SAP Enterprise Structure – A Case Study (part 1)

This post is the first one of a series of articles that I am planning to write about SAP Enterprise Structure in the Material Management (MM) module’s point of view. Due to its integration with other modules, I will also explain about some Enterprise Structure organizational units in Financial Accounting (FI) and Sales & Distribution (SD) modules.
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Case Study Business Scenario

ABCD is a telecommunication company. It sells intangible telecommunication services, such as voices, sms, and data usage to the end-customers. The services can be consumed by the end-customers through the handset and starter pack (RUIM/sim card) inserted in it. The ABCD company has two branches: west region (which also the Head Office/HO) and east region.
EFGH is a subsidiary company of ABCD that produces handset. The EFGH company sells its handset only to the HO (west region) of ABCD company. Then the west region of ABCD will distribute the handset to the east region and its customers.
ABCD company sells the starter pack and handset to the customers through two main channels: the wholesale (dealer) channel and retail sale (the end-customers) channel.
The handset is bought from overseas vendor by EFGH company (the ABCD company has no imported license, so it can’t purchase the handset directly from the vendor) but needs to be packaged by local vendor. In the packaging process the handset is bundled with the starter pack and other sales promotion materials such as flyer, etc.
EFGH company buys the starter pack from vendor to be bundled with the handset. ABCD company buys the starter pack from vendor to be sold to the customers, so it can be used in other handsets that are not sold by the ABCD company. The vendor delivers the starter pack to both ABCD regions.
Each region of ABCD has some warehouses where it stores the starter pack, handset, and other materials. It also has some outlets where it sells the products (starter pack and handset) to the end-customers (retail channel).
Each region sells the products to the dealer (wholesale channel). The dealer can only pick the products from the warehouse, not from outlets.
The outlet can request the products from the closest warehouse. The request needs to be approved by sales manager before it can be fulfilled. The warehouse distributes the products to the outlet based on the approved request. The end-customers can only pick the products through the outlets, not from warehouse.
The EFGH company has only one office and one warehouse.
In this series of posts, I will explain how to map the above scenario into the SAP MM and other related modules functional and configuration design.
We will map the business structure into the SAP Enterprise Structure. The SAP Enterprise Structure is a fundamental setting and needs a comprehensive understanding of the business processes and their integration. We have to work with other departments and SAP modules, such as Accounting department (FI module), and Sales department (Sales and Distribution module). Some of the SAP enterprise structure designs are very difficult to be altered once they have been implemented, so we need to design it very carefully at the first place.
SAP Enterprise Structure
SAP enterprise structure is organizational structure that represents an enterprise in SAP R/3 system. It consists of some organizational units which, for legal reasons or for other specific business-related reasons or purposes, are grouped together. Organizational units include legal company entities, sales offices, profit centers, etc. Organizational units handle specific business functions.
Organizational units may be assigned to a single module (such as a sales organization assigned to Sales and Distribution (SD) module, or to several modules (such as a plant assigned to Materials Management (MM) and Production Planning (PP) module).
SAP ERP system can represent a complex enterprise structure. Its flexibility can integrate the structure of an enterprise by linking its organizational unit. Enterprise structure design is a fundamental process in a SAP implementation project. The design is mainly determined by the business scenarios performed in an enterprise. Once the design is determined, it will affect many things such as how to perform a transaction and generate reports on SAP system. Although it’s possible, it requires great effort to change the enterprise structure. So , we must ensure that the enterprise structure designed in the SAP implementation project can accommodate all business scenarios and enterprise’s requirements for current and future situation.
A Client is the highest-level element of all organizational units in SAP R/3 system. The client can be an enterprise group with several subsidiaries. An SAP client has its own tables to store all its data. Transaction and master data in a client technically can be used by all the organizational units in it. Transaction data is the one that created by a business transaction in SAP ERP in any modules, such as a Purchase Order (PO) in MM, outgoing payment to vendor in FI, Sales Order (SO) in SD, etc. Master data is the one that is used for a long-term in SAP ERP System for several business processes such as customer, material, and vendor master data. A client is represented by a unique 3-digit number.
In the next article, I will explain Enterprise Structure concept in Financial Accounting, so stay visiting this blog.

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