Organization Structure in SAP

Client = SCC4

A company purchase SAP Software & installed on its server is called instance, within one SAP instance a
number of client will be entered. So client is defined as organizational & legal entity in SAP System

Eg:-

Consider a fictional corporate group called ABC Corporation, which has companies such as ABC Steel,
ABC FMCG, and ABC Pharmacy. If ABC Corporation wants to implement SAP software for all of its
companies in a single instance, then it should be represented as a client. On the other hand, if the
different companies install the SAP software individually, then each company will have one SAP
instance, and the individual companies will represent the client.

Company = OX15 [RCOMP]

Company is nothing but it is a client to whom we are going to implement SAP. It represents a corporate
group. It is the highest organizational unit in the enterprise structure.

Company code = OX02 [BUKRS]

Company code is nothing but it is an independent organization unit that represents subsidiary of
company. It has his own set of database tables from which we can draw out reports Ex: Balance

Sheet Profit and Loss accounts

Controlling Area = OKKP

It’s an Org unit within an enterprise for which a complete cost accounting is carried out.CA can cover
one or more Co Code. The associate Co Code must use the same operative chart of Account.

Cost Center = KS01

Under every controlling area there is a cost center

Cost Element = KA01

Under each & every cost center there are list of cost element to triggered the G/L account

PLANT = OX10 [WERKS]

A physical area where materials are stored & manufactured.

Prerequisite of a plant: Factory Calendar, Country key, Region key

Characteristics of a plant:

 The plant is assigned to a single company code. A company code can have several plants.
 Several storage locations in which material stocks are managed can belong to a plant.
 A plant can be assigned to several combinations of sales organization and distribution channels.
 A plant can have several shipping points. A shipping point can be assigned to several plants.
 A plant can be defined as a maintenance planning plant.

PURCHASING ORGANIZATION = OX08

An Organizational Unit Responsible For Procuring Materials Or Services For One Or More Plants And For
Negotiating General Conditions Of Purchase With Vendors. The purchasing organization assumes legal
responsibility for all external purchase transactions.

Types of Purchasing Org.

1. Plant specific Purchase org = One purchasing organization procures for one plant
2. Cross Plant Purchase Org/Centralized Purchase Org = One purchasing organization procures for
several plants
3. Reference Purchase Org = To assign a purchasing org that will reference to another purchasing org

STORAGE LOCATION = OX09

MMSC = Collective entry of Storage Location for a material.

It’s a org unit where the stocks are kept within the plant. Inventory management carried out on plant on
qty basis at this level. It’s the lowest level in MM module but not in SAP.

Automatic Creation of Storage Data

It is possible to crate automatic storage location when an inward goods movement for a material is
performed. It’s only applicable for the normal stock not for the special stock

Create Storage Location Automatically or OMB3

SAP IMG • Materials Management • Inventory Management & Physical Inventory • Goods Receipt •
Create Storage Location Automatically.
A storage location has the following attributes:

 There may be one or more storage locations within a plant.

 A storage location has a description and at least one address.
 It’s possible to store material data specific to a storage location.
 Stocks are managed only on a quantity basis and not on a value basis at the storage location level.
(Valuation is either at the plant level or at the company code level.)
 Physical inventories are carried out at the storage location level.
 A storage location can be assigned to a warehouse number in the Warehouse Management system
(WM system). You can assign more than one storage location to the same warehouse number within
a plant.
 Storage locations are always created for a plant.

PURCHASING GROUP = OME4

The purchasing organization is further subdivided into purchasing groups (buyer groups), which are
responsible for day-to-day buying activities. A purchasing group can also act for several purchasing
organizations.

To see our company structure

 Type “EC02” transaction code in the easy access menu

 Click on structure icon on the application tool bar [shift + F1]
 Click on the navigation icon on the application tool bar [control + F3]
 Click on find button on the application tool bar [control + F]
 Enter our company code and press ENTER

Here we can see our company structure

Defining Valuation Levels = OX14

SAP IMG •Enterprise Structure • Definition • Logistics-General • Define Valuation Level.

Two options are available: SAP recommends setting the plant as a valuation area

 Valuation Area Is a Plant

 Valuation Level Is a Company Code
Chart of Account
It is a list of all G/L account, master data under different account groups. 3 types of chart of account
 Operative chart of a/c: it’s mandatory for day today postings
 Country specific chart of a/c
 Group chart of a/c

Assignment

1. Co Code To company = OX16

2. Co Code To Controlling area = OX19
3. Plant To Co code = OX18
4. Purchase org To Co code = OX01
5. Purchase org To Plant = OX17
6. Standard P.Org To Plant = OMKI
7. P.Org to Refer P.Org = OMKJ

Reference Purchasing Organization

1- Central Purchase-

One Purchase Organization is responsible for the procurement of all the plants in a Company Code is
assigned

1PO-----1CC

One PO can be assigned to only one CC. But a CC can be assigned to multiple POs

1PO----1PLANT/2PLANT/3PLANT

1PO---1PLANT OF OTHER CC

One Plant can have many Purchase Organizations and same one Purchase Organization can have many
plants

2- De central Purchase:

Each Plant will have its own Purchase Organization to handle their Procurement internally.

1PO---1PLANT

2PO---2PLANT

3PO---3PLANT

Reference Purchase Organization:

Central:

One Purchase Organization is responsible for all the Plants of a Company Code
De central:

Each Plant will have its own Purchase Organization to handle the Procurement activities.

De central is very good but we are facing the issues when we deal with Global and same vendor who is
procuring materials to all the Plants of Company Code 80% De central+ 20% Central

Reference Purchase Organization:

1PO—1PLANT

2PO- 2PLANT

3PO- 3PLANT

1PO as reference Purchase Organization and assign 1PO to other Purchase Organizations of the
Company Code

1PO has a contract with Vendor X for the value of 10000 M USD. Then this contract will be used by any
other Purchase Organization which is assigned to 1PO.

Some customers may have a scenario where they have one centralized purchasing department at the
corporate group level that is responsible for the negotiation and creation of global agreements. These
agreements are used by local purchasing organizations to create purchase orders. This business scenario
helps companies negotiate better prices due to high-volume purchases. In an SAP system, such a
Purchasing organization is referred to as a reference purchasing organization.
The client has two different company codes, and each company code has plants assigned to it. Company
Code-1 has two plants, and Company Code-2 has one plant. For each plant, there is a separate
purchasing organization: Purchasing Organization 1, Purchasing Organization 2, and Purchasing
Organization 3, which are assigned to Plant-1, Plant-2, and Plant-3, respectively. Purchasing Organization
4 is assigned to Purchasing Organization 1, Purchasing Organization 2, and Purchasing Organization 3.
Purchasing Organization 4 is the reference purchasing organization. The reference purchasing
organization can negotiate with vendors and create global outline agreements (contracts and scheduling
agreements). Plant-specific purchasing organizations (i.e., Purchasing Organization 1, Purchasing
Organization 2, and Purchasing Organization 3) can issue purchase orders to vendors with reference to
these global agreements.

Standard Purchasing Organization

SAP also provides a standard purchasing organization, which is used to create automatic purchase
orders. In the automatic purchase order creation process, the system needs to find the purchasing
organization. The system gets the plant code from the purchase requisition and, from the plant code
system, determines the standard purchasing organization (because the standard purchasing
organization is assigned to the plant). Finally, a purchase order is created. Now that you have a thorough
understanding of the different organizational structure elements and how to apply these elements to
different business scenarios, let’s move on to the actual steps needed to set up organizational
structures.

SAP Controlling Area Configuration

To better understand the controlling area, we will review the configuration steps and examine the key
options that must entered at initial set up.

The menu paths for configuration are as follows:

1. SPRO > SAP Reference IMG > Enterprise Structure > Definition > Controlling > Maintain Controlling
area
2. SPRO > SAP Reference IMG > Enterprise Structure > Assignment > Controlling > Assign Company
Codes Controlling area

You can follow these menu paths for the 2 main steps or use transaction code OKKP to do both.
IMG Locations for Controlling Area

Using transaction OKKP, the first screen you will come to appears as follows. The right side of the
screen shows existing controlling areas and the left side has 3 folders: Basic Data, Activate components
(a subfolder) and Assignment of company code(s) (a subfolder).
IMG Transaction OKKP for Configuring Controlling Areas

Highlight the first entry on the right, controlling area 0001, and click on the Copy As icon at the top. We
will copy a standard delivered controlling area as a new controlling area.
Basic Data for Controlling Area

Enter a unique four-digits value, descriptive name, and a person responsible from the list of
preconfigured values (if required). You then indicate if a single company code or multiple company
codes will be assigned. Make currency, chart of accounts from FI, fiscal year variant, and cost center
standard hierarchy assignments.

NOTE: Controlling Area is required to create a cost center standard hierarchy, but since you have not
created one yet because there is no controlling area, SAP will do it for you here. Simply key in the name
for the hierarchy you want, hit enter, and a popup box will appear. Click yes. If using the reconciliation
ledger, indicate here as well as define the document type for reconciliation postings. Note well –
reconciliation ledger is only applicable if using the classic general ledger in FI. In our example, the option
is grayed out because the new general ledger is active and reconciliation is no longer applicable. Settings
for Authorization Hierarchies for cost centers and profit centers are also available.
Once all settings have been made, hit enter and you will be taken back to the initial screen. At this point,
save the controlling area into a transport request. Your screen will appear as follows.

SAP Controlling Area Saved

Now with the new controlling area highlighted, click on the Assignment of Company Code folder on the
left. You will come to a screen where you will assign a company code. This is a key integration point
between FI and CO. Choose a company code. The screen will appear as follows:
Company Code Assignment to Controlling Area

Next, click on the Activate Components/control indicators folder. You will get a screen that appears as
follows. Click on the New Entries button.
Add New Entries to Activate Controlling Area Components/Control Indicators

After clicking New Entries, you come to a screen where you define which components will be used in the
controlling area and if so, how. You can click on the drop-down button to see the options available and
choose as needed to meet your specific requirements. Keep in mind that the Profit Analysis category is
associated to the Operating Concern assigned to the Controlling Area. We will take a look at that setting
later in this document. For now, make the required settings for activating the components you need,
and click the green arrow to go back.
Activation of Components within a Controlling Area

After clicking the green arrow to go back, the next screen you will see appears as follows. This is where
the control indicators are set.
Control Indicators for SAP Controlling Area

The first indicator defines whether values are updated in the controlling area currency or also in the
transaction currency and in the object currency. The second indicator defines whether the system
calculates price variances for primary cost postings by transaction and posts them in CO. If the indicator
is active, the system makes the calculations and postings. The final indicator determines if postings
made to cost objects are locked to the company code defined in their master records (applicable if using
cross company code controlling). Review these settings to ensure they meet your requirements and click
the green arrow to go back and save the controlling area.

Assignment to Operating Concern

There is a final setting to discuss which relates to the active components for the Controlling Area. Recall
in the explanation above that within the Controlling Area there is a definition of Profit Analysis. If your
organization is using the Profitability Analysis functionality (also referred to as CO-PA) to evaluate
profitability by market segment, the available choices here are costing-based, account based, or both.
These are methods of accounting and defined when you set up the Operating Concern, which is the high
level organizational unit used within CO-PA. Initially, and if the functionality is not being used by your
organization, this will be listed as Component not active. To make this assignment, use transaction
code KEKK or follow menu path:

SPRO > SAP Reference IMG > Enterprise Structure > Assignment >
Controlling > Assign Controlling Area to Operating Concern

Assignment of SAP Controlling Area to Operating Concern

The controlling area has now been created and linked to an operating concern.
SAP MM Organization Structure/Enterprise Structure
Company Code - Where profit and loss accounts and legal things carry out.

SAP MM Organizational Elements:

1. Plant - Where the operations like manufacturing/business etc happens

2. Storage Location - Where the material is stored

2. Purchase Organization

3. Purchase Group

TATA CONSULTANCY SERVICES - Company Code- 1000

Plant -1 - TCS Mumbai - Head Office - 1001

Storage Location 1 - Electrical Items - SL01

Storage Location 2 - Civil Items - SL02

Storage Location 3 - Stationary -SL03

Plant- 2- TCS Mumbai - Operations - 1002

Plant - 3- TCS Bangalore - 1003

Plant - 4- TCS Hyderabad- 1004

Purchase Organization: The organization or department which is responsible for Procurement Activities.

Central Purchasing System:

TATA CONSULTANCY SERVICES - Company Code- 1000 ------------------ TCS Purchase Organization - 1000

Plant -1 - TCS Mumbai - Head Office - 1001 ------------------ TCS Purchase Organization - 1000

Plant- 2- TCS Mumbai - Operations - 1002------------------ TCS Purchase Organization - 1000

Plant - 3- TCS Bangalore - 1003------------------ TCS Purchase Organization - 1000

Plant - 4- TCS Hyderabad- 1004------------------ TCS Purchase Organization - 1000

De Central Purchasing System:

TATA CONSULTANCY SERVICES - Company Code- 1000

Plant -1 - TCS Mumbai - Head Office - 1001 ------------------ TCS Purchase Organization 1 - 1001

Plant- 2- TCS Mumbai - Operations - 1002------------------ TCS Purchase Organization 2 - 1002

Plant - 3- TCS Bangalore - 1003------------------ TCS Purchase Organization 3 - 1003

Plant - 4- TCS Hyderabad- 1004------------------ TCS Purchase Organization 4 - 1004

Reference Purchase Organization Concept: (Hybrid- Central + De central)

TATA CONSULTANCY SERVICES - Company Code- 1000 - Reference Puchase Organization - 2000

Plant -1 - TCS Mumbai - Head Office - 1001------------------ TCS Purchase Organization 1 - 1001 -
Reference Puchase Organization - 2000

Plant- 2- TCS Mumbai - Operations - 1002------------------ TCS Purchase Organization 1 - 1002 - Reference
Puchase Organization - 2000

Plant - 3- TCS Bangalore - 1003------------------ TCS Purchase Organization 1 - 1003 - Reference Puchase
Organization - 2000

Plant - 4- TCS Hyderabad- 1004------------------ TCS Purchase Organization 1 - 1004 - Reference Puchase
Organization - 2000

Reference PO acts as a Central Purchase system. All contracts with Foreign vendors, vendors who supply
materials to each plant etc.

Local Purchase Organization acts as De central. This deals with all local procurement.

Purchase Group: The buyer. The department or a person who is responsible for the procurement of
certain materials or services.

Note:

Purchase group is an organizational element which won’t be assigned to any other organizational
element in the configuration

One Company Code can have many Plants but one Plant can have only one Company Code

One Company Code can be assigned to only one Purchase Organization. 1 to 1

But many purchase organizations can be assigned to one Plant. 1 to Many