Tip for SAP Beginners: Overview of organizational structure in SAP ERP

Overview of organizational structure in SAP ERP

The highest organizational unit in an SAP ERP system is the client. When we showed you how to log on to the SAP system and noted that you must enter a client with your logon data. You can think of a client as the top node of a group of companies that contains all the settings and data relevant for your entire organization.

If your organization is a multinational corporation, you will usually put your complete organization into one client (for example, the global corporation “E.T.,” which we will introduce to you in this chapter, could use client 800 for its global operations). If your corporation consists of several sub-organizations operating independently from each other (e.g., if “E.T.” was structured into American, European, and Asian branches), you could theoretically keep separate clients for them. However, clients are not totally independent from each other; there are a number of settings which affect all clients in the system, so changing the settings in one client would affect all the others. So, in practice, you will usually have only one client in your SAP ERP system.

All the other organizational units in SAP ERP are dependent on the client. For every function in the system, such as accounting, controlling, purchasing, etc., there are several organizational entities that you can use to implement your organizational structure.

Overview of organizational entities in SAP ERP

Here is a list of the most important organizational units in SAP ERP:

• Controlling area (module CO; basis for uniform management accounting guidelines and procedures)
• Operating concern (module CO; valuation level for profitability analysis CO-PA)
• Company code (module FI; represents a self-contained unit creating its own financial statement)
• Plant (relevant for all logistics modules; identifies a logistics location where goods are stored and/or manufactured)
• Sales organization (module SD; used to assign sales responsibility in the organization
• Purchasing organization (module MM; structures the way purchasing is organized)

2.4.2      Example of an organization structure

Using the entities listed above, you can set up the basic structure of your organization in SAP ERP. In this example, you can see the global organizational structure of a fictitious company called E.T. Corporation. As we mentioned before, all the entities are assigned to one client (100). The highest organizational structure is the controlling area, to which all company codes are assigned. This is to ensure that the entire corporation is using the same management accounting procedures. Corporate management will run overall reports on the entire corporation on the controlling area level to find out for example, what the global sales to market is, whether overhead budget targets were met, or if marketing expenses have increased.

The E.T. Corporation consists of four legal entities, each of which prepares a financial statement every year. They are located in Germany, the US, the UK, and India. Each legal entity is represented by a company code, so it is possible to prepare the balance sheet according to the respective accounting principles in each country in the local currency.

The German organization runs operations at two different sites, in Frankfurt and Berlin, while all the other companies are concentrated at only one site. At each site, E.T. Corporation runs a factory and a warehouse to manufacture goods and store them. In the case of the German organization, even if the two sites physically are separated from each other, they are still combined under the same legal entity. In SAP terms, we have plants for every site, and each plant is assigned to one company code. It is possible for a company code to have more than one plant assigned to it, but not the other way around.

Each E.T. organization runs its sales operations independently from each other. For example, the German sales team is organized into two teams: the one in Frankfurt covers all customers based in western Germany, while the other one in Berlin is responsible for the east. In the US, sales is centralized to allow the sales teams to organize themselves to suit local requirements, so E.T. Corporation  uses different sales organizations in their SAP system, one for each company code.

Purchasing also is organized centrally. In order to make the best use of vendor discounts, one team is responsible for purchasing for all locations worldwide. Consequently, there is only one purchasing organization set up for E.T., which is assigned to every company code and every plant.

Keep reading First Steps in SAP.

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About the Authors

Author Sydnie McConnell is the lead SAP business systems analyst for a global manufacturing firm headquartered in Colorado. Sydnie has more than 15 years of experience with SAP Financials, both as a business user and a systems analyst. Her primary focus is on SAP Controlling, particularly product cost controlling and profitability analysis. She has worked on a variety of complex projects, including several global SAP ERP and BPC implementations and integrating multiple ERP systems into a single SAP general ledger.

Author Martin Munzel is an internationally recognized speaker, author, and SAP consultant specializing in SAP Controlling functionality. He has more than 18 years of experience working with SAP, both as an external and in-house consultant. Martin has extensive experience implementing SAP FI/CO solutions in Europe, Asia, and North America in the manufacturing and wholesale industries as well as in the public sector. He regularly speaks at international SAP conferences and delivers training for consultants and SAP users. Martin is the Co-founder and Managing Director of Espresso Tutorials, a publishing company focused on short and concise SAP textbooks. He is the author of New SAP Controlling Planning Interface, First Steps in SAP, as well as a number of best-selling German titles.