SAP Enterprise Structure

SAP enterprise structure is organizational structure that represents an enterprise in SAP R/3 system. It consists of some organizational units, which, for legal reasons or for other specific business-related reasons or purposes, are grouped together. Organizational units include legal company entities, sales offices, profit centers, etc. Organizational units handle specific business functions.

Organizational units may be assigned to a single module (such as a sales organization assigned to Sales and Distribution (SD) module, or to several modules (such as a plant assigned to Materials Management (MM) and Production Planning (PP) module).

SAP R/3 system can represent a complex enterprise structure. Its flexibility can integrate the structure of an enterprise by linking its organizational unit. Enterprise structure design is a fundamental process in a SAP implementation project. The design is mainly determined by the business scenarios performed in an enterprise. Once the design is determined, it will affect many things such as how to perform a transaction and generate reports on SAP system. Although it’s possible, it requires great effort to change the enterprise structure. So , we must ensure that the enterprise structure designed in the SAP implementation project can accommodate all business scenarios and enterprise’s requirements for current and future situation.

From MM and FICO view, the typical enterprise structure can be seen as following image.

A Client is the highest-level element of all organizational units in SAP R/3 system. The client can be an enterprise group with several subsidiaries. An SAP client has its own master data (Data which is used long-term in the R/3 System for several business processes such as customers, materials, and vendors master data). In SAP, a client is represented by a unique 3-digit number.

A Company Code is a unit included in the balance sheet of a legally-independent enterprise. Balance sheets and Profit and Loss statements, required by law, are created at company code level. The Company Code is the smallest organizational unit for which we can have an independent accounting department within external accounting, for example, a company within a corporate group (client). In SAP, a company code is represented by a unique 4-digit alpha-numeric for a specific client. It is the central organizational element of Financial Accounting. At least there is one company code in a client. We can set up several company codes in one client in order to manage various separate legal entities simultaneously, each with their own balanced set of financial books. Besides company code, in FICO module there is also another important organizational unit which is Controlling Area. The Controlling Area is the business unit where Cost Accounting is carried out. Usually there is a 1:1 relationship between the controlling area and the company code. For the purpose of company-wide cost accounting, one controlling area can handle cost accounting for several company codes in one enterprise.

A plant is the place of production or simply a collection of several locations of material stocks in close physical proximity. A plant is represented by a unique 4-digit alpha-numeric for a specific client. Plant is used in Material Management (MM), Production Planning (PP), and Plant Maintenance (PM) module. A plant is assigned to one company code.

A Storage Location is a storage area comprising warehouses in close proximity. A Storage Location is represented by a unique 4-digit alpha-numeric for a specific plant. Material stocks can be differentiated within one plant according to storage location (inventory management). Storage locations are always created for a plant.

From MM perspective there another important organizational unit: Purchasing Organization.

It’s an organization unit that has responsibility to company’s purchasing requirements. It negotiates purchasing conditions (price, discount, and other things) with vendors. A Purchasing Organization is represented by a client-unique 4-digit alpha-numeric.

A company can have one or more purchasing organizations.

If a company centralizes its purchasing activities, it only needs one purchasing organization. It means that it only has one purchasing condition for a material with a vendor at a certain time.

If a company decentralizes its purchasing activities, it will need more than one purchasing organizations. It means that it can have more than one purchasing conditions for a material with a vendor at a certain time. For example, after negotiating with a vendor, a head quarter purchasing organization buys a material with 100 USD price. That company has a branch at other state/region that is assigned to other purchasing

organization. The branch can purchase the same material to the same vendor, for some reasons, with different price e.g. 105 USD.

Facts about Purchasing Organization

A purchasing organization must be assigned to one or more plants.

A purchasing organization can be assigned to one company code.

A purchasing organization can also exist without being assigned to a company code. Since each plant must be assigned to a company code, the company code can be determined via the plant.

One plant can have one or more Purchasing Organizations.

Each purchasing organization has its own info records and conditions for pricing.

Each purchasing organization has its own vendor master data.

Each purchasing organization evaluates its own vendors using MM Vendor Evaluation.

Possible organizational forms of Purchasing Organization in a SAP client:

Corporate-group-wide purchasingA purchasing organization is responsible for the purchasing activities of different company codes.In this case, we do not assign a company code to the purchasing organization. We assign plants from different company codes to the purchasing organization.

Company-specific purchasing:A purchasing organization is responsible for the purchasing activities of just one company code.In this case, we assign a company code to the purchasing organization. The purchasing organization may procure only for this company code. we assign only plants of the company code concerned to the purchasing organization.

Plant-specific purchasing:A purchasing organization is responsible for the purchasing activities of one plant.In this case, we assign the plant and the company code of the plant to the purchasing organization. The purchasing organization may procure for this plant only.

SAP Enterprise Structure - A Case Study (part 1)

This post is the first one of a series of articles that I am planning to write about SAP Enterprise Structure in the Material Management (MM) module's point of view. Due to its integration with other modules, I will also explain about some Enterprise Structure organizational units in Financial Accounting (FI) and Sales & Distribution (SD) modules.

Actually, I have published this series of posts as an e-book that is sold at SAP Study Materials Store. From now on, I am planning to write the e-book contents on this blog so you can read them free. But I will write them in a series of post on this blog (could be 20 posts). If you haven't registered to our feed, you can do it now, so you'll be notified every time I post the new article on this blog:Case Study Business ScenarioABCD is a telecommunication company. It sells intangible telecommunication services, such as voices, sms, and data usage to the end-customers. The services can be consumed by the end-customers through the handset and starter pack (RUIM/sim card) inserted in it. The ABCD company has two branches: west region (which also the Head Office/HO) and east region.

EFGH is a subsidiary company of ABCD that produces handset. The EFGH company sells its handset only to the HO (west region) of ABCD company. Then the west region of ABCD will distribute the handset to the east region and its customers.

ABCD company sells the starter pack and handset to the customers through two main channels: the wholesale (dealer) channel and retail sale (the end-customers) channel.

The handset is bought from overseas vendor by EFGH company (the ABCD company has no imported license, so it can’t purchase the handset directly from the vendor) but needs to be packaged by local vendor. In the packaging process the handset is bundled with the starter pack and other sales promotion materials such as flyer, etc. 

EFGH company buys the starter pack from vendor to be bundled with the handset. ABCD company buys the starter pack from vendor to be sold to the customers, so it can be used in other handsets that are not sold by the ABCD company. The vendor delivers the starter pack to both ABCD regions.

Each region of ABCD has some warehouses where it stores the starter pack, handset, and other materials. It also has some outlets where it sells the products (starter pack and handset) to the end-customers (retail channel). 

Each region sells the products to the dealer (wholesale channel). The dealer can only pick the products from the warehouse, not from outlets.

The outlet can request the products from the closest warehouse. The request needs to be approved by sales manager before it can be fulfilled. The warehouse distributes the

products to the outlet based on the approved request. The end-customers can only pick the products through the outlets, not from warehouse. The EFGH company has only one office and one warehouse.

In this series of posts, I will explain how to map the above scenario into the SAP MM and other related modules functional and configuration design.

We will map the business structure into the SAP Enterprise Structure. The SAP Enterprise Structure is a fundamental setting and needs a comprehensive understanding of the business processes and their integration. We have to work with other departments and SAP modules, such as Accounting department (FI module), and Sales department (Sales and Distribution module). Some of the SAP enterprise structure designs are very difficult to be altered once they have been implemented, so we need to design it very carefully at the first place.

SAP Enterprise StructureSAP enterprise structure is organizational structure that represents an enterprise in SAP R/3 system. It consists of some organizational units which, for legal reasons or for other specific business-related reasons or purposes, are grouped together. Organizational units include legal company entities, sales offices, profit centers, etc. Organizational units handle specific business functions.

Organizational units may be assigned to a single module (such as a sales organization assigned to Sales and Distribution (SD) module, or to several modules (such as a plant assigned to Materials Management (MM) and Production Planning (PP) module).

SAP ERP system can represent a complex enterprise structure. Its flexibility can integrate the structure of an enterprise by linking its organizational unit. Enterprise structure design is a fundamental process in a SAP implementation project. The design is mainly determined by the business scenarios performed in an enterprise. Once the design is determined, it will affect many things such as how to perform a transaction and generate reports on SAP system. Although it’s possible, it requires great effort to change the enterprise structure. So , we must ensure that the enterprise structure designed in the SAP implementation project can accommodate all business scenarios and enterprise’s requirements for current and future situation.

Client A Client is the highest-level element of all organizational units in SAP R/3 system. The client can be an enterprise group with several subsidiaries. An SAP client has its own tables to store all its data. Transaction and master data in a client technically can be used by all the organizational units in it. Transaction data is the one that created by a business transaction in SAP ERP in any modules, such as a Purchase Order (PO) in MM, outgoing payment to vendor in FI, Sales Order (SO) in SD, etc. Master data is the one that is used for a long-term in SAP ERP System for several business processes such as customer, material, and vendor master data. A client is represented by a unique 3-digit number.

In the next article, I will explain Enterprise Structure concept in Financial Accounting, so stay visiting this blog.

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2.8.10

SAP Enterprise Structure - A Case Study (Part 2): Enterprise Structure Concept in FICO

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This is the part 2 of the series of articles about SAP Enterprise Structure - A Case Study. Read part 1 here.

Enterprise Structure concept in Financial Accounting

Company CodeA Company Code is an organizational unit that represents an independent and legal accounting entity, for example, a company within a corporate group. Financial reports such as Balance sheets and Profit and Loss statements, required by law, are created at company code level.

In SAP, a company code is represented by a unique 4-digit alpha-numeric for a specific client. It is the central organizational element of Financial Accounting. At least there is one company code in a client. We can set up several company codes in one client in order to manage various separate legal entities simultaneously, each with their own balanced set of financial books. With SAP FI module, we can generate the financial reports of a company code. A company code's financial reports can be used for external purpose, such as for external auditors, shareholders/stock exchange commission, tax office, etc.

The general ledger is kept at company code level. All SAP transactions that have impact to the financial reports from all SAP modules (such as FI, MM, HR, etc) will generate

accounting journals in company code's general ledger. The transaction can determine the company code involved either from the user input for the company code (such as in FI module) or from other organizational unit that related to the company code (such as in MM module, company code can be determined from the plant that input by user).In MM module (Logistics), each plant must be assigned to a company code. A company code can have several plants. Material valuation can be set at company code level or plant level.

CompanyFor consolidation process in SAP EC-CS module, a company code must be assigned to a company. A company can comprise one or more company codes. A company is an organizational unit in FI module that can represent the holding or the parent of some company codes. It is used in consolidation functions in financial accounting.

Controlling AreaBesides company code and company, in FICO module there is also another important organizational unit, which is Controlling Area. The Controlling Area is the business unit where Cost Accounting is carried out. Usually there is a 1:1 relationship between the controlling area and the company code. For the purpose of company-wide cost accounting, one controlling area can handle cost accounting for several company codes in one enterprise.

Business AreaBusiness areas are used for internal purpose. Business areas represent separate areas of operation within one or some companies. The use of Business Areas is optional in SAP FI module.

Business areas are generally company-code independent. We can make postings to them from any company codes.

Business area can be input manually in FI transactions, or automatically determined from the assignment of plant/valuation area and division (which are configured in Logistics function) in MM and SD transactions.

Each business area can generate its own financial reports (such as Balance Sheet and Income Statement).

Since business areas are usually determined automatically from the combination of plant (that usually represents a branch of a company) and division (that usually represents a product line of companies), they can be used:

To generate financial reports based on the plant (branch).

For example: a company code has two branches, which are represented by two plants and two business area. We can post the accounting journals in each branch into each business area. By doing so, we can generate financial reports for each branch. The management can analyze the performance of each branch better. It

gives more useful information that can be used in decision making process.

Other example: A corporate group has two company codes (‘1000’ and ‘2000’). Each company code has two branches, which are represented by two plants.

o ‘1000’ company code has two plants: ‘1100’ and ‘1200’. o ‘2000’ company code has also two plants: ‘2100’ and ‘2200’.

‘1100’ and ‘2100’ plants are in the same geographical area, and so are ‘1200’ and ‘2200’ plants.The management wants to generate internal financial reports for each geographical area (a set of report for the combination of ‘1100’ and ‘2100’ plants, and another on for the combination of ‘1200’ and ‘2200’ plants). We can generate it by assigning the ‘1100’ and ‘2100’ plants into a business area, and ‘1200’ and ‘2200’ plant into another business area.

To generate financial reports based on the division (product line).

For example: a company code has two product lines, which are represented by two divisions. We can post the accounting journals of each division transaction into each business area. By doing so, we can generate financial reports for each division. The management can analyze the performance of each division better. It gives more useful information that can be used in decision making process.

Other example: A corporate group has two company codes (‘1000’ and ‘2000’). Each company code has two product lines, which are represented by two divisions.

o ‘1000’ company code has two divisions: ‘A1’ and ‘A2’. o ‘2000’ company code has also two plants: ‘A1 and ‘A2’.

The management wants to generate internal financial reports for each division (a set of report for the ‘A1” division in the two company codes, and another one for the “A2” division). We can generate it by assigning the ‘A1’ divisions in the ‘1000’ and ‘2000’ company codes into a business area, and ‘A2” division in two company codes into another business area.

To generate financial reports based on the combination of plant (branch) and division.

If the management wants to generate internal financial report for each combination of plant and division, we can assign each combination into a business area.

For our business scenario, we need two company codes because there are two

legal entities: ABCD and EFGH. Each company codes needs to generate its own Financial Reporting such as Balance Sheet, Profit and Loss Statement (Income Statement). We also need two business areas to represent the branches of ABCD company code in the internal financial reports.

The EFGH financial reports are consolidated to its parent company’s financial reports. Thus, ABCD and EFGH must be assigned to the same company. The operational Chart of Account/COA (set of General Ledger Accounts) and fiscal year of ABCD and EFGH needs to be the same.

In the next article, I will explain how to create company in SAP, so stay visiting this blog.

Notes:Actually, I have published this series of posts as an e-book that is sold at SAP Study Materials Store. From now on, I am planning to write the e-book contents on this blog so you can read them for free. But I will write them in a series of post on this blog (could be 20 posts). If you haven't registered to our feed, you can do it now, so you'll be notified every time I post the new article on this blog: