Defining and Assigning Organizational Units

Define Company: 

  • The client is a commercial,organizational unit within the R/3 system,with its own data,master records,and set of tables.
  • From a business perspective,the client forms a corporate group.


It is an Organizational Unit for which financial statements can be drawn up according to relevant commercial law.

Note: A Company can have one or more company codes.

Customization Step:

SPRO -> Enterprise Structure -> Definition -> Financial Accounting ->Define company


Define Company Code

Company code:

  • The company code is the smallest organizational unit for which you can have an independent accounting department within external accounting
  • A company code represents an independent accounting unit,for example, a company within a corporate group(client).

Company Code

• It is a smallest Organizational Unit

• Each company code has its own Balance sheet and P&L Account.

• Company Code is subsidiary of Company or a member of a corporate Group

Customization Step:

SPRO -> Enterprise Structure -> Definition ->Financial Accounting -> Edit, Copy,

Delete, Check Company Code (EC01)

Define Controlling Area

  • A controlling area identifies an independent organizational structure for which costs and revenues are collected.
  • Each controlling area can have one or more company codes assigned to it(see below)


Controlling Area:

• It is an Organizational Unit with in a company.

• It represents a closed system for the accounting purpose.

• Controlling area may be assigned to one or more company codes, but company code

must use the same operative Chart of Account.

Customization Step:

SPRO -> Enterprise Structure -> Definition ->Controlling -> Maintain Controlling Area(OX06)

These core tutorials will help you to learn the Enterprise Structure in SAP MM. 

For an in-depth understanding and practical experience, explore SAP MM Training.

Define Plant

  • A plant is an organizational logistics unit that structures the enterprise from the perspective of production, procurement,plant maintenance, and materials planning
  • A plant is a manufacturing facility or branch within a company


• It is an Operational Unit with in a company code.

• It is a place where materials are produced or Goods/Services are provided.

• A Plant can be having

- Manufacturing facility - Regional Sales Office

- Central Delivery warehouse - Corporate HQ - Maintenance Plant

Note: A Plant must always be assigned to a company code.

Valuation Area:

• It is an organizational level at which material is valuated.

• Plant and company codes are two possible valuation areas in the R/3 System.

• Important Note: Defining the valuation level in Customizing is a fundamental

setting, and is very difficult to reverse.

valuation-areaCustomization Steps:

1. Enterprise Structure ? Definition ? Logistic-General ? Define valuation level


Valuation Level

You define the valuation level by specifying the level at which material stocks are


You can valuate material stocks at the following levels:

-Plant level

Note: Valuation must be at this level in the following cases

If you want to use the application component Production Planning (PP) or Costing or If your system is a SAP Retail system

-Company code level

Note: SAP recommends setting material valuation at plant level.

2. Enterprise Structure ->Definition ->Logistic-General-> Define, copy, delete, check

plant (EC02/OX10)

Define Storage Location

  • The location is an organizational unit that allows the differentiation of material stocks within a plant.
  • Inventory Management on a quantity basis is carried out at storage location in the plant.
  • Phycial inventory is carried out at storage lcation level.

Storage Location:

• It is an Organizational unit, which allows the differentiation of Material Stock with in

a Plant. It holds the Goods.

• Under the plant there may be different storage locations. However the storage

location of one plant cannot be used for the other plant.

• Storage locations are not assigned to the plants separately, because at the time of

creation it self we create storage location with respect to plant.

Note: Physical inventory is carried out at storage location level.

Customization Steps:

SPRO->Enterprise Structure-> Definition ->Material Management-> Maintain storage

location (OX09)

Define Purchasing Organization

  • A purchasing Organization is an organization al level that negotiates conditions of purchase with vendors for one or more plants. It is legally responsible for completing purchasing contracts.
  • A purchasing group is the key for a buyer or group of buyers responsible for certain purchasing activities.

Purchasing Organization:

  •  It procures the material and services.
  •  It negotiates conditions of purchase with the vendors.
  •  It is responsible for completing the procurement contracts

Purchasing organization types:

1. Centralized Purchasing

Corporate Group-wide purchasing

Company specific Purchasing

2. Distributed Purchasing


So a Purchasing Organization Can be assigned to

- Several company Codes.

- One Company code

- One or More Plants


- Purchasing Organization can also exist with out assigning to a company code.

- Each Purchase organization has its own

Info Record and Conditions for pricing.

Own Vendor master Data.

- Vendor is assigned to only one purchase organization.

- Each Purchasing Organization evaluates its own vendors using MM Vendor Evaluation.

Reference Purchase Organization:

A purchase organization whose conditions and contracts other purchasing organization linked to it may access and use.

Standard Purchase Organization:

If a several Purchase organizations procure for a plant, you can define one of them as standard Purchase Organization. In Source determination for ‘Stock Transport’ and ‘Consignment’ and for good issue of ‘Pipeline material’ system utilizes the standard purchase organization automatically.

Customization Steps:

SPRO ->Enterprise Structure->Definition-> Material Management ->Maintain

purchasing organization (SPRO)

Assigning of Organizational Units

Customization Steps:

SPRO -> Enterprise Structure ->Assignment -> Financial Accounting -> Assign company

code to company (SPRO)

SPRO ->Enterprise Structure -> Assignment ->Controlling ->Assign company code to

controlling area (OX19)

SPRO-> Enterprise Structure -> Assignment -> Logistic-General ->Assign plant to

company code (OX18)

SPRO ->Enterprise Structure -> Assignment ->Material Management->Assign purchasing

organization to co-code (SPRO)

SPRO-> Enterprise Structure -> Assignment -> Material Management -> Assign purchasing

organization to plant (SPRO)