MM Purchasing Configuration Terms

I came across a detailed MM Configuration document during one of my SAP projects and found it useful. I shall try to share its important contents in few posts with the readers of my blog.

Organogram in MM Purchasing

Client:

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

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).  Balance sheets and Profit and Loss statements, required by law, are created at company code level.   You can set up several company codes in one client in order to manage various separate legal entities simultaneously, each with their own balanced set of financial books. You can use a special Customizing function to copy a company code. This copies the company code specifications to your new company code. 

Plant:

A plant is an organizational logistics unit that structures the enterprise from the perspectives of production, procurement, plant maintenance, and materials planning.  A plant is a manufacturing facility or branch within a company.  A Plant can be one if the following types of locations:

o Central delivery warehouse

o Regional sales office

o Manufacturing facility

o Corporate headquarters

o Maintenance plant

When creating a new plant, you can use the plant copying function, when you use this function, the system processes the entry in the plant table and in all dependent Customizing and system tables in which the plant is included as key.

Storage Location:

The storage 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 level in the plant.
Physical inventory is carried out at storage location level.

Valuation Area

Valuation area is organizational level which material is valuated. Two possible

1) Company Code: Valuated at company code level, the valuation price of a material is the same in all of a company’s Plant (that is, in a company code).

2) Plant: Valuated at plant level, you can valuate a material in different plants at different prices.

Note: valuation at plant level is mandatory if you want to use either of the production planning or product cost accounting components, or if your system is a Retail system. 

Purchasing Organisation

It is an organizational level that negotiates conditions of purchase with vendors for one or more plants. It is legally responsible for completing purchasing contracts.  You can assign the purchase organization to company codes (centralized) and plants (decentralized) or combination of both. 

Plant – Specific Purchasing organization:

A purchasing organization is responsible for procuring materials for one plant only.

Cross – Plant purchasing organization

You can set up a cross-plant purchasing organization for each company code. This purchasing organization procures material and services for all plants assigned to the company code. 

Cross – Company Code Purchasing Organization 

If you want to organize purchasing on a cross-company-code basis, you cannot assign a company code to the purchasing organization in customizing. When you create a purchase order, for example, the system asks you to enter the company code for which you want to procure the material.