Three approaches to Inter Company Coordination in Planning

An important building block for a planning system comprises dealing with intercompany (IC) issues. IC comes into play whenever different economic entities of a group of enterprises exchange goods or services with each other. The resulting expenditures and earnings, as well as receivables and payables must be transparent and definable with respect to each other. Because planning is performed by numerous participants, IC coordination and subsequent IC elimination are not trivial.

Challenges during IC coordination

Challenges here can be classified in terms of content and process.

Challenges in terms of content

• Depending on each planned IC business transaction, a corresponding IC offsetting item must be determined.
• IC elimination must be definable across several levels, for example, group-subgroup.
• Related, planned IC values might exist in different currencies under certain circumstances.

Challenges in terms of process

• If IC components are registered by different planners, the values must be harmonious with each other.
• If a planner changes an IC component again, the offsetting item must also be adjusted.
• Under certain circumstances, some IC components can be scheduled only by one planner, because only this person has the necessary knowledge or can access the necessary information.

Dealing with different levels of IC elimination

When a legal unit (LE) plans an IC business transaction, a partner company (LE) is usually specified. In order to assess the respective legal unit's economic success, the IC components must be indicated in the planning result and budgeted balance sheet. To assess the economic success of a group or a subgroup, by contrast, it is important to eliminate the IC components, otherwise, in sum, too much income or expenditure is indicated in the planning result, or too many receivables or payables are indicated in the budgeted balance sheet.

The diagram shows the location at which elimination must take place, depending on the respective LEs. Elimination is usually planned not by the respective planner, but generated in the planning system.

Approach 1: Control via an IC deviation report

An IC deviation report is used if IC relationships are planned by different planners so that deviations may occur.

The IC deviation report evaluates the sums of all IC relationships and makes deviations between IC partners transparent.

The coordination process can be controlled by informing the respective planning partners at regular intervals on the basis of deviations from the report, and instructing them to perform coordination as regards their IC relationships.

Approach 2: Automatic IC offsetting entries

The first approach allows IC deviations within the planning system, these deviations being eliminated via a coordination process. The second approach aims to avoid this.

• An offsetting item is defined for each IC planning position.
• As soon as a plan is created on the IC planning position, the same value is indicated automatically by the offsetting item of the partner LE.
• In the event of a change, the corresponding value is changed too.

This system requires unique IC relationships. The uniqueness of the relationship need not be 1-1, n:m relationships can also be represented via mapping tables.

At its core, this approach avoids IC deviations, thus eliminating the need for a coordination process. However, an implied prerequisite here is that no other planner intervenes in the IC process so as to potentially generate an IC deviation.

Approach 3: Preceding coordination process

The third approach also avoids IC deviations, but the interaction between the planners is retained at the core.

With this approach, planning of IC expenditure or IC earnings is spun off in a separate process step and supported with a workflow. Once an IC relationship has been registered, it is indicated to the partner. This person can contribute additional information, such as the desired offsetting item. It is important for the person to confirm the IC relationship subsequently. It is only then that both bookings can be transferred to the respective schedule and indicated in the planning result.

Conclusion

If IC coordination poses major problems in the current planning process or the schedule is being revised fundamentally, one should consider changing the approach to IC coordination.

A comparison of these three approaches shows that each of them has advantages and disadvantages. Not every approach is suitable for every company.

The following factors must be considered when choosing the appropriate approach:

• The structure of the current or future planning process.
• The different content-related requirements for IC planning and IC elimination.
• The respective planner's level of knowledge and scheduling approach.
• The available planning system and underlying infrastructure.