Materials Management – Master the Best Practices Part 1: General SAP Project and Materials Management Organizational Structure Best Practices Jocelyn Hayes, SAPtips Director of Training and Consulting Editor's Note: Take a tip (or several) from someone who has been involved in many SAP® implementations, in many companies. Jocelyn Hayes leverages her 11 years of experience in Logistics and Materials Management and has compiled a list of her “best” tips, tricks, and overall practices for Materials Management organizational structure and other SAP projects. Remember, if you like what you read, then plan to join Jocelyn in Dallas this Spring when she presents an entire class on Materials Management.
Introduction: As a Logistics (primarily Materials Management) SAP Consultant for over 11 years, I have seen the good, the bad, and the ugly when it comes to SAP implementations and practices. There are the well-known best practices, but there are also some not-so-well-known ones that can make or break portions of an implementation. In this white paper, I will talk generally about project best practices and I will also provide some best practices as well as definitions about Enterprise Structures. While this white paper series will not discuss every aspect of Materials Management best practices, I will try to share with you my experiences and some key considerations for any SAP implementation. In future installments of this series, we will explore MM Best Practices in areas of Material Masters, Vendor Masters, Purchasing, Inventory Management, Consumption Based Planning, Invoice Verification, and Reporting.
General SAP Project Best Practices: Scope Creep This is a general project principle, but very key in an SAP implementation. The project preparation phase of an SAP project is absolutely the most important phase of any SAP project. Unfortunately, most of the key implementers are not involved in the project until the Blueprint phase. This is a major flaw in almost every SAP implementation in which I have been involved. TIP #1: Involve all key decision makers and team members in the entire lifecycle of the project, starting with the Project Preparation phase, in which you define project scope. 80/20 rule Do not try to tackle every single “what if” scenario when designing your solution. You can spend hundreds of hours of your time on “what if” scenarios and never tackle the basics. If you take this approach to solve every scenario, I guarantee you will double, if not triple, your implementation time. Start with the standard products, the standard business process, and I can basically guarantee that SAP will have a standard solution in their ERP package to fit your business process need. So, the 80/20 rule is that you will spend 80% of your time on 20% of your business processes if you are not careful. TIP #2: Table the 20% of your business processes for which SAP does not provide a “standard” solution. Leave them for post go-live. Seriously. It may sound crazy, but you will figure out a solution for them and your business will survive. It is more important to go-live not fully ready, than to not go-live at all.
Copyright © 2007 by Klee Associates, Inc. www.SAPtips.com
Page 1
Materials Management – Master the Best Practices Part 1: General SAP Project and Materials Management Organizational Structure Best Practices Team Members Selecting team members represents the most important decision your Project Manager or Business Stakeholders will make (well, next to selecting SAP as their ERP solution). The team members will make or break your project. When you’re choosing functional team members, you’ll need to look for individuals who: 1. Know your business well and know the requirements of their business process area to get the product out the door and to keep your customers happy. 2. Are open to new solutions and new business process flows. You do not want someone reinventing the old system within SAP. While it is possible to custom code your own solution in SAP, it is not why you bought a world-class enterprise system. You bought it because it has standard functionality that will meet or exceed your business requirements. 3. Have influence over people in their respective departments and are highly respected. If the team members are outsiders within their own departments, the members of their departments will not readily accept the new solution. TIP #3: Make team member selection the highest priority after you have signed your SAP purchase contract. You are investing a lot of money into the software and you need to make the same investment in the team that will implement it. It may cause some heartache in the departments they are vacating, but it will pay off on go-live day. Automation Automation is often the most overlooked function in either a new SAP implementation or an existing one. I have seen millions of bottom-line dollars left on the table because a company did not take the time to uncover and determine which transactions could be automated in SAP. TIP #4: Create a Business Process Flow diagram and include all the steps – both manual and in the system. Determine which steps could be automated and start an action plan to implement more automation in the system.
Enterprise Structure Now that I have discussed some of the general project principles, which are not as trivial as they seem, I would like to dive into Materials Management-specific best practices and guidelines. The enterprise structure is often the first area we define when implementing our SAP solution. As a word of caution, realize that as you move into configuring your solution, you may need to tweak the Enterprise Structure you defined early in your project. I will describe all the Enterprise Structure settings, since they are all used in some way in Materials Management (even though they do not fall specifically under the MM module). Client In SAP, a client represents a self-contained SAP system. The client has its own master records, configuration, and tables. Most small to mid-size companies have one Production client where they run their “live” environment. Larger companies may choose to have multiple clients by division or corporate group. Company Code A company code contains a complete set of General Ledger accounts. Create a company code for each entity for which you need to draw up unique Balance Sheets and Profit and Loss statements.
Copyright © 2007 by Klee Associates, Inc. www.SAPtips.com
Page 2
Materials Management – Master the Best Practices Part 1: General SAP Project and Materials Management Organizational Structure Best Practices Plant Many considerations exist when determining what to call a “Plant”in a company. I typically describe a plant as a physical location – it does not have to produce or store anything. The address can be maintained in the Storage Location or the Plant. However, you can have more than one plant represent the same physical site if you need to divide it up for other reasons, like having different MRP and forecast data. Materials are also valuated either at the company code or plant level – so if you need to segregate material valuation, you can create multiple plants for that purpose. The Delivery Address that appears in the Purchasing documents comes from the plant. So, if you have goods delivered to another address, you should consider setting up another plant. The following is a list of decision points when creating one or many plants: 1. Do your materials need to have different MRP and forecast data? 2. Do you need to have different valuation methods for your materials? 3. Do you have more than one physical location from/to which you ship items? Let’s define how a plant is related to other organizational elements: •
The Plant is assigned to a SINGLE company code. A company code can have several Plants.
•
Several storage locations can belong to a single pPlant.
•
A single business area is assigned to a plant and to a division.
•
A plant can be assigned to several combinations of sales organizations and distribution channels.
•
A plant can have several shipping points. A shipping point can be assigned to several plants.
Storage Location Within a plant, you can have multiple storage locations. A storage location is where stock is physically kept in a plant. A storage location has an address; however, this address is only used for internal purposes. The address that appears on purchasing documents comes from the Plant. Stocks are managed on a quantity basis at the storage location and on a value basis at the plant or company code level (also called the valuation level). You carry out physical inventory at the storage location level. If you use Warehouse Management, you can assign one or more storage locations to a warehouse. Keep in mind that the quantity of the inventory is at the storage location level, the value is at the plant level, and the physical location of the inventory is at the Warehouse/Storage Type/Storage bin level. Finally, you must create at least one storage location for a plant, whether you are storing inventory there or not.
Copyright © 2007 by Klee Associates, Inc. www.SAPtips.com
Page 3
Materials Management – Master the Best Practices Part 1: General SAP Project and Materials Management Organizational Structure Best Practices So some key considerations in determining how to set up your storage locations are: 1. How do you want to perform physical inventory? 2. How do you want to assign your storage locations to warehouses? Let’s define how a storage location is related to other organizational elements: More than one storage location can exist in a plant. •
A storage location has at least one address.
•
Stock is managed at the storage location level.
•
Physical Inventory is carried out at the storage location level.
•
A storage location can be assigned to one or many warehouses.
•
At least one storage location must be created for a plant.
Warehouse Number Not all companies will use Warehouse Management, but if you store and pick stock, it is highly recommended to take advantage of this functionality. Warehouse Management allows you to define a specific physical location within your warehouse where you can store a specific material. The combination of warehouse number, storage type, and storage bin represents the physical location of the stock item. Some key considerations for determining how to set up your warehouse numbers are: 1. Do you have more than one physical location? 2. Do you have different storage strategies (i.e., stock removal/placement) for individual materials? The following illustrates how a warehouse is related to other organizational elements: • A warehouse does not have an address, but a short descriptive text. •
Stock is managed as a quantity – not a value - within a warehouse.
•
Within a plant, you cannot assign several storage locations to the same warehouse number.
Storage Type A storage type can represent a physical or logical storage area that consists of one or more storage bins. Typical examples of storage types include: •
Goods Receipt Area
•
Goods Returns Area
•
Picking Area
•
High Rack Storage Area
Storage type data stored on the Material master include storage bin stock – min/max quantities and replenishment quantities.
Copyright © 2007 by Klee Associates, Inc. www.SAPtips.com
Page 4
Materials Management – Master the Best Practices Part 1: General SAP Project and Materials Management Organizational Structure Best Practices The following list defines some features of the storage type: •
A storage type does not have an address––just a short description.
•
Inventory is executed at the storage type/storage bin level.
•
Interim storage bins can be used for goods in movement.
Shipping Point A shipping point is required to determine the type of shipping and location from where shipping is to occur. Let’s illustrate how a shipping point interacts with other organizational elements: •
Shipping point can be assigned to several plants.
•
A delivery is initiated from one shipping point, so all items of a delivery can belong to only one shipping point
•
A shipping point has an address.
•
The combination of plant, loading group, and shipping condition determine the shipping point.
•
Shipping point is the key selection criteria when processing deliveries from the Delivery Due List and the Outbound Delivery Monitor.
Purchasing Organization A purchasing organization represents an organizational unit that procures materials and services and negotiates with vendors. Companies can have corporate purchasing organizations, company specific, plant specific, or a combination of these groups. You can also assign a reference (or master) purchasing organization for a subordinate organization to take advantage of “master” pricing agreements. Here’s how a purchasing organization interacts with other organizational elements: • • • • • •
A purchasing organization can be assigned to “one to many” plants. A purchasing organization can be assigned to “zero to many” company codes. o Since a plant is assigned to a company code, the purchasing organization can be determined based on the plant selected. A purchasing organization can be linked to one or more purchasing organizations, making it a Reference Purchasing Organization. Multiple Purchasing Groups can exist in a purchasing organization to represent various buying units or entities (or buyers). Vendor Master data, InfoRecords, and Pricing Conditions can be maintained at the purchasing organization level. Authorizations to specific purchasing organizations can be maintained in SAP Security.
Sales Organization Similar to a purchasing organization that is responsible for buying goods and services, a sales organization is responsible for selling goods and services. A Sales Area is made up of the combination of Sales Organization, Distribution Channel, and Division.
Copyright © 2007 by Klee Associates, Inc. www.SAPtips.com
Page 5
Materials Management – Master the Best Practices Part 1: General SAP Project and Materials Management Organizational Structure Best Practices Here is how a sales organization interacts with other organizational elements: •
A sales organization is assigned to only one company code because the accounting data resides at this level. However, if a sales organization and plant are assigned to different company codes, an internal billing document is automatically generated for accounting purposes.
•
A Sales Organization can be assigned to multiple plants, but multiple plants cannot be assigned to a sales organization (in other words, one sales organization is assigned to a plant).
•
Customer and Material Master data, and Pricing can be maintained at the Sales Organization level.
•
Sales Document types can be assigned to a Sales Organization.
Distribution Channel Distribution Channel examples include wholesale, resale, and direct sales. Let’s discuss how a distribution channel interacts with other organizational elements: •
Distribution channels can be assigned to “one to many” sales organizations and “one to many” plants.
•
Customer and Material Master data and Pricing can be maintained at the distribution channel level in addition to the sales organization level.
•
Items on a delivery note can belong to a different distribution channel, but items on a billing document cannot, for accounting purposes.
Division A division represents an organizational value assigning responsibility for sales of goods and services. The following illustrates how a division interacts with other organizational elements: •
A division can be allocated to “one to many” sales organizations and distribution channels.
•
To carry out business area account assignments, allocate a business area to a division from a plant.
•
A material can only be assigned to one division – it is stored on the Basic Data screen of the Material master
•
Customers and pricing can have division level specific data,
•
It is possible to restrict combining materials from different divisions on a sales document within the configuration for sales document types,
Business Area Financial statements can be created for business areas. A business area groups product and market combinations for accounting purposes. You’ll assign a business area to each of the combinations of plant and division for automatic business area account assignment; SAP uses this combination to determine revenue postings.
Copyright © 2007 by Klee Associates, Inc. www.SAPtips.com
Page 6
Materials Management – Master the Best Practices Part 1: General SAP Project and Materials Management Organizational Structure Best Practices Conclusion: Many rules have been illustrated in this white paper – far too many to provide an example for each. So here is a shameless plug for our Public Training – attend the Materials Management or Sales and Distribution classes to get lots of exercises and examples of the various techniques companies use to develop their Enterprise Structure. Other tidbits you can learn include “how to fix it if you set it up wrong” during your implementation. As mentioned in the intro, I will have follow-up white papers in which I will explore some Best Practices and Tips and Tricks when setting up Material Masters, Vendor Masters, Purchasing, Inventory Management, Consumption Based Planning, Invoice Verification, and Reporting. These topics will also be covered in great detail in our Public Training. For details go to www.SAPtips.com/Workshops.asp
About the Author: Jocelyn Hayes, Director of Consulting and Training for SAPtips, has over ten years of SAP experience. She has enjoyed a successful consulting career for a Big 4 firm as well as independently. Jocelyn’s focus primarily has involved the Logistics modules of SAP, and has also developed ESA Roadmaps using NetWeaver™ tools, including Visual Composer, XI, Enterprise Portal, and BI. She also led a CRM Business Process Reengineering project. You may contact the author at
[email protected]. Be sure to mention the author’s name and/or the article title.
The information in our publications and on our Website is the copyrighted work of Klee Associates, Inc. and is owned by Klee Associates, Inc. NO WARRANTY: This documentation is delivered as is, and Klee Associates, Inc. makes no warranty as to its accuracy or use. Any use of this documentation is at the risk of the user. Although we make every good faith effort to ensure accuracy, this document may include technical or other inaccuracies or typographical errors. Klee Associates, Inc. reserves the right to make changes without prior notice. NO AFFILIATION: Klee Associates, Inc. and this publication are not affiliated with or endorsed by SAP AG. SAP AG software referenced on this site is furnished under license agreements between SAP AG and its customers and can be used only within the terms of such agreements. SAP AG and mySAP are registered trademarks of SAP AG. All other company and product names used herein may be trademarks or registered trademarks of their respective owners.
Copyright © 2007 by Klee Associates, Inc. www.SAPtips.com
Page 7
