing functions.

To support the flow-down and cost traceability requirements for the government contracts, Project Contracts integration with Planning via DTS is used to associate the contract and project to the demand pushed to Advance Supply Chain Planning. Requisitions generated from the Planning Workbench in Oracle Supply Chain contain the project number allowing for contractual requirements to be flowed down to the supplier and providing cost traceability back to the contract.

In this case, using Project Contracts alone does not ensure the project would remain associated throughout the procurement and build process. A new inventory organization is configured so that the items could be set to hard peg. The new inventory organization along with the master demand schedule used by DTS are assigned to the same supply chain plan used by Order Management. End result: both high volume commercial product orders managed through Order Management and federal government contracts managed through Project Contracts can utilize the same master item list and supply chain plan to execute on product deliverables.

If this subject is of interest to you, be sure to view our On-Demand Webinar: Project Contract Flowdowns. Visit our Webinars page to learn more about the webinar, then register and view the presentation.

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