SAP MM - Defining Organizational Structure

An organization structure can be defined as the framework of a company that describes the entire
structure and functioning of the company. Organization structures are split into different levels and
each level is placed according to a hierarchy. These levels have direct or indirect relationship with
one another. The various levels in a standard organization are as follows −

 Company
 Company code
 Plant
 Storage location
 Purchasing organization
 Purchasing group

Create Company
Company is the topmost organizational unit after client, which incorporates individual financial
accounting statements of several company codes. A company can have many company codes. In
SAP, it is optional to create a company. The following steps will take you through the procedure of
creating company.
IMG ⇒ Enterprise Structure ⇒ Definition ⇒ Financial Accounting ⇒ Define Company
TCode: OX15

Create Company Code

A Company Code is the smallest organizational unit after company, for which the standalone
financial accounting's profit and loss statements can be withdrawn. Many company codes can be
assigned to one company. The following steps depict how to create a company code.
Path to create Company Code
IMG ⇒ Enterprise Structure ⇒ Definition ⇒ Financial Accounting ⇒ Edit, Copy, Delete, Check
Company Code
TCode: OX02

Create Plant
A Plant is an organizational unit within a company where activities take place. A plant will produce
goods and make goods available for the company. The following steps will take you through the
procedure of creating a plant −
Path to create Plant
IMG ⇒ Enterprise Structure ⇒ Definition ⇒ Logistic General ⇒ Define, Copy, Delete check plant
TCode: OX10
Create Storage Location
A Storage Location is an organizational unit, which actually differentiates between the different
material stocks in a Plant. Storage location is a place where stock is kept physically. A plant can
consist of multiple storage locations. All data is stored at a storage location level for a particular
storage location. Follow the steps given below to create a Storage Location −
Path to Create Storage Location
IMG ⇒ Enterprise Structure ⇒ Definition ⇒ Materials Management ⇒ Maintain Storage Location
TCode: OX09

Create Purchasing Organization

A Purchasing Organization is an organizational unit under Company or Plant that is responsible for
procurement activities according to requirements. It is responsible for external procurement. A
purchasing organization can be specific to a plant or a company. Following the steps given below to
create a Purchasing Organization −
Path to Create Purchasing Organization
IMG ⇒ Enterprise Structure ⇒ Definition ⇒ Materials Management ⇒ Maintain Purchasing
Organization
TCode: OX08

Create Purchasing Group

A Purchasing Group is an organizational unit that is responsible for the everyday procurement
activities within an organization. The steps given below depict how to create a Purchasing Group −
Path to Create Purchasing Group
IMG ⇒ Materials Management ⇒ Purchasing ⇒ Create Purchasing Group
TCode: OME4
 SAP MM - Organizational Units
All the organizational units combined together form the framework of a company. These
organizational units can be considered as different levels that describe the structure of an enterprise.
Every level has a particular functionality associated with it. Also, every level in one or the other way
is related to each other. These levels are placed according to some hierarchy, Company being at the
top.
To establish a relationship between these levels, we have to assign them to one or other in such a
way that they still lie in the same hierarchy. For example: As Company is at the top level and plant is
below it, it is necessary that the plant has some relation with the company. As the plant is a sub-part
or a smaller division of the company, it will be assigned to the company. A standard SAP has the
following four basic and essential assignments −

 Plant to company code

 Purchasing organization to company code
 Purchasing organization to plant
 Standard purchasing organization to plant

Plant to Company Code

Plant is one level below the company code. So, we need to assign a plant to a company code.
Follow the steps given below to assign a plant to a company code −
Path to assign plant to company code
IMG ⇒ Enterprise Structure ⇒ Assignment ⇒ Assign Plant to Company Code
TCode: OX18

Purchasing Organization to Company Code

A purchasing organization can be set at company code level; it is called a centralized purchasing
organization. So we need to assign this purchasing organization to the company code. The following
steps take you through the procedure of assigning a purchasing organization to a company code −
Path to assign purchasing organization to company code
IMG ⇒ Enterprise Structure ⇒ Assignment ⇒ Materials Management ⇒ Assign Purchasing
Organization to Company Code
TCode: OX01

Purchasing Organization to Plant

A purchasing organization can be plant specific, i.e., it can be set at the plant level. In such cases,
we need to assign the purchasing organization to a plant. Follow the steps given below to assign a
purchasing organization to a plant −
Path to assign purchasing organization to plant
IMG ⇒ Enterprise Structure ⇒ Assignment ⇒ Materials Management ⇒ Assign Purchasing
organization to Plant
TCode: OX17

Standard Purchasing Organization to Plant

Standard purchasing organization is the default purchasing organization. We can sometimes assign
the standard purchasing organization to some specific plant if we want to have the default
purchasing organization for that plant. Follow the steps given below to assign the standard
purchasing organization to a plant −
Path to assign standard purchasing organization to plant
IMG ⇒ Enterprise Structure ⇒ Assignment ⇒ Materials Management ⇒ Assign Standard Purchasing
Organization to Plant
TCode: SPRO
 SAP MM - Master Data
SAP R/3 works on real-time data, i.e., there is no time lag between data entry and data availability.
The important thing while creating any data is to maintain data integrity. SAP R/3 data is categorized
into two −
 Master data − Data that is created centrally, and is valid for all applications. It remains
constant over time but we need to update it on a regular basis. For example: Vendor is a type
of master data that is used for creating purchase orders or contracts.
 Transactional data − Data that is associated with processing of business transaction is
transactional data.
SAP Master Data is of the following two types −
 Material Master Data
 Vendor Master Data

Material Master Data

The key points to note about material master data are as follows −
 This is the enterprise main source of material-specific data. This data will include information
on the materials that a company can procure, produce, store, or sell.
 Since there are different departments in an enterprise and each department works on some
specific material, they will enter different information regarding their material. So, each user
department has its own view of the material master record. The data screens that are used to
create material master can be divided into two categories −
o Main Data − This will include basic data (base unit of measure, weight), purchasing
data (over tolerance and under tolerance), accounting data (standard price, moving
price).
o Additional Data − This will include additional information like short description about
material, currency etc.
Material master has four characteristics, which we will discuss one by one in the following sections.
Material Types
Materials with some common attributes are grouped together and they are assigned to a material
type. It differentiates the materials and allows organizations to manage different materials in a
systematic manner in accordance to a company’s requirement. For example, raw material and
finished products are some of the material types. Material type can be created by following the steps
given below.
Path to create material type
IMG ⇒ Logistics General ⇒ Material Master ⇒ Basic Settings ⇒ Material Types ⇒ Define Attributes
of Material Types
TCode: OMS2
Material Groups
Material group is a wider range of material type. Materials with some common attributes are taken
together and they are assigned to a material group. For example: We have some materials that are
to be packaged, so the material type can be electrical or food products, but we can group these
material types and put them in the packaged material group. Follow the steps given below to create
a Material Group.
Path to Create Material Group
IMG ⇒ Logistic General ⇒ Material Master ⇒ Settings for Key Fields ⇒ Define Material Groups
TCode: OMSF

Number Range
When we create a material master record, every material is recognized by a unique number that is
known as the material number. We can assign a number to a material through two ways −
 External number assignment − While creating a material, you have to enter your own
number (containing alphabets or digits), and that should be unique.
 Internal number assignment − While creating a material, you need not enter any number.
The system automatically generates a unique number to that material.
Define Number Range −
Internal number range can be defined by following the steps given below −
Path to Create Number Range
IMG ⇒ Logistic General ⇒ Material Master ⇒ Basic Settings ⇒ Material Types ⇒ Define Number
Range for Each material Type
TCode: MMNR

Material Master Creation

Material master contains information on all materials that a company procures, produces, or sells. It
contains central data that is available at all the levels. Follow the steps given below to create a
material master −
Path to Create Material Master
Logistics ⇒ Materials Management ⇒ Material Master ⇒ Material ⇒ Create Material
TCode: MM01

Vendor Master Data

The key points about vendor master are as follows −
 Vendor Master Data is the enterprise main source of vendor-specific data. It includes
information on vendors from which a company can procure, or can sell.
 A vendor master record contains information such as vendor's name, address, etc.
 Data in a vendor master record is divided into three categories −
 o General Data − General data is maintained at client level and it is valid for all
organizational levels.
o Accounting Data − Accounting data is maintained at company level and it is valid for
all plants belonging to that company.
o Purchasing Data − Purchasing data is maintained at purchasing organization level.

Vendor master has three characteristics, which we will discuss one by one in the following sections.
Vendor Account Group
Vendors are categorized according to their requirements. Some of the vendors having similar
characteristics are grouped together and placed in one category. For example, all local vendors can
be placed under one account group. Create a Vendor Account group by following the steps given
below.
Path to create Vendor Account Group
IMG ⇒ Logistic General ⇒ Business Partner ⇒ Vendors ⇒ Control ⇒ Define Account group and field
selection(vendor)
TCode: OBD3

Number Range
When we create a vendor master record, every vendor is recognized by a unique number known as
the vendor number. As in the case of material master, we have external as well as internal number
assignments for vendor master.
Define Number Range:
Number range can be defined by following the steps given below −
Path to create Number Range
IMG ⇒ Logistic General ⇒ Business Partner ⇒ Vendors ⇒ Control ⇒ Define Number Range for
Vendor master record
TCode: XDN1

Creation of Vendor Master

Vendor Master contains a list of vendors from where a company can procure or sell goods. A Vendor
Master can be created by following the steps given below −
Path to create Vendor Master
SAP Menu ⇒ Logistics ⇒ Material Management ⇒ Purchasing ⇒ Master Data ⇒ Vendor ⇒ Central
⇒ Create
TCode: XK01

SAP MM - Purchase Info Record

SAP R/3 works on all real-time data that includes material master and vendor master. Material and
vendor master are separate data records for keeping information of materials and vendors from
where material is procured. The combined information of material and vendor altogether is kept in a
record that we call as purchase info record. The key points about purchase info record are as follows
−
 Purchasing info record stores information on material and vendor, supplying that material. For
example, a vendor’s current price of a particular material is stored in info record.
 Purchase info record can be maintained at the plant level or at the purchasing organization
level.
 Info record can be maintained for four procurement types, which are as follows −
o Standard − Standard info record has information on standard orders (orders include
details of vendor and material). This info record will include vendors price for supplying
the particular material.
o Subcontracting − Subcontracting info record has information on subcontract orders.
This info record will include price for assembling the raw material that is supplied by the
ordering party.
o Pipeline − Pipeline info record has information on material that is provided by vendor
through pipes. For Example: like water,electricity.
o Consignment − Consignment info record has information on material that is kept at
ordering party premises. This info record contains vendors price that is to be paid for
withdrawing material from consignment stock.

Creation of Purchase Info Record

Follow the steps given below to create a Purchase Info Record.
Path to create Info Record
Logistics ⇒ Material Management ⇒ Purchasing ⇒ Master Data ⇒ Info Record ⇒ Create
TCode: ME11

SAP MM - Source Determination/List

The combined information of material and vendor is kept in a record that is known as purchase info
record. But a particular material can be ordered from different vendors in different time intervals. This
information can be maintained in a list that is called as the source list. The key points to note about a
source list are as follows −
 Source list includes a list of possible sources of supply for a material over a given framework
of time.
 Source list specifies the time period of ordering a particular material from a given vendor.
 Source list can be copied from one plant to another plant.

Source list can be created by the following two ways −

 Automatically
 Manually

Automatic Creation of Source List

Source list can be automatically created by changing a few settings in the material master.
Automatic source list can be created by following the steps given below.
Step 1 − Go to MM02 (Edit mode of material master for which you want to create source list
automatically). Select all the views.

Manual Creation of Source List

Source list can be created manually by following the steps given below −
Path to Maintain Source list
Logistics ⇒ Material Management ⇒ Purchasing ⇒ Master Data ⇒ Source List ⇒ Maintain
TCode: ME01
Step 1 − On the SAP Menu screen, click Maintain by following the above path.

SAP MM - Procurement Cycle

Every organization acquires material or services to complete its business needs. The process of
buying materials and obtaining services from vendors or dealers is called procurement. The steps
required to procure material forms the procurement cycle. Every organization performs some
common sequential steps to procure material in the right quantity at the right price. The important
steps in a procurement cycle are as follows −

 Determination of Requirement
 Creating Purchase Order
 Posting Goods Receipt
 Posting Invoice

Determination of Requirement
This is the first step in a procurement cycle. It is the logical subdivision, where it is determined what
material or services are required by the company, and which supplier can fulfill the requirement. A
list of requirements is made and then it is approved by a senior authority within the organization.
After approval, a formal list is made that is known as the purchase order with one more level of
approval which is sent to the vendor.

Creating Purchase Order

Purchase order is the formal and final confirmation of the requirements that is sent to the vendor to
supply material or services. A purchase order includes important information such as name of the
material with its corresponding plant, details of purchasing organization with its company code, name
of vendor, and date of delivery. A purchase order can be created by following the steps given below
−
Path to Create Purchase Order
Logistics ⇒ Materials Management ⇒ Purchasing ⇒ Purchase Order ⇒ Create ⇒ Vendor/ Supplying
Plant Known
TCode: ME21N
Step 1 − On the SAP Menu screen, select Create Vendor/Supplying Plant Known by following the
above path.

Step 2 − Fill in all the necessary details such as name of the vendor, purchasing organization,
purchasing group, company code, and details of the material, for example, material number, price,
currency, and plant.

Step 3 − Fill in all the necessary details under Item, by selecting the tabs as shown in the following
screenshot −
 Invoice/Delivery Tab (Provide the tax code, Payment terms and conditions, and incoterms)
 Assignment Tab (Provide a valid G/L code, business area, and WBS element)
Click on Save. A new Purchase Order will be created.
Posting Goods Receipt
After processing the purchase order, the vendor delivers the material to the ordering party and this
process is called Goods Receipt. It is the phase where the material is received by the ordering party
and its condition and quality are verified. Once the material is verified against the predefined quality,
a goods receipt is posted. Goods receipt can be posted by following the steps given below.
Path to Post Goods Receipt
Logistics ⇒ Materials Management ⇒ Inventory management ⇒ Goods movement ⇒ Goods
movement
TCode: MIGO
Step 1 − On the SAP Menu screen, select Goods movement (MIGO) by following the above path.

Step 2 − Fill in all the necessary details such as movement type (101 for goods receipt), name of the
material, quantity received, details of storage location and the plant where the material will be
placed. Click on Save. Goods Receipt is now posted for the material.

Posting Invoice
Invoice is received from the vendor after goods receipt, and then the invoice is verified by the
ordering party. This is the phase where the vendor (seller) is paid from the company and
reconciliation of the invoice and PO is accomplished. An invoice can be posted by following the
steps given below −
Path to Post Invoice
Logistics ⇒ Materials Management ⇒ Logistic Invoice verification ⇒ Document Entry ⇒ Enter
Invoice
TCode: MIRO
Step 1 − On the SAP Menu screen, select Enter Invoice by following the above path.

Step 2 − Fill in all the necessary details such as invoice posting date, amount that is paid to the
vendor along with the quantity for which the amount is paid. Click on Save. Invoice is now posted for
the goods receipt.