SAP Enterprise Structure

SAP Enterprise Structure - A Case Study (part 1)

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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 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:

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

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 Area

Besides 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.

AP Enterprise Structure - A Case Study (Part 3): Define Company

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This is the part 3 of the series of articles about SAP Enterprise Structure - A Case Study. Read part 1 here.

Enterprise Structure concept in Financial Accounting

Define CompanyAll company codes for a company must work with the same operational chart of accounts and fiscal year. The currencies used can be different.The information that we need to maintain the company are:

Company ID Name Address, including country Language key Local currency

For our scenario, we will create one company (ABCD). We can create company from the following menu path of SPRO t-code:IMG - Enterprise Structure - Definition - Financial Accounting - Define Company

The above image is © SAP AG 2010. All rights reserved

The above image is © SAP AG 2010. All rights reserved

The above image is © SAP AG 2010. All rights reserved

In the next article I will explain how to define company code in SAP ERP.

SAP Enterprise Structure - A Case Study (part 4): Define Company Code

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This is the part 4 of the series of articles about SAP Enterprise Structure - A Case Study. Read part 1 here.

Enterprise Structure concept in Financial Accounting

Define Company CodeThere are two options to create company code:

Copy from other company code (or from SAP standard company code) Create from the scratch

SAP recommends that we copy a company code from an existing company code. The advantage is SAP will also copy the existing company code-specific parameters. Then we can change certain data in the relevant application if necessary. This is much less time-consuming than creating a new company code.But in this book we will create company code from the scratch so we have to define other parameters need in other relevant configuration process manually.For our business scenario, we need to define two company codes:

ABCD for ABCD Telecommunication company EFGH for EFGH Telecommunication company

The information that we need to maintain the company are: Company code Name Address, including country Language key Local currency

We create company code from the following menu path of “SPRO” t-code: IMG - Enterprise Structure - Definition - Financial Accounting - Edit, Copy, Delete, Check Company Code.

The above image is © SAP AG 2010. All rights reserved

The above image is © SAP AG 2010. All rights reserved

The above image is © SAP AG 2010. All rights reserved

The above image is © SAP AG 2010. All rights reserved

Do the same steps to create EFGH company code.

SAP Enterprise Structure - A Case Study (part 5): Assign Company Code to Company and Define Business Area

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This is the part 5 of the series of articles about SAP Enterprise Structure - A Case Study. Read part 1 here.

Enterprise Structure concept in Financial Accounting

Assign Company Code to Company

After creating company and company codes, we need to assign the company codes to the company.For our business scenario, we need to assign ABCD and EFGH company codes to ABCD company.We can do it from the following menu path of “SPRO” t-code: IMG - Enterprise Structure - Assignment - Financial Accounting - Assign Company Code to Company.

The above image is © SAP AG 2010. All rights reserved

Define Business Area

For the business scenario, we need to define the following business areas: A001 for the west region of the ABCD company A002 for the east region of the ABCD company

We don’t use business area for EFGH company code, as it has only one region.

The information that we need to maintain the business areas are: Business Area Description

We create business area from the following menu path of “SPRO” t-code: IMG - Enterprise Structure - Definition - Financial Accounting - Define Business Area.

The above image is © SAP AG 2010. All rights reserved

The above image is © SAP AG 2010. All rights reserved

SAP Enterprise Structure - A Case Study (part 6): Enterprise Structure concept in Logistics

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Enterprise Structure concept in Logistics

Plant

A plant is the place of production, or branch of a company, or simply a collection of several locations of material stocks in close physical proximity.

A plant is represented by a client-unique 4-digit alpha-numeric.

A plant is assigned to one company code.

One company code can have more than one plant.

SAP recommends that to get complete functionality of the SAP ERP system, the country of plant is the same with the country of the company code. We should create a company code for each country where the plant is located.

Plant is used in Material Management (MM), Production Planning (PP), Sales and Distribution (SD), and Plant Maintenance (PM) module.

Division

Division is a way to group materials or services. A wide range of materials or services can be divided into divisions.

Division is a field in the material master data (it can be input/edited on “Basic Data 1” view by MM01/MM02 t-code). That’s why a certain material can be assigned to one division only. Usually, for sales material, we set the division field as a mandatory field in the material master data. A certain material can also not be assigned to any division, for example a non-sales material that we don’t need to categorized into a specific division.

In Sales and Distribution module, division combined with other organization units (sales organization and distribution channel) will define the sales area. We can have sales area specific master data, such as material, customer, and pricing master data.

Division is used in determining business area from logistics transaction in MM and SD module. We will explain this on Assign Business Area to Plant/Valuation Area and Division section.

Valuation Level

Valuation level is the organizational level at which material is valuated. The value of valuated materials in SAP ERP is recorded in company code’s General Ledger account, usually under the inventory account.

In a client, there are two possible organizational level at which material is valuated:1. Plant.

When stock is valuated at plant level, we can valuate a certain material in different plants at different prices. Valuation must be at this level in the following cases:

o If we want to use the application component Production Planning (PP) or Costing

o If our system is a SAP Retail system2. Company Code.

When stock is valuated at company code level, the valuation price of a certain material is the same in all of a company's plants (that is, in a company code).

SAP recommends that we set material valuation at Plant level. Defining the valuation level in Configuring is a fundamental setting, and is very difficult to reverse.

The valuation level will determine how the value of a material is maintained in the material master data (in the accounting data). The value of a material will be maintained for each plant (in the case of the valuation level is plant, which means that each plant is a valuation area) or for each company code (in the case of valuation level is company code, which means that each company code is a valuation area).

If valuation level is the company code level, all plant inventory materials are managed in a joint stock GL account for each company code. If valuation level is the plant, the inventory material for each plant can be managed in different GL accounts.

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: