Organisation Structure in SAP Environment

Dattatraya Subhash Choudhari

 Organisation
Structure
in SAP
Environment

Dattatraya Subhash Choudhari

 Organisation Structure in SAP Environment

Agenda
Objective
Organisational structure in SAP
Organisational structure elements decided so far
Module specific organization structure elements: Definition & Criteria
 Finance & Control (FI & CO)
 Human Resources / Organisation Management
 Sales & Distribution (SD)
 Plant as a cross module org.structure element in logistics
 Material Management (MM)
 Production Planning (PP)
 Project System (PS)
 Customer Service (CS)
 General in Logistics modules (Work Center)

Plan Ahead

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 Organisation Structure in SAP Environment

Objective of the Work Shops

To provide information on SAP organization structure in order to facilitate the client to identify
their organizational elements to ensure proper functioning of business and meeting the legal
requirements.

SAP Organization Structure

Foundation on which the SAP implementation is based

Master
Data

Business
Processes

SAP Organization Structure

Significance of Organization Structure

 Organization structure defines the structure of an organization in SAP

 Design of Organization structure impacts Business processes and Master data

definition
 Once defined elements of Organization structure are difficult to change

 Organization structure elements cannot be deleted

 Impacts all modules of SAP

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 Organisation Structure in SAP Environment

Organization Structure depends on

 Structure of Business
● Business entities that exist in an organization
 Organizational reporting requirements
● Global, Regional, Country reporting
● Divisional reporting
● Business Unit reporting
● External – Internal reporting
 Business processes
● Business processes that cut across multiple Business units
 Future plans
● Mergers, Acquisitions, Internal restructuring

Organisational structure in SAP

The Organisation Structure in SAP consists of several organisational elements, which together
represents the entire legal and organisational structure of a company. It forms the basis for all
business functions and reporting. The organisational units range from accounting, controlling,
purchasing and sales. Within this framework, all business processes can be executed and
integrated.

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 Organisation Structure in SAP Environment

Organization Structure Elements

Major Organizational Elements
1. Controlling Area
2. Chart of Accounts
3. Company Code
4. Profit Center & Cost Center
5. Plant
6. Purchasing Organization & Purchasing Group
7. Storage Location & Shipping Point
8. Sales Organization
9. Distribution Channel
10. Division
11. Sales Area

Client
A self-contained unit within an R/3 System
 Every Client has
● A separate database
● A separate set of tables
● A separate set of master records
 A client could be at
● Global level
● Regional level
● Country level

Chart of Accounts
A list of all G/L accounts used by one or several company codes
 Chart of Accounts
● Operational Chart of Accounts
● Group Chart of Accounts
Client
● Country Chart of Accounts

Company Code

Chart of
Accounts

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 Organisation Structure in SAP Environment
 The chart of accounts is a classification scheme consisting of a group of general ledger
(G/L) accounts. It provides a framework for the recording of values, in order to ensure
an orderly rendering of accounting data. The G/L accounts it contains can be used
by one or more company codes. Every company code must be assigned a chart of
accounts.
 For each G/L account, the chart of accounts contains the account number, the account
name and other technical information. A chart of accounts must be assigned to each
company code and will be used in both financial accounting and cost accounting.
 One chart of accounts PCOA is defined and assigned to all company codes.

 Each Company Code can select and extend the relevant G/L Accounts from the chart
of accounts PCOA as per the requirements

Controlling Area
An Organizational unit used to represent a closed system for cost accounting purposes
 Controlling area
● Can have several companies under it
● Companies could have different currencies
● All companies should have same Chart of Accounts

Client

Controlling
Area

Company 1 Company 2

 Organizational unit within a company, used to represent a closed system for manage-
ment accounting purposes. A controlling area may include single or multiple company
codes that may use different currencies. These company codes must use the same
operative chart of accounts & same fiscal year.
 All internal allocations refer exclusively to objects in the same controlling area. Internal
business transactions are portrayed in the controlling area. Primary costs are trans-
ferred from external accounting and classified according to managerial accounting per-
spectives. All these will help the company track specific information for cost monitoring,
business decisions and sales control.

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 Organisation Structure in SAP Environment

Company
The smallest organizational unit for which individual financial statements are created according
to the relevant legal requirements
 Company
● Can be used to consolidate financial statements across different legal entities
● Is an optional Organizational element in SAP

Controlling Area

Company

Legal Entity Legal Entity

1 2

Company Code
The smallest organizational unit for which a complete self-contained set of accounts can be
drawn up for external reporting
 At Company Code level we can have
● Balance sheet
● Profit & Loss statement

Client

Company

Company Company
Code Code

 It is the smallest organizational unit for which a complete self-contained set of accounts
can be drawn up for purposes of external reporting. The process of external report-
ing involves recording all relevant transactions and generating all items and support-
ing documents required for legal financial statements (balance sheets, profit and loss
statements and so on).
 A legally independent company is normally only represented by a company code in the
SAP system.

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 Organisation Structure in SAP Environment
 In financial accounting, business transactions are always entered on the company code
level and processed further. The costs are also managed on the company code level.
By using internal organizational structures, it is possible to divide this up even further
in Controlling.

Profit Centre
An organizational unit in accounting that reflects a management-oriented structure of the
organization for the purpose of internal control
 Profit Centres
● Can be grouped into Profit centre groups
● Can be assigned to Cost centres

Controlling Area

Profit Centre
Group

Profit Profit Profit

Centre 1 Centre 2 Centre 3

Cost Centre
An Organizational unit within a controlling area that represents a clearly delimited location
where costs occur
 Cost centres
● Can be grouped into Cost centre groups
● Can be assigned to Profit centres

Controlling Area

Cost Centre
Group

Cost Centre Cost Centre Cost Centre

1 2 3

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 Organisation Structure in SAP Environment

Profit Center / Cost Center

 A profit center is a management-oriented organizational unit used for internal control-
ling purposes. Dividing the company up into profit centers allows analyzing areas of
responsibility. Profit Center Accounting supports a division of the enterprise into areas
of responsibility.
 The standard hierarchy of profit center is defined as a tree structure for grouping all
profit centers, which belong to a controlling area. Each profit center must be assigned
to a group (node) of the standard hierarchy. In addition to the standard hierarchy, vari-
ous alternative hierarchies can be defined for use in the information system and other
functions.
 The Cost Center Hierarchy will be defined on the same lines as profit center
hierarchy.
 Each Cost Center will be assigned to one profit center, multiple cost center can be
linked to one profit center

Plant
An organizational unit within logistics, serving to sub-divide an enterprise according to
production, procurement, maintenance, and material planning aspects
 Plant can represent
● A manufacturing facility
● A distribution centre
● An office

Controlling Area

Company Code

Plant 1 Plant 2 Plant 3

Plants: Definition and overview

The plant is embedded in the organizational structure as follows:
 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.

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 Organisation Structure in SAP Environment
 A single business area is assigned to a plant and to a division.
 A plant can be assigned to several combinations of sales organization and distribution
channel.
 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, Sales, production, or procure-
ment plant, or services plant

A plant has its own material master data. You can maintain data at plant level for the following
views on a material master record in particular: MRP, Purchasing, Storage, Work scheduling,
Production resources/tools, Forecasting, Quality management, Sales, Costing.

The plant plays an important role in the following areas:

 material valuation
● If the valuation level is the plant, the material stocks are valuated at plant level.
● If the valuation level is the plant, you can define the material prices for each plant.
● Each plant can have ts own account determination.
 inventory management
● The material stocks are managed within a plant.
 MRP
● Material requirements are planned for each plant.

Plants: Design considerations

 In Logistics a plant is an organizational unit for dividing an enterprise according to pro-
duction, procurement, maintenance, and materials planning.
 A place where materials are produced, or goods and services are provided.

 Planning operation’s and material requirement’s planning are usually carried out on
plant level.
 Reporting is often based on the plant: Order information system, backorder situation,
stock-requirements list, MRP-list, material documents, etc.
 In case seperate physical locations are to be distinguished for reasons of material
flow and materials storage, it is possible to use different storage locations. As used in
Drives it is possible to follow the material flow between two physical locations (Estonia /
Finland) or two different legal entities (subcontractors in own premises) using plants.
 Plants allow the use of different planning and replenishment methods for a material.

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 Organisation Structure in SAP Environment
 For the transfer of materials between two different physical locations it is possible to
use transfer postings between the storage locations assigned to the plant. Postings are
possible in one-step or in two-step procedure.
 A further option is to use stock transport orders between two different plants. This
procedure can be carried out in one-step or in two step procedure, furthermore it is
possible to carry out the delivery via shipping. Stock in transit can be controlled and
reported.

Purchasing Organization
An organizational unit responsible for procuring materials or services for one or more plants
and for negotiating general conditions of purchase with vendors
 Purchasing Organization can be for
● Central purchasing
● Local purchasing

Client

Company Code

Purchasing Purchasing
Organization 1 Organization 2

Purchasing Group
A group of Purchasers who are responsible for day-to-day purchasing activities
 Purchasing Group can be defined for
● A set of similar materials
● A geographical location

Client

Company Code

Purchasing
Purchasing Group
Organization

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 Organisation Structure in SAP Environment
Purchasing Organization
 Purchasing Org.
● The purchasing organization is an organizational unit, which procures articles or
services and negotiates general purchase price conditions with vendors. Single
purchasing organization ????? is defined. It is responsible for all purchasing trans-
actions across all the companies.
 Purchasing Group
● A purchasing group refers to a buyer or a group of buyers, which is responsible for
actual day-to-day buying activities. In a purchasing document, for example, a pur-
chasing group has to be specified.
● A purchasing group can act for several purchasing organizations.

Storage Location
An organizational unit within logistics where materials are stored within a Plant
 Storage Location can represent
● A storage area where materials are stored
● A storage area where goods receipt is made
● A storage area from where goods are issued

Company Code

Plant

Storage Storage Storage

Location 1 Location 2 Location 3

Storage Location & Shipping Point

 Storage Location
● A Storage Location indicates the organizational unit facilitating differentiation
between the various stocks and/or location of a material within a site. A site can be
subdivided into storage locations; allowing stocks of spares and consumables to
be broken down according to predefined criteria (for example, actual location and
material-planning aspects, or stocks blocked for returns or promotion stock). One or
more storage locations can be defined for any distribution centre or store.

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 Organisation Structure in SAP Environment
 Shipping Point
● A shipping point is the organizational part of the company, which is responsible for
shipments. It is where the processing and monitoring of deliveries as well as the
goods issue is carried out. Different shipping points will be defined and assigned to
each site,

Storage Location: Definition and design considerations

A storage location is the place where stock is physically kept within a plant.
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 is 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 storage loca-
tion level.
 Physical inventories are carried out at storage location level.

 A storage location can be assigned to a warehouse number in the Warehouse

Management 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.

Plants: Design considerations - Plant or storage location?

When you answer this question it is helpful if you know what functions are available to you
when you use the plant organizational unit:
 Separate planning (for example, replenishment planning for warehouses)

 Automatic management of addresses

 Separate holiday calendars

 More comprehensive functions for stock transfers

 Specific stock updates on a value basis (separate valuation, separate account assign-
ment, stock reporting on a value basis)
 Wider-ranging possibilities for assigning authorizations

 Not country-specific – that is international borders can be ignored (using the plants
abroad concept (within the European Union))

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 Organisation Structure in SAP Environment

Sales Organization
An organizational unit within logistics, that structures the company according to its sales
requirements
 Sales Organization can be defined for
● A group of similar products
● Products sold through one organizational entity

Client

Company Code

Sales
Organization

Distribution Channel
Represents the channel through which salable materials or services reach customers
 Distribution Channel can be defined for
● Products that are sold through similar channels

Company Code

Sales
Organization

Distribution
Channel

Division
Represents an organizational unit that represents a product line or group of products
 Divisions can be defined for
● Line of Business
● Product lines

Company Code

Sales
Organization

Division

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 Organisation Structure in SAP Environment

Sales Area
A combination of Sales Organization, Distribution Channel and Division
 Organizational elements that can be assigned to Sales Area include
● Sales Office
● Sales Group

Company
Code

Sales Area Sales

Sales
Office
Organization

Distribution Sales
Division
Channel Group

Sales Organization and Distribution Channel

 Sales Organisation
● A sales organization is an organizational unit that structures the company according
to its sales requirements. It is responsible for the sale and distribution of goods and
services, and represents the selling unit as a legal entity. Sales organization will be
created, sales organization xxxx will be assigned to the company code xxxx
 Distribution Channel and Distribution Chain
● A distribution channel is the channel, or means, through which the goods or services
that the company reaches the customer. Within a sales organization, any customer
can be supplied through one or more distribution channels. In addition, the data
relevant for sales, such as prices, minimum order quantity, minimum quantity to be
delivered and delivering plant, can differ for each sales organization and distribution
channel.

Distribution Channel : Definition and Overview

 Every organization has a general structure for distributing goods called the ‘Distribution
Channel’.
 Different distribution channels are used to provide the market with the best possible
service.
 Examples: Wholesale trade, sales to industrial customers or direct sales from a plant.

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 Organisation Structure in SAP Environment

Distribution Channel vs. Organizational Levels

Client

Company code 1 Company code 2

1:N Highest level

in SD module
Sales Sales Sales
Organization 1 Organization 2 Organization 3

N:N

Distribution Distribution
Channel 1 Channel 2

Division is assigned
N:N to Sales Org

Division 1 Division 2

Sales Area = Sales Organization + Distribution Channel + Division

Distribution Channel : Design Considerations

 To use SD functionality, you need at least one Distribution channel.

 Distribution channel is assigned to a Sales Organization.

● Several Distribution channels can be assigned to a Sales Organization.
● One Distribution channel can be assigned to several Sales Organizations.
 You can allocate one or more plants to a combination of sales organization and
Distribution channel.
● This allows to differentiate between plants within sales organization.
 Distribution channel is a part of sales area.

 A Distribution channel does not have its own address.

 Within a distribution channel, you can define your own master data for customers or
materials as well as your own conditions and pricing.
 All items of a sales document belong to a Distribution channel. The entire sales docu-
ment is therefore entered for a Distribution channel.
 The items of a delivery can belong to different Distribution channels.

 All items of a billing document belong to a Distribution channel.

 Data is not retained at Distribution channel level.

● It is not a data retention level unless combined with Sales organization or a Division
as well.

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 Organisation Structure in SAP Environment

Distribution Channel : Organizational Level Mapping

Company Sales
Code Organization 1:N

Sales Distribution
Organization Channel N:N

Distribution
Channel
Plant N:N

Sales
Organization

Sales
Division N:N
Organization

Distribution Channel : Reference Implementations

Example: Enterprise Structure
 XYZ uses 5 Distribution Channels
● External Domestic
● External Exports
● Internal Domestic
● Internal Exports
● Stock Transfer
 Salient Features:
● It identifies the channel of selling.
● It segregates the external and internal sale in domestic as well as export segment.
● It captures the inter unit sale either at transfer price or at cost.

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 Organisation Structure in SAP Environment

Distribution Channel : Summary

 A Distribution Channel is a mandatory organizational unit for the functioning of Sales
& Distribution in SAP system.
 Represents Distribution Strategies of the organization.

 Facilitates management for performance review of these strategies by enabling the

generation of differentiated statistics.
 Allows flexible pricing.

 Enables control on Sales Document, Sales team.

 If several Distribution Channels use the same master data, ‘Common Distribution
Channel’ concept should be used.

Distribution Channel : Enablers

 Questions to be asked during the Organization structure designing:
For Distribution Channel : (Sample Questions)
 How are the products currently distributed to the customers? i.e Channels of
distribution ?
 Is their distinction in the pricing based on the Distribution channel ?

 Does same customer buy products from Distribution channels ?

Division: Definition and Overview

 In business context, the logical grouping of materials and services is called ‘Division’.

 Divisions can be used to further subdivide broad product or service range.

i.e. a Division can represent a product line.
 Examples:
Power products, automation products, projects, services, etc.

Division: Functionality within SAP

 Division is one of the organizational units of Sales and Distribution.

 Division is used to group materials and services.

 From SD perspective, the use of divisions help us to organize our sales structure around
groups of similar products or product lines.

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 Organisation Structure in SAP Environment
 Example:
If a sales organization sells power and automation products through both retail and
wholesale distribution channels, the product line can be split into power and automation
divisions.

Division: Organizational Levels

Client

Company code 1 Company code 2

1:N Highest level

in SD module
Sales Sales Sales
Organization 1 Organization 2 Organization 3

N:N

Distribution Distribution
Channel 1 Channel 2

Division is assigned
N:N to Sales Org

Division 1 Division 2

Sales Area = Sales Organization + Distribution Channel + Division

Division: Design Considerations

 To use SD functionality, at least one Division is required.

 Division is assigned to a Sales Organization.

● Several Divisions can be assigned to a Sales Organization.
● One Division can be assigned to several Sales Organizations.
 A material is always assigned to one division only.
● ‘Division’ is maintained in Basic data1 tab of the Material Master hence cannot be
changed while extending the material.
 Division is also required for ‘Business Area’ account assignment for logistics transac-
tions in Financial Accounting.
 We can define sales offices for a division.

 Each sales & distribution document is assigned to exactly one sales area.

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 Organisation Structure in SAP Environment
 We can maintain relevant master data like customer master, condition master explicitly
for each sales area (hence for each division).
 The division is used as a selection criterion for lists of sales documents and the work
list for deliveries.
 The items of a delivery or a billing document can belong to different divisions.

Division: Organizational Level Mapping

Company Sales
Code Organization 1:N

Sales
Division N:N
Organization

Division: Analysis
 A simple organizational structure may often be better than a complex one, it is always
advisable to make optimum use of each division defined.
 Sales document type can be customized to allow ‘Division specific sales’ or ‘ Cross
Division sales’.
● ‘Division specific’ sales does not allow multiple material with various divisions in a
sales order.
● ‘Cross-Division’ allows multiple material with various divisions in a sales order.
Cross division needs to be defined in the system and assigned as the reference
division for other divisions of the respective sales organizations.
 If we do not need master data (customer or condition master) to be differentiated
according to divisions, we can set up a ‘Common Division’ in Customizing. The defini-
tion is valid within a Sales Organization.
 The master data in the Common Division applies to all divisions for which we have
set up this reference. This helps us to minimize the effort of entering and maintaining
master data for all other Divisions.
 We can conduct statistical analysis by Division.

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 Organisation Structure in SAP Environment
 Improved management reporting.

 Customer-specific agreements can be made for each Division.

Examples: regarding partial delivery, pricing etc.

Division: Reference Implementations

Example: Enterprise Structure
 3 divisions are proposed:
● Projects
● Products and
● Services.
 Advantages:
● Categorizing done product wise.
● Capturing sales by Projects, Products and Services.
● Achieving flexibility and simplicity in representing complex corporate structure

Division: Summary
 A Division is a mandatory organizational unit for the functioning of Sales & Distribution
in SAP system.
 A Division is used to group materials and services.

 A material is always assigned to one Division only.

 Cross division allows entering of materials with different divisions in a sales order.

 If several divisions use the same master data, ‘Common Division’ concept should be
used.

Division: Enablers
Questions to be asked to the Clients during the Organization structure designing:
For Division : (Sample Questions)
 How are products/ services currently grouped ?

 Are the products / services belonging to two divisions distinctly different?

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