EMT or Intercompany?
Posted on: May 20, 2017 | By: Brian Clark | QAD Distribution
Enterprise Material Transfer (EMT) has long been an effective method for managing the process of selling product from a QAD-supported facility and fulfilling that demand with an automated purchase order to a supplier. As changes are made to the customer sales order, they are reflected in the corresponding purchase order, keeping the demand and supply orders in sync. In some cases, the supplier from which the product is being sourced is a sister company. For processing this demand, QAD users can implement EMT or an Intercompany order process, which is comprised of sales orders and purchase orders also, but they are independent of one another. Which process is right for your business?
EMT applies to a situation in which the order being placed by the customer is accepted by the PBU (Primary Business Unit), yet is being fulfilled by another site, the SBU (Secondary Business Unit), through a series of linked Sales Orders and Purchase Orders. The PBU purchases inventory from the intercompany supplier, which is either shipped directly to the customer, or through the PBU as a trans-shipment. The critical piece to this process is that whether trans-shipped or direct shipped, the contents of the shipment are not manipulated between the SBU and the customer. Ownership will change from SBU to the PBU, but this will be either instantaneous to the shipment, in the event of a direct ship, or for the duration of time the shipment resides at the PBU, in the event of a trans-shipment. At the conclusion of this process, the revenue and COGS of the customer sale are recognized by the site processing the customer purchase order, and there is an intercompany transaction at transfer price between the internal facilities.
Intercompany order processing is different because the site selling to the customer may buy-and-hold the inventory that is being purchased from the sister facility. There may still be a requirement for an intercompany payment or proof of an arms-length transfer of ownership, but the shipment to the customer is completely disconnected from the purchase of inventory from the intercompany supplier. Intercompany order processing can be supported by traditional discrete orders as well as release management, and can be communicated via the eCommerce module. In this model, the supplying site is treated more like a traditional supplier, with the ability of a buyer to manipulate purchase order requirements through the use of MRP parameters or other tools.
In both EMT and Intercompany models, features such as Evaluated Receipt Settlement, Self-Billing and bank drivers can be implemented to automate the clearing of intercompany balances. Price list maintenance is absolutely critical to keeping the intercompany receivables and payables clean. Either model, properly implemented and supported, can provide a reliable means to process the appropriate transfer of ownership of inventory, complete with treasury activity, to meet customer demand in a global enterprise.