Mapping Business Functions of a Company in the SAP System

Before you can effectively run your business processes in SAP, you need to map out how your company operates—from its corporate structure down to individual departments and roles.

SAP systems do this through organizational units, which represent different business functions within the system. In this post, we’ll introduce how key organizational elements—such as clients, company codes, plants, and purchasing groups—are structured in SAP and how they support your business’s day-to-day operations.

As shown in the figure above the different functional departments of an organization are mapped into an SAP system using organizational units. Organizational units are responsible for a set of business functions. An enterprise or corporate group is mapped into the SAP system as a client, and different companies or subsidiaries of an enterprise are referred to as company codes. Clients and company codes are two types of organizational units often found at the highest level in the SAP organizational structure.

When discussing the levels of an organizational structure in SAP, the client is the highest element, but many other levels may exist. A client may have one or more company codes assigned to it, each company code may have one or more plants assigned to it, and each plant may have one or more storage locations assigned to it. Furthermore, each company may have a set of purchasing groups. A purchasing group is a buyer or a group of buyers defined independently of the organizational structure. Therefore, a purchasing group isn’t necessarily assigned to a purchasing organization or company code.

Let’s go over a basic, high-level understanding of these units and how the different departments and business functions of a company fit into an SAP system. For any successful implementation project, you must understand your company’s organizational structure and map this organizational structure in a way that meets all of your business process requirements. For this task, understanding the essential terminology used in an industry and in the SAP organizational structure, as shown in both the previous and next figure, is equally important.

Let’s look at each element of an organizational structure in detail:

Client/Company

As the highest organizational unit in an SAP system, the client can be a corporate group and can represent a company or a conglomerate of companies. For example, consider a fictional corporate group called the XYZ Corporation, which has companies such as XYZ Steel, XYZ FMCG, XYZ Textile, and XYZ Pharmaceuticals. If the XYZ Corporation wants to implement an SAP system for all of its companies in a single instance, then the whole conglomerate should be represented as a single client. On the other hand, if the various companies each install SAP systems individually (i.e., each company will have one SAP instance), then the individual companies will be each be represented as a client.

Note that in an SAP system, the word client has a specific meaning, and a clear understanding of what this word means in this context is important. In general speech, a “client” is a customer to whom an SAP implementation partner or even SAP SE is providing services. In an SAP system, however, a “client” refers to a corporate group, which is the highest organizational element. Clients in an SAP system are also used to differentiate among real-time data, test data, and development data.

Company Code

A company code is the smallest organizational unit for which you can have an independent accounting department within external accounting. For example, a corporate group (a client) may have one or more independent companies, all of which have their own general ledger account, balance sheet account, and profit and loss (P&L) account. Each independent business entity must be created in the SAP system as separate company codes. Learn more about company codes in this post.

Plant

In industry terminology, a manufacturing facility is called a plant. In an SAP system, however, a plant can be a manufacturing facility, a sales office, a corporate head office, a maintenance plant, or a central delivery warehouse. In general, a plant can be any location within a company code that is involved in some activity for the company code.

Storage Location

A storage location is a place within a plant where materials are kept. Inventory management on a quantity basis is carried out at the storage location level in the plant, as is physical inventory. Physical inventory is the process of verifying physical stock with the stock levels recorded in the system. If any differences exist in stock quantities, system stocks are updated with actual physical stock quantity. Physical inventory is carried out at each storage location level.

Purchasing Organization

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

Purchasing Group

A purchasing group is a term for a buyer or a group of buyers responsible for certain purchasing activities. Because a purchase order (PO) is a legal document, the purchasing group is represented on a PO or contract. The purchasing group can also play an important role in reporting various purchasing transactions. In an SAP system, a purchasing group isn’t assigned to purchasing organizations or any other organizational units. Purchasing groups are defined at the client level and can create purchasing documents for any purchasing organization.