Streamlining Material Management: A

Comprehensive Guide to SAP's

Organization Structure, Material Master,
Purchasing, Inventory Management,
Physical Inventory and Logistics Invoice
Verification
Introduction

This presentation provides a

comprehensive guide to SAP 's
organization structure, material
master,purchasing,inventory
management,and logistics
invoice verification.It aims to
streamline material
management processes and
enhance efficiency.
SAP Organization Structure
Company code

The SAP organization structure Purchasing

defines how different Organization
organizational units are
structured and linked within the
system. It includes elements such Plant
as company codes,plants,
storage locations, and purchasing
organizations. Understanding the
organization structure is crucial
for effective material
Storage Location
management.
 SAP Organization Structure
Explanation of Components:

1.Company Code: It represents the legal entity within an organization. A company code is
responsible for financial accounting and reporting activities.

2.Plant: A plant is a manufacturing or distribution facility within a company code.

3.Storage Location: A storage location is a specific physical location within a plant where
materials are stored.

4.Purchase Organization: A purchase organization is responsible for procuring goods and

services from external suppliers.
 SAP Organization Structure

Difference and Functions:

1. Company Code vs. Plant:

Company Code represents the legal entity and is primarily responsible for financial accounting
and reporting. Plant represents a physical location within a company code and is responsible
for production, storage, and distribution activities.

2.Plant vs. Storage Location:

Plant represents a facility within a company code and is responsible for manufacturing or
distribution activities. Storage Location represents a specific area within a plant where
materials are stored.

3.Plant vs. Purchase Organization:

Plant represents a facility within a company code and is responsible for manufacturing or
distribution activities. Purchase Organization is an organizational unit responsible for procuring
goods and services from external suppliers.
 SAP Organization Structure
Scenario Examples:

Company code B
Company code A

Purchasing Organization AB

Plant A1 Plant A2
Plant B1 Plant B2

Storage Storage Storage Storage

Location A1 Location A2 Location B1 Location B2
 SAP Organization Structure
Scenario Examples:

Company code D

Purchasing Organization D1

Plant D1 Plant D2
Purchasing Purchasing
Group D1 Group D2

Storage Storage
Location D1 Location D2
 The material master is a central repository
Material Master of all master data related to materials. It
contains information on material types,
descriptions, attributes, and classification.
Proper maintenance of the material master
ensures accurate and consistent data for
material management processes.
 Material Master
1.Basic Data View (General Data):
The Basic Data view provides fundamental information about the material. It includes:
• Material Number
• Material Type
• Base Unit of Measure
• Description
• Material Group
• Weight, Volume, and Dimensions
• Gross and Net Weight

2. Sales Organization View:

The Sales Organization view contains data relevant to sales and distribution processes. It includes:
• Sales Organization
• Distribution Channel
• Division
• Pricing Conditions
• Customer-Specific Data
 Material Master
3 . P urchasing View:
The Purchasing view captures data related to procurement activities and purchasing processes. It
includes:
• Preferred Vendor
• Purchasing Organization
• Order Unit
• Delivery Time
• Minimum/Maximum Lot Sizes
• Purchasing Info Record

4 . P lant/Storage View:
The Plant/Storage view focuses on information related to storage and inventory management. It
includes:
• Storage Location
• Valuation Class
• Batch Management
• Shelf Life Expiration
• Stock Availability
 Material Master
5.Accounting View:
The Accounting view comprises data relevant to financial accounting and controlling. It includes:

• Valuation Class

• Account Determination
• Cost Center
• Price Control
• Standard Price

6. Work Scheduling View:

The Work Scheduling view provides details related to production planning and scheduling. It
includes:

• Production or Process Lead Time

• Scheduling Margin Key

• Production Planning and Control Parameters
 Material Master
7.Quality Management View:
The Quality Management view includes data concerning quality inspections and control. It includes:
• Inspection Types
• Control Keys
• Inspection Plans

8. Classification View:
The Classification view enables the assignment of classification characteristics and values to the
material.

9. Costing View:
The Costing view includes data related to product costing and profitability analysis. It includes:
• Cost Components
• Cost Estimates
• Pricing Conditions
 Material Master
Scenario 1:Creating a Raw M aterial

User: John, a user in the procurement department, wants

to create a new raw material in SAP for purchasing
purposes.
P lant/Storage View:
Inform ation to Input:
-M aterial Type:Raw m aterial -Storage Location:SL001
-M aterial Number:RM 001 -Valuation Class:001
-Description:Steel P late
-Base Unit of M easure:Each Accounting View:
-M aterial Group:Raw M aterials
-Weight:10 kg -Valuation Class:001
-Volum e:0.05 m 7 -Account Determination: Expense Account - RM
-Dimensions:2m x 1m x 0.01m -Cost Center:CC001
-Price Control: Standard Price
Views to Complete: -Standard Price:$50 per unit
-P urchasing View:
-Preferred Vendor:ABC Supplier
-P urchasing Organization:P O001
-Order Unit:Each
-Delivery Tim e:5 days
-M inim um/M axim um Lot Sizes:100/500 units
 Material Master
Scenario 2:Creating a Finished Product

User: Sarah, a user in the production department, wants to create a new

finished product in SAP for production planning and sales purposes.

Inform ation to Input: P lant/Storage View:

-Material Type: Finished product -Storage Location:SL002

-M aterial Number:FP 001 -Valuation Class:002
-Description:Leather Handbag -Batch M anagem ent:No
-Base Unit of M easure:Each -Shelf Life Expiration:N/A
-Material Group: Finished Products Accounting View:
-Weight:0.5 kg
-Volum e:0.01m 7 -Valuation Class:002
-Dimensions:30cm x 25cm x 10cm -Account Determination: Revenue Account - Handbags
-Views to Com plete: -Cost Center:CC002
-Price Control: Moving Average Price
Sales Organization View:
Work Scheduling View:
-Sales Organization:SO001
-Production Lead Tim e:2 days
-Distribution Channel: Wholesale -Scheduling M argin Key: Standard Production P lanning and
-Division:Handbags Control Parameters: Lot size - 50 units, Reorder Point - 100 units
-Pricing Conditions:Standard pricing with
discounts and taxes
Custom er-Specific Data:N/A
Purchasing

Purchasing involves the

procurement of materials and
services from external vendors. It
includes activities such as vendor
selection, purchase requisitions,
purchase orders, and goods
receipt. Efficient purchasing
processes help optimize costs and
ensure timely availability of
materials.
 Purchasing
The procure to pay process in SAP Materials Management (MM) module encompasses the end-to-
end workflow involved in procuring goods and services, starting from the initial purchase
requisition to the final payment to the vendor.

1. Purchase Requisition (PR):

• The procurement process begins with the creation of a purchase requisition.

• A purchase requisition is an internal document that identifies the need for specific goods
or services within an organization.

2.Source Determination:

• Once the purchase requisition is created, the next step is to determine the source of supply.
• Source determination involves identifying the appropriate vendor or supplier who can fulfill
the requirements stated in the purchase requisition.
 Purchasing
3. Request for Quotation (RFQ) or Purchase Order (PO):

• If source determination requires obtaining quotations, an RFQ is created and sent to

potential vendors.
• Vendors respond with their quotations, and these responses are evaluated.
• Alternatively, if the source is predetermined, a purchase order (PO) is directly created for
the selected vendor.

4. Release Strategy:

Route the purchase order through the defined approval levels and obtain necessary approvals.
 Purchasing
In SAP Materials Management (MM), condition records play a crucial role in determining pricing,
discounts, taxes, and other conditions for specific vendors and materials during the purchasing
process.

1.Condition Types:
Condition types in SAP MM represent various pricing elements, discounts, taxes, and surcharges
that can be applied to a purchase order or invoice.

2.Condition Records:
Condition records are created and maintained for specific combinations of condition types,
vendors, and materials.

3. Pricing Procedure:
A pricing procedure is a defined sequence of condition types that determine how prices and
conditions are calculated during the purchasing process.
 Purchasing
4. Automatic Price Determination:
During the creation of purchase orders or invoice verification, the system automatically determines
the applicable condition records based on the vendor and material combination.

5.Maintenance and Updates:

Condition records can be created, modified, and maintained in SAP M M to reflect accurate pricing
and conditions for each vendor and material.

3. Condition Record Access:

In SAP MM, condition records can be accessed and maintained through the Condition Maintenance
transaction (T-code: MEK1).
 Purchasing
Release strategy in SAP M M is a workflow mechanism used to control and manage the approval
process for purchase requisitions (PRs) and purchase orders (POs). It ensures that the necessary
authorizations and approvals are obtained before proceeding with the procurement process.

Characteristics: Release strategy is based on predefined characteristics, such as the total value of
the PR or PO, the purchasing organization, the material group, or any other relevant criteria.

Release Codes: Each release strategy is associated with one or more release codes.

Release Groups: Release groups are used to categorize PRs or POs based on specific criteria, such
as purchasing organization, plant, or material group.

Release Indicators: Release indicators are used to track the release status of PRs or POs.
 Purchasing
Release Strategy Determination: The release strategy is determined based on the defined
characteristics and the associated release codes.

Approval Workflow: Once a PR or PO is assigned a release strategy, it goes through a predefined

workflow for approval.
Inventory management involves the
monitoring and control of materials within
the organization. It includes activities such as Inventory Management
goods receipt, goods issue, stock transfers,
and physical inventory.Effective inventory
management enables accurate stock levels
and minimizes stockouts or excess inventory.
 Inventory Management
Inventory M anagement in SAP facilitates the
procurement of materials from external or
internal sources based on M aterial
Requirements P lanning (M RP) outcomes.

Once the materials are delivered,a goods

receipt is entered in Inventory Management.
The system manages and stores the materials
until they are either dispatched to customers
through Sales & Distribution or utilized for
internal purposes,such as production.

Throughout these processes, Inventory

M anagement accesses shared master data,
including material master data, as well as
transaction data like purchasing documents.
This enables seamless coordination and
integration among all Logistics components
within the SAP system.
In SAP M M (M aterials M anagement), m ovements of
goods can be categorized as either external
m ovements or internal m ovements, depending on
whether the movement involves materials coming from Inventory Management
or going to external entities (suppliers or customers) or
internal locations within the organization. Below are
examples of both types of movements:

1. External Movements:
a.Goods Receipt for Purchase Order (Movement Type 101): When materials are received into the
organization's warehouse from an external supplier after a purchase order is processed, this
movement type is used for goods receipt.

b.Goods Issue to Customer (Movement Type 601): When finished goods are issued from the
organization's inventory to an external customer for sales, this movement type is used for goods
issue.

c.Return to Vendor (Movement Type 122): When defective or excess materials are returned to an
external vendor, this movement type is used to reverse the goods receipt.

d.Subcontracting - Withdrawal from Stock (Movement Type 541): When materials are withdrawn
from stock to be sent to an external subcontractor for processing, this movement type is used.
 Inventory Management
Internal Movements:
a.Transfer Posting: Plant to Plant (Movement Type 301): When materials are transferred from one
plant to another within the same company code, this movement type is used for the transfer.

b.Transfer Posting: Storage Location to Storage Location (Movement Type 311): When materials
are moved from one storage location to another within the same plant, this movement type is
used.

c.Goods Issue for Internal Consumption (Movement Type 201): When materials are issued from
the warehouse for internal consumption within the organization, such as for production purposes,
this movement type is used for goods issue.

d.Stock Transfer between Storage Locations (Movement Type 313): When materials need to be
transferred between two different storage locations within the same plant, this movement type is
used.

e.Return Delivery to Stock (Movement Type 161): When materials are returned from production or
any other internal process and put back into the warehouse, this movement type is used.
 Inventory Management
Goods Movement Effect on Inventory Effect on Accounting Example
Example: 100 units of raw
material "ABC" received from a
supplier after processing a
purchase order. Inventory of raw
Goods Receipt for Purchase Order material "ABC" increases by 100
(101) Increases stock of materials Updates inventory valuation units.

Example: 50 units of finished

goods "XYZ" issued from
inventory for sales to a customer.
Goods Issue for Consumption Inventory of finished goods "XYZ"
(261) Reduces stock of materials Impacts cost of goods sold decreases by 50 units.

Example: 200 units of product

"PQR" transferred from Plant A to
Plant B to balance inventory.
Transfer Posting: Plant to Plant Transfers materials between Inventory decreases in Plant A
(301) plants N/A (no direct financial impact) and increases in Plant B.
 Inventory Management

Example: 10 defective units of

material "MNO" returned to the
supplier. Inventory of "MNO"
Reverses a previous goods decreases, and financial liability
Return to Vendor (122) receipt N/A (no direct financial impact) is reversed.
Example: 30 units of raw
material "LMN" consumed to
produce 15 units of finished
product "FGH." Inventory of
Goods Receipt for Production "LMN" decreases, "FGH"
Order (531) Increases stock of components N/A (no direct financial impact) inventory increases.
 Inventory Management
Material valuation in inventory management refers to the process of determining the monetary
value of materials or goods held in stock by an organization. It is crucial for accurate financial
reporting and cost analysis. SAP MM provides various methods and features to control material
valuation, such as price control and split valuation.

1. Price Control: Price control in SAP M M determines how the material's valuation is managed in
the inventory. There are two types of price control methods:

a. Standard Price (S): In the standard price valuation method, the material is valuated at a fixed
standard price, which is defined and maintained in the material master record.

Example: Let's consider a material "Product A" with a standard price of $10 per unit. If the
organization buys 100 units of "Product A" at this standard price, the total value of the inventory for
"Product A" will be $1,000 (100 units x $10).
 Inventory Management
b. Moving Average Price (V): In the moving average price valuation method, the material's
valuation is based on the average cost of all goods receipts for the material.

Example: Continuing from the previous example, suppose the company buys an additional 50
units of "Product A" at $12 per unit. The total value of the goods received will be $600 (50 units x
$12). The new moving average price will be calculated as follows: [(Total value of previous stock +
Total value of new stock) ÷(Total quantity on hand +Quantity received)] =[($1,000 +$600) ÷(100 +
50)] =$9.33 per unit. Now, the total value of the inventory for "Product A" will be $1,400 (150 units x
$9.33).

2. Split Valuation:
Split valuation in SAP MM allows a material to be divided into different valuation segments, each
with its own valuation method and price.
 Inventory Management
Example: Let's consider a material "Raw Material X" that can be procured from different vendors at
varying prices. The company decides to implement split valuation for "Raw Material X" to
differentiate between the procurement sources.

Valuation Segment 1:Procured from Vendor A, Valuation Type "Standard Price" Standard Price: $15
per unit
Valuation Segment 2: Procured from Vendor B, Valuation Type "Moving Average Price" Initial Stock:
100 units, Moving Average Price: $12 per unit

If the company buys 50 units of "Raw Material X" from Vendor A, the total value of the inventory for
Valuation Segment 1 will be $750 (50 units x $15). If they buy 30 units of "Raw Material X" from
Vendor B at $13 per unit, the total value of the inventory for Valuation Segment 2 will be $390 (30
units x $13).
 Inventory Management
After the MIGO (Goods Movement) transaction is executed in SAP MM, the following types of
documents are typically generated:

1.Material Document (Inventory Document): The Material Document is the primary document
that is automatically generated after executing the MIGO transaction. It contains detailed
information about the goods movement, including the movement type, material number, quantity,
posting date, plant, storage location, and other relevant data.

2.Accounting Document (Financial Document): The Accounting Document, also known as the
Financial Document, is another key document generated after executing the MIGO transaction. It
represents the financial impact of the goods movement on various accounts in the Financial
Accounting (FI) module.
 Inventory Management
3. Controlling Document (CO Document): The Controlling Document, generated in the Controlling
(CO) module, complements the Accounting Document by providing cost-related information for
the goods movement.
.
 Inventory Management
The weighbridge process in SAP MM (Materials Management) is used to record the weight of
materials during goods receipt or goods issue transactions.

1. Goods Receipt with Weighbridge Process:

• A goods receipt purchase order is created in SAP M M to record the incoming
material. The materials are physically delivered to the warehouse or receiving area.
• Before the materials are moved into the warehouse, they are weighed on a weighbridge
scale, which is an external device integrated with the SAP system.
• The weighbridge scale captures the weight of the
materials, and this weight is automatically transferred to the corresponding
goods receipt in SAP MM.
• The goods receipt transaction is executed in SAP MM using the MIGO (Goods Movement)
transaction, and the system records the weight of the materials along with other details such
as quantity, material number, vendor, and storage location.
• The material is now added to the inventory with the correct weight information, which is
essential for inventory valuation and subsequent processing.
 Inventory Management
2. Goods Issue with Weighbridge Process:
• A goods issue document is created in SAP MM to record the material's withdrawal from the
warehouse.
• Before the materials are physically loaded for dispatch, they are weighed on the weighbridge
scale. The weighbridge scale captures the weight of the materials, which is automatically
transferred to
• the corresponding goods issue document in SAP M M.
• The goods issue transaction is executed in SAP M M using the MIGO (Goods Movement)
transaction, and the system records the weight of the materials along with other details such
as quantity, material number, customer, and shipping location.
• The material is now removed from the inventory with the correct weight information, which
is essential for inventory valuation and subsequent billing to the customer.
Physical Inventory Physical inventory is a process by which a
company stops all goods movement transactions
and physically counts the current inventory. A
physical inventory may be required by financials (Fl)
rules or local tax regulations to determine an
accurate value ofthe inventory. Other reasons for a
physical inventory may include the need to
establish inventory levels so materials can be
restocked. Performing a physical inventory also
ensures that differences between the actual
inventory of materials and the inventory in the SAP
system are reconciled to account for any
unaccounted for theft or wastage.
 Physical Inventory
The SAP System supports the following physical inventory procedures:

1. Periodic inventory
In a periodic inventory, all stocks of the company are physically counted on the balance sheet key
date. In this case, every material must be counted.

2.Continuous inventory
In the continuous physical inventory procedure, stocks are counted continuously during the entire
fiscal year.

3.Cycle counting
Cycle counting is a method of physical inventory where inventory is counted at regular intervals
within a fiscal year.

4. Inventory sampling
In M M – Inventory Sampling , randomly selected stocks of the company are physically counted on
the balance sheet key date.
 Physical Inventory
Flowchart of Physical Inventory

1.Create a physical Inventory

2.Blocking materials for posting
3.Print and distribute the physical inventory
document.
4.The stocks are counted for individually for
the materials in a physical inventory
document.
5.The count results are written on the
printout of the physical inventory document.
6.The printout is then directed back to the
person responsible, so that he or she can
enter the count into the system and analyze
it.
7.Entering the count results in the system
8. Initiating a recount
9. Posting inventory differences
 Logistics invoice verification is the
Logistics Invoice Verification process of verifying vendor invoices against
goods receipts and purchase orders.It
ensures accurate payment to vendors and
helps identify discrepancies or errors.
Proper invoice verification is crucial for
maintaining financial accuracy and
compliance.
 Logistics Invoice Verification
Invoice Verification in SAP M M can be categorized into two main methods: Three-Way Matching and
Two-Way Matching.

1. Three-Way Matching:
Three-Way Matching involves comparing three documents: the purchase order (PO), the goods
receipt (GR), and the vendor's invoice.

Step 1: Goods Receipt (GR) Posting

When the goods are received, the receiving department posts the GR in SAP M M to confirm the
receipt of the items.

Step 2: Invoice Receipt

The vendor sends the invoice to the accounts payable department, who then post the invoice in SAP
MM.

Step 3: Three-Way Match

SAP M M automatically performs a Three-Way Match by comparing the quantities and prices on the
invoice with the data from the purchase order and goods receipt.
 Logistics Invoice Verification
Step 4: Invoice Verification
If all the quantities and prices match (within defined tolerance limits), the invoice is considered
"verified" and is ready for payment processing.

Step 5: Handling Discrepancies

If there are discrepancies, such as incorrect quantities or prices, the invoice will be blocked for
payment.

2. Two-Way Matching:
Two-Way Matching is a simplified version of Invoice Verification that involves comparing only two
documents: the purchase order (PO) and the vendor's invoice.

Step 1: Purchase Order (PO)

The purchasing department creates a purchase order in SAP M M with details of the goods or
services to be procured.
 Logistics Invoice Verification
Step 2: Invoice Receipt
The vendor sends the invoice to the accounts payable department, who then post the invoice in SAP
MM.

Step 3: Two-Way Match

SAP M M automatically performs a Two-Way Match by comparing the quantities and prices on the
invoice with the data from the purchase order.

Step 4: Invoice Verification

If all the quantities and prices match (within defined tolerance limits), the invoice is considered
"verified" and is ready for payment processing.

Step 5: Handling Discrepancies

If there are discrepancies, the invoice will be blocked for payment.
 Logistics Invoice Verification
3. Credit Memos and Reversals:

• Credit Memos: Credit memos are issued by vendors to correct errors or make adjustments to
previously issued invoices.

• Reversals: If an invoice is posted erroneously or requires correction, a reversal can be

initiated.

Taxes in Invoice Verification:

SAP M M allows the management of various taxes in the invoice verification process. Taxes, such as
Value Added Tax (VAT) and withholding tax, are typically calculated based on local tax regulations
and settings defined in the system.
 Logistics Invoice Verification
5. GR/IR Account Maintenance:

The Goods Receipt/Invoice Receipt (GR/IR) account is a temporary clearing account used during the
invoice verification process.

6.Invoice Reduction:

Invoice reductions occur when there are discrepancies or issues with the invoice that require a
reduction in the invoice amount.

7. Tolerance Limits:

Tolerance limits are pre-defined thresholds set in SAP M M to accommodate minor discrepancies
between the purchase order, goods receipt, and invoice.
 Logistics Invoice Verification
8. Blocking Invoices:

If there are significant discrepancies or issues with the invoice, it may be blocked for further
processing.

9.Down Payments and Retention Money:

• Down Payments: In some cases, vendors may require a down payment before providing
goods or services.

• Retention Money: Retention money is a percentage of the invoice amount withheld by the
customer as security until the vendor fulfills certain obligations or warranties.
Conclusion

This presentation has provided a

comprehensive guide to
streamlining material
management within SAP.By
understanding the organization
structure,material master,
purchasing,inventory
management,and logistics
invoice verification, organizations
can enhance efficiency,reduce
costs,and improve overall supply
chain performance.
Thank you!
Do you have any questions?