The SAP Organizational Structure

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  • February 11, 2022
  • SAP

The SAP Organizational Structure –

The organizational structure within the MM module may be a hierarchy during which various organizational units are arranged consistent with their tasks & functions.

From a Materials Management (MM) perspective, client, company, purchasing groups, company code, purchasing organizations, plants, storage locations, and are important elements of an organizational structure.

Now we will discuss of these elements one by one.

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Client/Company –

It is the greatest organizational unit in an SAP system, the clients are often a corporation group and may represent a company or a conglomerate of companies. For instance, consider a fictional corporate group called XYZ Corporation, which has companies like XYZ Steel, XYZ FMCG, and XYZ Pharmacy. If XYZ Corporation wants to install SAP software for all of its companies during a single instance, then it must be represented as a client. In the other way , if the various companies install the SAP software individually, then each industry will have one SAP instance, and therefore the individual companies will represent the client.

Company Code –

The company code is the lowest organizational unit that will have an independent accounting department within external accounting. For instance, a client which is acting as a corporate group may have one or more independent companies, all of which have their own System application & product (SAP) balance sheet, profit and loss (P&L) account and G/L (general ledger) account. Each of those  independent business entities must be created within the SAP system as separate company codes.

Plant –

From An industrial point of view, a manufacturing facility is named as a plant. In an System application & product that is (SAP) system, however, a plant is often a corporate office, producing facility, maintenance plant, or central delivery warehouse. generally, the plant is often any location within a company code that is involved in some activity for the company code for the corporate group.

Storage Location –

A storage location is an important place within a plant where you can keep materials. Inventory management on a quantity basis is accomplished at the storage location level within the plant, as is physical inventory.

Physical inventory is accomplished at each storage location level.

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Purchasing Organization –

In the SAP system the purchasing department is mapped as a purchasing organization. In industry nomenclature, the purchasing department deals with vendors and is liable for all procurement activities. Purchasing organizations negotiate conditions of purchase with vendors for one or more plants, and that they are legally liable for honoring purchasing contracts. 

Purchasing Group –

A purchasing group may be a term for a buyer or group of buyers liable for certain purchasing activities. As we know that a purchase order is a legal document, therefore the purchasing group is mentioned on a purchase order or contract. In an SAP system, a purchasing group can not be assigned to purchase organizations or the other organizational units. Purchasing groups are defined at the client level and may create purchasing documents for any purchasing organization. The purchasing group also can play a crucial role in reporting various purchasing transactions.

There are many types of purchasing organizations. Let us we will see one by one

Plant-Specific Purchasing –

Let’s say your customers have separate purchasing departments for every plant, and every purchase department is liable for negotiating with vendors, creating contracts, and issuing purchase orders. This scenario is named as a plant-specific purchasing organization. During this scenario, you would like to define a purchasing organization for every plant within the SAP system, then assign these purchasing organizations to their respective plants. 

Cross-Plant Purchasing –

Some customers can have a scenario where a single purchase department is liable for procurement activities for many plants. During this case, you want to create a purchase organization that’s liable for many plants in the same company code.

Cross-Company Code purchasing organization –

Some customers have  only one purchasing organization for the procurement activities of multiple plants in several company codes. 

Reference Purchasing Organization –

Some customers can have a scenario where they need one centralized purchase department at the client level that is liable for the negotiation and creation of worldwide agreements. These agreements can be utilized by local purchasing organizations to make purchase orders. This business scenario helps companies for negotiating better prices due to big-volume purchases. In an SAP system, such a purchasing organization is mentioned as a reference purchasing organization.

Standard Purchasing Organization –

SAP also provides standard purchasing organization & this is often used for automatic PO creation process and also for special procurement processes like consignment, subcontracting, pipeline etc.

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Conclusion –

In this blog we have discussed the various elements of organization structure.


Prahlad Pawar

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