Oracle Freight - A Consolidated Solution by Brijesh Bharat, PMP

1. Freight – A Consolidated Solution
Author – Brijesh Bharat, PMP
With fuel cost rising everyday, companies nowadays are looking for an accountable, flexible and efficient way of
managing freight that will reduce the cost in handling transportation and maximize overall profit. Oracle e-Business
suite provides various ways to handle freight. This paper, based on customer implementation experiences, is an
attempt to provide a consolidated view of various options including a custom business solution.
Freight can be configured depending upon whether it is taxable or non-taxable. It can be treated as a master item or
can be configured as a pricing modifier with mark-up as optional. Freight cost can be either captured upfront at the
order entry or during ship confirm. Freight cost so captured will be converted to freight charge for onward invoicing to
the customer.
Solution Summary Matrix Table 1.0 is a summary of various options with possible pros-cons to meet the freight
requirement in a company implementing Oracle e-Business suite. The solution is broken into 2 main groups – Group
”A” options and Group “B” options. Each solution has its own pros and cons. While providing the solution a
thorough analysis should be done to choose the best solution that meets the business requirements.
Business case: The Company had a complex requirement to treat freight as taxable or non-taxable depending upon
if there is a tax exemption certificate available, whether customer pick-up (CPU), customer arranged pick-ups or
company arranged pick-ups.
The following matrix depicts this business requirement:
Tax Product Ship From Freight Charge: Product Ship To Freight Charge:
Charge Location: Houston- Destination:
When: TX OR Memphis –
TN
Tax Non-Taxable Non-Taxable Non-Taxable Non-Taxable
Exemption
Certificate
CPU Taxable Based on Charge No Freight
Ship From
Customer Taxable Based on Charge No Freight
Arranged Ship From
Shipment
Company Tax Based on Ship To Tax Based on Ship
Arranged Destination To Destination
Shipment
Table 1.0: Tax Requirement Matrix
• If company had a tax exemption certificate on file (based on bill-to/ship-to combination), the customer would
not be charged tax on freight or merchandise as depicted in the first column of the above Table 1.0
• The taxes would be exempted based on the following custom logic: A custom table was maintained with the
following attributes: Company, Bill-to Customer #, Bill-to Customer name, Ship-to State, Tax Exemption #,
Tax Exemption Reason, Effective from date, Effective to date:
Company Bill to Customer Bill to Ship to Tax Tax From To Date
Number Customer State Exempt Exempt Date
Name Number Reason
31-Dec-
05
02 77777 ISG Ohio 999999 1-Jan-05
New 01-Jun- 01-Aug-
York 04 05
03 88888 VALSPAR 909090
Table 2.0: Tax Exemption Matrix
Freight – A Consolidated Solution Page 1 of 4

2. • When the customer picked-up the merchandise with own truck, tax would be charged for the merchandise
based on the pickup location. In this situation, company would not charge freight.
• When the customer arranged a third party to pickup the merchandise from the company’s premises, tax would
be charged for the merchandise based on the pickup location. Again in this situation, company would not
charge freight.
• When company arranged freight carrier for pickup, the merchandise and freight would charge tax based on
ship-to location of the customer.
Based on the above requirement, the proposed solution was broken down to 2 main groups “A” and “B”. Group “A”
options describes the upfront order entry for freight charges, while in Group “B”, the freight will be captured during
ship confirm process.
Options Description Pros Cons Standard Level of
# Functionality Complexity
Group A Options – A1.0 Or A2.0
Upfront Order Entry For Freight Charges
Standard I. Use of Yes Low To
functionality Holds. Medium
Freight as an Item to handle II. Use
(Either Taxable Or Freight Fulfillment
A1.0 Non-Taxable) Set
A2.0 Freight as a Special Standard Lose the Yes Low
Charge (Always functionality flexibility if
Taxable Or Non- to handle sometime
Taxable) Freight Freight is
Taxable
and Non-
Taxable.
Group B Options – B1.0 Or B2.0
Freight Charges at Delivery/ Trip Level
Freight Charges at Fully Technical No Medium To
Delivery/ Trip Level Automated complexity High
– Fully Automate Process in the
design
B1.0
B2.0 Freight Charges at Standard Actual tax Yes in Low
Delivery/ Trip Level functionality rate is not conjunction
– Mark-up Freight to handle used. with custom
Charges Freight Ship Release
process.
Table 3.0: Solution Summary Matrix
Each group option is described as follows:
Group “A” Options - UPFRONT ORDER ENTRY FOR FREIGHT CHARGES
Freight charges can be applied to the sales order lines during upfront order entry by following two manners:
A1.0 Freight as an Item (Either taxable or non-taxable)
A2.0 Freight as a Special Charge (Always taxable or always non-taxable)
A1.0 Upfront Order Entry for Freight as an Item (Taxable or non-taxable)
Freight can be setup as an Item (non-shippable). During Order Entry the user enters the freight Item as taxable or
non-taxable (setup as master item), an estimation of freight amount can be entered on the order line.
Pros: Standard functionality to handle freight taxable/non-taxable. Process is as simple as entering a new order line
for freight on the sales order.
Cons: During order entry, user may not know whether freight will be taxed or exempted and what is the exact freight
amount to enter. Since freight item is non-shippable and is ready for the invoice. Next time, when Auto invoice runs, it
is going to create a separate invoice away from the order, usually not a preferred practice.
Freight – A Consolidated Solution Page 2 of 4

3. However, by employing either of the following two alternatives, the issue of a separate Invoice for the freight can be
circumvented:
Alternative # (I): Use Automatic Hold - Avoid Separate Freight Invoice
With the help of Automatic Holds, the issue of a separate Invoice for the freight can be circumvented. As soon as the
user enters the freight-taxable or freight-non taxable item on the order line, the line is put on hold. At the end of the
day or before the Auto Invoice runs, the user needs to release the hold that will allow the line to go to the invoice. A
hold report can be provided to the user that indicates the held order/line to be released. The user based on the report
will release the hold on the desired order/line(s) that need to be invoiced.
Pros: Standard functionality of employing the holds. No manual intervention to place the holds on the lines. Hold is
automatically placed based on the Hold Source Criteria.
Cons: The user may not know the exact freight amount and whether the freight is taxable or non-taxable. The user
has to run the Hold Release report and manually release the holds on desired order/lines every time before the Auto
invoice runs that allows the lines to be invoiced.
Note: A custom procedure may be developed to automatically release the holds that will avoid the manual
release process. The technical effort in achieving this functionality may be low to medium.
Alternative # (II): Use Fulfillment Set – Avoid Separate Freight Invoice
As a second alternative, Fulfillment set can be used to avoid the issuance of a separate Invoice for the freight.
The order lines can be grouped together as a set to be fulfilled. Freight line can be grouped with the other regular
lines to be fulfilled in a group. This way the freight line can be prevented to go separately on the invoice.
Pros: Standard functionality of using the fulfillment set. Freight line is grouped with other regular lines and prevented
to generate a separate freight line in AR away from order.
Cons: As mentioned earlier the user may not know the exact freight amount and whether the freight is taxable or non-
taxable. The user has to create a fulfillment set, and assign to the desired group of lines. The effort requires extensive
manual intervention involving 3-steps process – 1. Create a Fulfillment Set 2. Select the lines 3. Assign the fulfillment
set to the selected lines.
Note: A custom procedure may be developed to automatically create, select and assign the fulfillment set. The
technical effort in achieving this functionality may be medium to high.
A2.0 Upfront Order Entry for Freight as Special Charges (Always Taxable Or Always Non-Taxable)
During Order Entry the user can add the Freight and Special Charges on the order as a whole, or on the specific order
lines. The user can add, view or modify the manual charges by selecting Action > Charges, in the Sales Order
window. The Charges window displays details about the Freight and Special Charges applied.
Pros: Standard functionality to handle Freight as Special Charges. Simple navigational step to add the charges by
selecting Action > Charges.
Cons: During order entry, user may not know whether freight will be taxed or exempted and what is the exact Freight
amount to enter. In this process, the freight is always taxable or non-taxable. We lose the flexibility in the process if
sometimes freight is taxable and non-taxable.
Group “B” Options - FREIGHT CHARGES AT DELIVERY/ TRIP LEVEL VIA EXTENSION
In the custom Ship Release form a new field as Freight can be added to capture the freight amount by the following
two manners:
B1.0 Freight Charges at Delivery/ Trip Level – Fully Automate
B2.0 Freight as a Special Charge (Always Taxable Or Non-Taxable)
B1.0 Freight Charges at Delivery/ Trip Level – Fully Automate
In the custom Ship Release form a new field as Freight can be added to capture the freight amount. A custom function
may be developed to call the Tax Engine to look into Ship To and any Exemptions as depicted in the above Tax
Requirement matrix Table 1.0. The process needs to be automated so that the user does not have to make any
determination on whether to charge freight or not, whether it is taxable or not (for exemptions) and calculate tax at
what rate. The calculated freight charges (including any taxes) applied during the shipment can populate the data in
the AR Interface table and can be directly interfaced to AR for onward invoicing purpose.
Pros: This is a fully automated process. The extension can eliminate the manual determination of whether to charge
the freight, whether to charge tax on freight and at what rate. Since the user may not know the freight upfront during
the order entry until the ship confirmation process, the freight can be entered at the shipment time.
Cons: This is an extension. The complexity in the design may be medium to high depending upon the technical
feasibility study.
Freight – A Consolidated Solution Page 3 of 4

4. B2.0 Freight as a Special Charge (Always Taxable Or Non-Taxable)
A very common practice nowadays is to use the markups in the freights/special handling. A standard markup of 10%
may be assessed to account for the Taxes and other surcharges on the freight/ special handling. Freight charges
captured in the custom Ship Release Form will update the charges with 10% markup back to the sale order and will
be sent to AR for invoicing. Qualifiers may be employed to exempt a customer if the customer is never billed the
charges.
An estimated freight charge (if any) entered on each line of the order would also be replaced with the actual charges
entered during shipping. For example, a user can enter $100, as estimated charges on the sales order will be
replaced by $110 after the shipment.
Pros: Standard functionality of modifier with formula may be used to assess the markup and qualifiers to exempt the
customer from any charges.
Cons: Actual tax rate is not used to bill the customer; a flat rate of 10% is standard across the board.
Conclusion – Choosing a right solution that fits your company needs depends upon the volume of transaction and
complexities. Some companies charge a flat rate for the freight irrespective of the ship to location, where as some
companies charge freight with a markup and based on where shipment is landing. The above solution can help
implementers to look into the various options and suggest the best solution.
About the author – Brijesh Bharat, PMP has more than 14 years of IT experience with 9 years of dedicated
experience in Oracle Applications. He has helped many clients including Honeywell, AT&T, Lucent Technologies,
Fellowes, and American Red Cross to achieve their business objectives. He is currently working for Fujitsu
Consulting as a Project Lead in Oracle practice.
Freight – A Consolidated Solution Page 4 of 4