In this tutorial we will discuss the organizational structure relating to the Controlling module of SAP. This particular article focuses mainly on the conceptual understanding of SAP CO organizational structure. We will first define the organizational units, then we will walk through a scenario to exemplify the assignment of organizational units. For further details and in-depth tutorials, check out the other articles in our free online SAP CO training.
Organizational structures form the basic building blocks of the SAP System. An organizational structure constitutes a set of key organizational units or objects which must be implemented in the SAP enterprise structure. Each of these organizational structure objects may have a defined logical relationship with one another and must be mapped and assigned to achieve optimal integration amidst all of the in-scope features of the system. As with all modules, SAP has devised a methodology which describes how a company is to be structured and organized for cost accounting purposes. Thus, the purpose of SAP CO organizational structure is to facilitate proper coordination, monitoring and optimization of all processes in an organization.
SAP Organizational Units
As an introduction to the units of the SAP CO organizational structure, take a look at the components and organization of the hierarchy shown below:
These organizational units are associated with each other to form the foundation of the SAP CO organizational structure. Let’s see how each of these units contribute to the optimization of internal reporting and managerial accounting:
- Client: A client is a self-contained instance which comprises its own set of programs, tables, master data and transaction records.
- Operating Concern: The operating concern is the highest organizational unit eligible for profitability analysis (COPA). The prime aim of COPA is to provide profit and loss information to support decision making, planning and controlling operations within an organization. The segments are usually made up of a combination of characteristics regarding the customer, product or sales channels of the organization which can be analyzed in a multi-dimensional information cube. The operating concern is required to facilitate additional reporting dimensions including customer group, product and country.
- Controlling Area: The controlling area refers to the highest level of an organization at which costs and revenues are recorded. Each controlling area can have one or more company codes assigned to it.
- Company Code: A company code represents a legal entity in SAP. A company code is set up for every legal entity which records transactions and maintains its financial books (i.e. sub-ledgers and GL) in SAP. These financial books enable the generation a complete set of financial statements, including profit and loss, balance sheet and cash flow.
- Plant: This is one of the indispensable units in the organizational structure for a company. It represents a facility where goods and services are produced according to production, maintenance, procurement and material planning areas of the business. A company code can posses the assignment of one or more plant. Generally, plants are defined within the enterprise structure in the Materials Management module.
- Purchase Organization: This organizational unit coordinates the purchasing process for the business. Each company code can have one or more purchase organizations assigned.
- Sales Organization: A sales organization is defined within the Sales & Distribution module. Multiple sales organizations can be assigned to one company code depending on the business requirement.
SAP Organizational Structure Scenario
In order to understand the hierarchical relationships of the SAP organizational structure, let’s use a hypothetical business scenario to define the enterprise structure.
Imagine a company by the name of Comserve Network (CSN). CSN is the parent organization and is responsible for internal reporting of profitability analysis and cost accounting from transactions created in two branch companies based in UK and Netherlands. The parent organization, as an important organizational entity, is to be positioned at the top of the organizational structure and comprises the following:
- Two branch office having separate entity situated in two different locations, one in UK and one in Netherlands.
- Each branch office contains respective plants, purchase organization and sales organization.
We have identified the organizational units as below:
|Comserve Network UK Ltd||Comserve Network Netherlands|
|Company Code||CSN1||Company Code||CSN2|
|Purchase Organization||UPO1||Purchase Organization||NPO1|
|Sales Organization||UK01||Sales Organization||NL01|
Now, how do we go about defining the enterprise structure for Comserve Network? Creating a new organizational structure for a company is always perspective-based. A consultant needs to understand the main purpose behind the units of the organizational structure in order to engineer the correct hierarchy and flow of internal reporting. Without more information, we can derive a the below options:
- Based on location, create a separate enterprise structure for each company code, where plant, sales organization and purchase organization is assigned respectively.
- Create Comserve Network as an operating concern and assign a controlling area. Set up the two branch offices as company codes, assigning them to the controlling area. Then, create respective plant, sales organization and purchase organization under each company code. This option will allow significant enhancement of group reporting ability.
Leveraging option two, we can define the SAP organizational structure for Comserve Network as below:
To summarize the structure, the following points should be noted:
- One controlling area CS00 will be created to represent the Comserve Network group of companies.
- Company codes CSN1 and CSN2 with respective currency codes GBP and EUR will be assigned to controlling area CS00.
- An operating concern CS00 will be created to represent the CSN group of companies. As per the requirement, this operating concern will provide the profitability information captured in COPA and can also be extracted to facilitate further analysis using external reporting tools.
- Plants CSUK1 and CNNL1 will be created and uniquely assigned to company codes CSN1 and CSN2 respectively. As each company code must be assigned uniquely to a controlling area, the relationship between each plant and controlling area CS00 is derived.
SAP CO Organizational Structure
Deriving the SAP CO organizational structure can be done when the operating concern is placed at the highest node within the hierarchy. Thus, all units relevant to both controlling and financial accounting are assigned to CO components. These components make it possible to transfer postings relevant to cost accounting.
The SAP CO organizational structure mainly includes controlling areas, cost centers and profit centers, but further includes cost center groups, profit center groups, cost element groups, and more. To illustrate this further, we will continue with our hypothetical business scenario referring to Comserve Network.
Let’s imagine that the management team at Comserve Network is considering extending their organizational structure in order to facilitate robust internal cost reporting processes. The following model represents the current structure of the company:
|Operational Dept.||Warehouse, Management, Logistics, Repair Center|
|Product Line||PC, Laptop, GPS, LCD Monitors|
|Service type||Repair, Refurbishment|
|Reporting Requirements||Cost Center Reporting, Profit Center Reporting, Profitability Analysis Report|
How do we go about defining the SAP CO organizational structure for Comserve Network? To build an effective SAP CO organizational structure, it is essential to understand the main aim of the reporting requirements and the interconnection of the business units. The structure must accomplish the following goals:
- Map closely with the physical structure of the organization
- Eliminate master data maintenance and carry out business transactions smoothly
- Ensure that information requirements for external & internal reporting are met
- Ensure authorizations and control mechanisms
Considering these requirements, we can define the SAP CO organizational structure for Comserve Network as below:
The following points relating to the company’s SAP CO organizational structure can be made:
- Comserve Network should be the highest node within the group organization structure and is responsible for internal reporting such as segment and profitability analysis reporting. To accomplish this, the company is set up as operating concern CS00.
- Controlling area CS00 is responsible for internal reporting like cost accounting and profit center accounting.
- The company contains various operational departments which incur various cost. It is essential to create those department as separate cost centers to maintain their responsibility for cost accounting reports. We have identified Warehouse, Logistics, Management and Repair Center as cost centers CCWH, CCLOG, CCGM and CCRC respectively.
- Products will be created as separate profit centers to enable generation of profit center accounting based on each of the product lines offered: PC, Laptop, GPS, LCD. These will be set up as the following profit centers: PC-DKTP, PC-NB, PC-LCD, PC-GPS.
- The profitability report can be generated by setting up each of the two listed revenue channels, Repair and Refurbishment, as segments.
The prescribed SAP CO organizational structure will utilize each organizational unit to accomplish the company’s internal reporting requirements, and our job is done!