1. Chapter 3 Organizational Structure
The system can be configured to reflect a company’s organizational structure and has the flexibility to incorporate future changes in that structure.
Chapter Objectives
Describe the Organizational Structure and how it relates to the Financial Accounting module.
Define each Organizational Unit in the structure related to the Financial Accounting module.

2. Hierarchy Workshop Option 1 Option 2 Option n
Workshops taking days, weeks or months are conducted to assist in hierarchy definition. A hierarchy is a structure that is arranged in successive levels, where the individual elements in the different levels are interdependent.
For a hierarchy workshop to be successful, a skilled hierarchy consultant with SAP knowledge should facilitate the sessions.
Client representatives may include financial supervisors and process owners (financial hierarchy), manufacturing supervisors and management (materials management hierarchy), and financial and sales management (sales hierarchy).
The client must make their own hierarchy decision; however, the consultant should assist the client in making this decision. For example, the client should be aware of the implications of each hierarchy option.
The SAP Knowledge Network database and the PwC informal network are good tools from which to obtain existing workshop materials.

3. SAP Hierarchy Structure
Bus. Area
1000
Sto.Loc.
0001
Company
0001
Plant
0001
Bus. Area
2000
Sto. Loc.
0002
Client
Company
Code
Bus. Area
3000
Sto. Loc.
0003
Company
0002
Plant
0002
Company
0003
Plant
0003
Company Code
The hierarchy structures are explained during the hierarchy workshop.
A hierarchy structure is mapped to SAP applications using Organizational Units. Organizational units handle specific business functions.
Organizational Units may be assigned to a single application (e.g., the Sales Organization in the Sales & Distribution module) or to several applications (e.g., Plants assigned to Materials Management and Production Planning).
The correct mix of functional resources should attend the workshop. For example, the finance team will be interested in account group assignment decisions made by the Materials Management team.
Some decisions involve all parties, and other decisions require the involvement of a single team. For example, decisions about defining Storage Locations will not impact the Finance Team.
1000
2000
3000 10 20 10 10 01 02 01 02 01 02 01

4. SAP Organizational Structure
Client
Controlling
Area
Chart of
Accounts
Chart of
Depreciation
Credit
Control Area
Purchasing
Group
Dunning
Area
Company
Code
Business
Area
Purchasing
Org.
Sales
Organ.
Plant
FI Organizational Units and their descriptions:
Client - A self-contained unit in an R/3 System with separate master records and its own set of tables. The data in a Client may not be accessed by another Client.
Chart of Accounts - A classification scheme consisting of a group of general ledger (G/L) accounts. A chart of accounts provides a framework for the recording of values, in order to ensure an orderly rendering of accounting data. The G/L accounts they contain are used by one or more company codes.
Chart of Depreciation - The chart of depreciation contains the defined depreciation areas. It also contains the rules for the evaluation of assets that are valid in a given country or economic area. Each company code is allocated to one chart of depreciation. Several company codes can work with the same chart of depreciation. The chart of depreciation and the chart of accounts are completely independent of one another.
Credit Control Area - An organizational unit that represents an area responsible for granting and monitoring credit. This organizational unit is either for a single company code or, if credit control is performed across several company codes, multiple company codes. Credit information can be made available per customer within a credit control area.
Company Code - The smallest organizational unit for which a complete self-contained set of accounts can be drawn up for purposes of external reporting. The company code represents an independent legal entity. The process of external reporting involves recording all relevant transactions and generating all supporting documents required for financial statements.
Shipping
Point
Storage
Location
Distribution
Channel
Sales
Office
Sales
Group
Loading
Point
Division

5. SAP Organizational Structure (continued)
FI Organizational Units and their descriptions (cont.)
Business Area - An Organizational Unit within financial accounting that represents a separate area of operation or responsibility within an organization and to which value changes recorded in Financial Accounting can be allocated. Business area balance sheets and income statements are used only for internal reporting purposes.
Dunning Area - An optional organizational unit within a company code from which dunning (notice of past due accounts) is conducted. The dunning procedure is controlled and the dunning notices are sent separately per dunning area. A dunning area can represent the following: Division, Distribution channel, Sales organization, Business area
CO Organizational Unit and its description:
Controlling Area - The primary organizational structure in the Controlling Module. A controlling area represents a complete, self-contained cost accounting system and internal reporting structure for all or part of an organization.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. All internal allocations refer exclusively to objects in the same controlling area.
MM Organizational Units and their descriptions:
Purchasing Organization - Organizational unit within Logistics, subdividing an enterprise according to the requirements of Purchasing. A purchasing organization procures materials and services, negotiates conditions of purchase with vendors, and bears responsibility for such transactions. The form of procurement is specified through the assignment of purchasing organizations to company codes and plants.
Purchasing Group - A buyer or group of buyers responsible for purchasing activities.
Plant - Organizational unit within Logistics, serving to subdivide an enterprise according to production, procurement, maintenance, and materials planning. A plant is a place where either materials are produced, or goods and services are provided. The plant plays an important role in material valuations, inventory management, MRP, production, costing and plant maintenance.
Shipping Point - Organizational unit in Logistics which carries out shipping processing. The shipping point is the part of the company responsible for the type of shipping, the necessary shipping materials and the means of transport.
Loading Point - A place within the Shipping Point where goods are loaded.
Storage Location - An Organizational Unit that allows the differentiation of material stocks within a Plant.
Client
Controlling
Area
Chart of
Accounts
Chart of
Depreciation
Credit
Control Area
Purchasing
Group
Dunning
Area
Company
Code
Business
Area
Purchasing
Org.
Sales
Organ.
Plant
Shipping
Point
Storage
Location
Distribution
Channel
Sales
Office
Sales
Group
Loading
Point
Division

6. SAP Organizational Structure (continued)
SD Organizational Units and their descriptions:
Distribution Channel - A channel through which salable materials or services reach customers. Examples include wholesale, retail and direct sales. You can assign a distribution channel to one or more sales organizations.
Sales Organization - Organizational unit within Logistics which structures the company according to its sales requirements. A sales organization is responsible for selling materials and services. It can be used to subdivide sales markets regionally.
Division - An Organizational Unit that can be used to define a division-specific Sales Organization (by product group, for example).
Sales Area - A combination of Sales Organization, Distribution Channel & Division.
Sales Office - An Organizational Unit assigned to a Sales Area. It can be used to define geographical designations of the organization.
Sales Group - A subdivision of the Sales Office that can be used for reporting purposes.
Client
Controlling
Area
Chart of
Accounts
Chart of
Depreciation
Credit
Control Area
Purchasing
Group
Dunning
Area
Company
Code
Business
Area
Purchasing
Org.
Sales
Organ.
Plant
Shipping
Point
Storage
Location
Distribution
Channel
Sales
Office
Sales
Group
Loading
Point
Division

7. Financial Module (Organizational Structure)
Client
Chart of Accounts
Credit Control Area
Company Code
Dunning Area
Business Area

8. Client (Organizational Structure)
General Electric
The Client is the highest hierarchical level in the SAP Organizational Structure.
Each Client is a self-contained unit with separate master records and a complete set of tables.
Specifications made or data entered at this level are valid for all Company Codes attached to the Client.
A single Client allows central maintenance and ensures standardized data.
Access authorization is assigned per Client. A User master record must be created for each user in the Client where he or she wishes to work.
Each user must specify a Client key when logging on to the system.

9. Client - Company Code (Organizational Structure)
General Electric
Company Code
Aviation Services
Company Code
Lighting
Company Code
Appliances
Company Code
Aircraft Engines
Each Company Code represents an independent legal entity for external reporting purposes. The Balance Sheet and Profit and Loss (P&L) statement required by law are created at the Company Code level.
Multiple Company Codes can be created in each Client.
In an international business, operations are often located across numerous countries. Since most governments and tax authorities require each company to be established as a separate legal entity, a Company Code is usually defined for each country.

10. Client - Company ID - Company CodeGE
Company ID
Consumer
Products
Company ID
Aviation
Company
Code
Lighting
Company
Code
Appliances
Company
Code
Aircraft
Engines
Company
Code
Aviation
Services
The Company ID is a grouping of Company Codes (legal entities) that can be consolidated using the SAP FI-LC (Legal Consolidation) module.
Legal consolidation is the process of reconciling and combining the financial statements of two or more individual Company Codes.

11. Client - Company Code - Business Area
General Electric
Company Code
Company Code
Company Code
Aviation Services
Aircraft Engines
Transportation
Systems
Business Areas are business entities (e.g., product line, division) for which internal Balance Sheets and internal P&L Statements can be established.
Business Areas can cross Company Codes but must be consistent in their definition and use. For example, defining business areas along product lines AND geography should be avoided.
Business Areas are independent of Company Codes.
Business Areas can incorporate Company Codes that use different Charts of Accounts.
Note:
The Business Area Breakdown Report splits out all Balance Sheet and Profit and Loss items with the exception of bank accounts, capital accounts, and taxes.
Business Area
Business Area
Engine Repair
Engine Sales

12. Client - Chart of Accounts - Company Code
General Electric
Chart of Accounts
Chart of Accounts
CAUS
CAEU
Aircraft Engines
Company Code
Aviation Services
Company Code
Company Code
The Chart of Accounts (COA) is an organized list of all General Ledger (G/L) Accounts used by one or more Company Codes.
Each Company Code is assigned to only one COA; however, multiple Company Codes within a Client can use the same COA.
SAP delivers numerous COA country-based templates, which can be copied and maintained as needed.
There are three types of Charts available in R/3
Operating Chart of Accounts: The standard COA used in both financial accounting and cost accounting.
Country or Alternative Chart of Accounts: Meets localized national reporting requirements. To use this type of Chart of Accounts, the alternative account number must be entered in the Company Code section of each General Ledger Account Master Record.
Corporate or Group Chart of Accounts: Groups dissimilar charts together for consolidated reporting. The Group Chart fulfills the need for summarized reporting using a common set of accounts across Company Codes that do not use the same Operating Chart of Accounts.
Global Finance

13. Client - Company Code - Dunning Area
General Electric
Company Code
Company Code
Aviation
Services
Aircraft
Engines
Dunning is the process of automatically notifying and requesting payment from customers with past due invoices.
Dunning Areas represent areas within a corporation responsible for monitoring customer activity.
A Company Code can have many Dunning Areas.
A Dunning Area can belong to more than one Company Code.
Dunning Area 1
Dunning Area 1
Dunning Area 2

14. Client - Credit Control Area - Company Code
General Electric
Credit Control Area
Credit Control Area
CAUS
CAEU
A Credit Control Area is the Organizational Unit used to set and control credit limits for customers.
The Credit Control Area is used by the Sales and Distribution components of R/3 as well as the Accounts Receivable component to provide integrated credit management.
Many Credit Control Areas can be created within a Client.
A company code will have one credit control area directly assigned to it and possibly several other credit control area defined as “permitted” for the particular company code. The actual credit control area for a transaction can be determined in the line item or an order form (i.e order data, customer data).
Credit Management will be discussed in detail in Chapter 19 (Credit Management).

15. Benefits of the SAP Organizational Structure
Production Planning
Financial Accounting
Plant
Company
Code
Client
Controlling
Human Resources
Controlling
Area
Personnel Area
Sales and Distribution
Materials Management
The benefits of the Organizational Structure in R/3 are:
The flexibility of reflecting complex Organizational Structures.
The ability to add Organizational Units.
Separation of data into logistical (Production Planning, Sales and Distribution, Materials Management) and financial (Financial Accounting, Controlling) views based on the information you require.
Sales
Area
Purchasing
Organization

16. Organizational Structure Chapter Summary
Key Terms
SAP Hierarchy Structure
Client
Chart of Accounts
Credit Control Area
Company Code
Business Area
Dunning Area
Purchasing Organization
Purchasing Group
Plant
Shipping Point
Loading Point
Storage Location
Distribution Channel
Sales Organization
Division
Sales Office
Sales Group
Sales Area
Legal Consolidation
SAP Hierarchy Structure - Composed of three areas: Financial, Materials Management, and Sales & Distribution. Each area has its own distinguishable hierarchical structure (See Slide FI_03.3).
Client - The highest level in SAP R/3. The data in a Client may not be accessed by another Client.
Chart of Accounts - An organized list of all General Ledger (G/L) accounts used by one or more Company Codes.
Credit Control Area - An Organizational Unit assigned to a Company Code used to set credit limits for customers.
Company Code - An Organizational Unit within a Client that is used to represent an independent legal entity. It is the level at which balanced financial statements are produced.
Business Area - An Organizational Unit within the Financial Accounting module which represents a separate area of operations or responsibilities within an organization.
Note: For the remainder of the definitions, refer to pages 3.5 and 3.6