CLIENT: A client is defined as a self-contained commercial, organizational, and

technical unit within an SAP System. This means that all business data within a
client is protected from other clients. Each client has its own customer data,
which can be considered as the exclusive property of this client.
COMPANY: Company is the topmost organizational unit after client, which
incorporates individual financial accounting statements of several company
codes. A company can have many company codes. In SAP, it is optional to create a
company.
COMPANY CODE: A Company Code is the smallest organizational unit after
company, for which the standalone financial accounting's profit and loss
statements can be withdrawn. Many company codes can be assigned to one
company. The following steps depict how to create a company code.
PLANT: A Plant is an organizational unit within a company where activities take
place. A plant will produce goods and make goods available for the company.
STORAGE LOCATION: A Storage Location is an organizational unit, which actually
differentiates between the different material stocks in a Plant. Storage location is
a place where stock is kept physically. A plant can consist of multiple storage
locations. All data is stored at a storage location level for a particular storage
location.
PURCHASING GROUP: A Purchasing Group is an organizational unit that is
responsible for the everyday procurement activities within an organization.
PURCHASING ORGANIZATION: A Purchasing Organization is an organizational
unit under Company or Plant that is responsible for procurement activities
according to requirements. It is responsible for external procurement. A
purchasing organization can be specific to a plant or a company.
CONTROLLING AREA: In SAP, Controlling area is an organizational element which
is responsible for management of costs and profits. The relation between
controlling Area to company code is one to many relationship, so one or many
company codes can be linked to a single controlling area in different currencies, if
required.
COST CENTER: A Cost Center is defined as a component in an organization that
adds to the cost and indirectly adds to the profit of the organization. Examples
include Marketing and Customer Service.
COST ELEMENT: classify an organization's valued consumption of production
factors within a controlling area. They provide information concerning the value
flow and value consumption within the organization. A cost element corresponds
to a costrelevant item in the chart of accounts.
CHART OF ACCOUNTS: This is a list of all G/L accounts used by one or several
company codes. For each G/L account, the chart of accounts contains the account
number, account name, and the information that controls how an account
functions and how a G/L account is created in a company code. You have to assign
a chart of accounts to each company code. This chart of accounts is the operating
chart of accounts and is used for the daily postings in this company code.

MASTER DATA: Data that is created centrally and is valid for all applications. It
remains constant over time but we need to update it on a regular basis. For
example: Vendor is a type of master data that is used for creating purchase orders
or contracts.
MATERIAL TYPE: Materials with some common attributes are grouped together
and they are assigned to a material type. It differentiates the materials and allows
organizations to manage different materials in a systematic manner in accordance
to a company’s requirement.
DIEN (services) FERT /FINP(finished products) HALB (Semi finished products)
HAWA (trading goods) NLAG (non-stock material) ROH (raw materials) UNBW
(non-valuated materials) VERP (packaging materials) LEIH(Returnable Packaging)
PIPE(Pipeline materials) ERSA(Spare Parts) CONS(Consumable Materials)
MATERIAL GROUP: Material group is a wider range of material type. Materials
with some common attributes are taken together and they are assigned to a
material group. For example: We have some materials that are to be packaged, so
the material type can be electrical or food products, but we can group these
material types and put them in the packaged material group.
PURCHASING INFO RECORD: Purchasing info record stores information on
material and vendor, supplying that material. For example, a vendor’s current
price of a particular material is stored in info record.
Purchase info record can be maintained at the plant level or at the purchasing
organization level.
SOURCE LIST: Source list includes a list of possible sources of supply for a material
over a given framework of time.
• Source list specifies the time period of ordering a particular material from a
given vendor.
• Source list can be copied from one plant to another plant.
• Source list can be created by the following two ways Automatically Manually

TRASACTIONAL DATA: Data that is associated with processing of business

transaction is transactional data.
PROCURE TO PAY: Procure-to-pay is the process coordinated and integrated action
taken to fulfill a requirement for goods or services in a timely manner at a
reasonable price. It involves a number of sequential stages, ranging from need
identification to invoice approval and vendor payment. Steps in a procure-to-pay
process need to be executed in a strict order.
PURCHASE REQUISITION: A purchase requisition is a request that is made to the
purchasing organization to procure a certain list of materials.
It is an internal document and remains within the organization.
Purchase requisition needs approval from the purchasing organization.
If a purchase requisition has already been approved, then it can be modified only
to a limited extent.
REQUEST FOR QUOTATION: Vendor selection is an important process in the
procurement cycle. Once requirements are gathered (PR created and approved),
we start looking for possible suppliers who can fulfill the requirements at the best
possible conditions. So, a request will be sent to the available vendors to submit
their quotations indicating the price of the material along with their terms and
conditions. This request is known as the request for quotation (RFQ).
Quotation is a reply by a vendor in response to a request for quotation.
PURHASE ORDER: Purchase orders can be created with reference to a purchase
requisition, RFQ, quotation, another purchase order, contract, Sales order ect.
Through Document Overview Section.

OUTLINE AGREEMENTS: An outline agreement is a long-term purchasing

agreement with a vendor containing terms and conditions regarding the material
that is to be supplied by the vendor.
• The terms of an outline agreement are valid up to a certain period of time and
cover a certain predefined quantity or value.
Contract, Scheduling Agreement are the types of outline agreements
CONTRACTS: A contract is a long-term outline agreement between a vendor and
an ordering party over a predefined material or service over a certain framework
of time.
Quantity Contract: In this type of contract, the overall value is specified in terms
of the total quantity of material to be supplied by the vendor. Document type is
MK
Value Contract: In this type of contract, the overall value is specified in terms of
the total amount to be paid for that material to the vendor. Document Type is WK
Service Contract: In this type of contract, the overall value is specified in terms of
the total amount to be paid for that service to the vendor. Document Type is DC
SCHEDULE AGREEMENTS: A scheduling agreement is a long-term outline
agreement between the vendor and the ordering party over a predefined
material or service, which are procured on predetermined dates over a
framework of time.
LPA - With release documentation LP - Without release documentation

INVENTORY MANAGEMENT: Inventory management deals with the management

of stock, either on value or quantity basis.
GOODS RECEIPT: A goods receipt is an important document in any business that
deals with the buying and selling of goods. A goods receipt is used to record and
track the movement of goods into a warehouse from one vendor to another.

It also helps to ensure that all items being traded are accounted for. A goods
receipt can also be used as a basis for settling any disputes that may arise over
transactions.
GOODS ISSUE: Goods issue is the movement of goods or materials from
warehouse to the production or manufacturing process unit.
TRANSFER POSTING: Transfer posting is a removing of materials from one plant
and moving to another plant or location. Examples of transfer postings are as
follows.
1. Postings from material to material, plant to plant
2. Transfer posting from valuation type to valuation type
3. Release the quality inspection stock that is moving the stock to unrestricted
use in SAP
STOCK TRANSFER: The stock transfer is nothing but transferring of materials from
one plant to another storage location, from plant to plant, plant of company code
to plant of another company code. When the stock transfer happens between
plants, then the quantity changes in both plants.
RESERVATION: Sometimes, stocks are to be blocked in advance so that they can
be made available at a particular point of time. This is known as Reservation.
PHYSICAL INVENTORY MANAGEMENT: Physical inventory is a process of
determining that the inventory quantities are exact, or if there are differences in
quantity mentioned physically present and that mentioned in the SAP system.
Basically, after you are finished with physical inventory, your system and physical
stock levels must be the same.
SALES ORDER: The sales order is a contractual agreement between a sales
organization and a sold-to party about delivering products or providing a service
for defined prices, quantities and times.

TYPES OF PROCUREMENT: Standard, Special and Services

STANDARD PROCUREMENT: a customer buys a material from an external vendor
and the finished material is delivered to the ordered customer.
SPECIAL PROCUREMENT: the goods are procured in a separate way and will
process the customer order as per the requirement. Here in this process, stocks
are treated as special stocks and the way we procure the material is called special
procurement activity.
CONSIGNMENT: In consignment processing, the vendor provides materials and
stores them on your company premises. The vendor remains the legal owner of
the material until you withdraw materials from the consignment stores. The
payment for the quantity consumed/withdrawn is settled with the vendor
periodically, for example on a monthly basis.
For the vendor consignment process in SAP to work, you first need to agree on
pricing with the vendor. The prices are a kept in consignment info records in the
SAP system. The prices can be automatically copied to purchase orders from info
records.
After maintaining consignment info records, a consignment purchase order is
created in SAP and handed over to the vendor. The vendor provides your
company with materials according to the purchase order (PO). The warehouse of
your company performs goods receipt of the materials against the purchase order
and the materials are stored as consignment stock in the SAP system.
Later, when materials are required for processing, you withdraw the material
from the warehouse and a liability is created for the vendor which is settled
through a special payment process MRKO.
SUBCONTRACTING: In subcontracting, the vendor (the subcontractor) receives
components from which it produces a product. The product is then ordered by
your company through a purchase order. The components required by the vendor
to manufacture the ordered product are listed in the purchase order and
provided to the subcontractor. The components can be determined by the system
via a bill of material or as components.
STO PROCESS: Intra Company STO – Stock moving from one plant to plant, where
the supplying and receiving plants under same company code.
Inter Company STO - Stock moving from one plant to plant, where the supplying
and receiving plants under different company codes.
THIRD PARTY PROCESSING: In third-party processing, a company passes on a
sales order to an external vendor who sends the goods directly to the customer.
The sales order is not processed by your company, but by the vendor. Third-party
items can be entered in purchase requisitions, purchase orders, and sales orders.
Third-party processing is integrated with the Sales and Distribution (SD)
component. If the sales order contains third-party items, the system creates a
purchase requisition from the order.
RTP PROCESS: The Company orders goods from a vendor. The goods are delivered
with returnable transport packaging (pallets, containers, cylinders) that belongs
to the vendor and is stored on the customer premises until they return it to the
company.
PIPELINE HANDLING PROCESS: In pipeline handling, the company does not need
to order or store the material concerned. It is ready available as and when
required via a pipeline (for example, oil or water and gas), or some other type of
cable (for example, electricity). Consumption of the material is settled with the
vendor on a regular basis.
EXTERNAL PROCUREMENT: It is the process of procuring goods or services from
external vendors. There are three basic forms of external procurement generally
supported by the purchasing component of the IT system.
INTERNAL PROCUREMENT: Large corporate organizations may own multiple
separate businesses or companies. Internal Procurement is process of getting
material and services from among identical company. So, each of these
companies maintains a complete bookkeeping system with separate Balance,
Profit & Loss Statements so that when trade occurs between them it will be
recorded.

SCHEMA GROUP: Schema groups are then assigned to purchase organizations in

customizing and to vendors in vendor master record. They are used to map the
pricing determination process based on the vendor or purchase organization.
PRICING PROCEDURE: In the MM module, the Pricing procedure is a channel for
determining the prices in purchasing documents. This give us functionality for
assigning different calculation types for various needs. During PO and RFQ
creation In MM module, the pricing procedure is utilized. The total value of
material is based on all the addition and subtraction such as surcharge, discount,
tax, freight, etc.

BATCH: A ‘batch’ is the quantity of material produced in a run of production. It

represents a homogenous unit with unique specifications and is a subset of the
total quantity of material held in stock.
BATCH MANAGEMENT: ‘Batch Management’ refers to the entirety of the logistics
process in production facilities or plants, from procurement to sales, across
manufacturing in industries such as pharma, mining, FMCG, retail, aerospace, and
many more. Depending on the material, plant, and operational levels, we can
choose to classify how each batch will be unique, i.e., based on attributes,
dimensions, quality, and more.

VALUATION: Procurement process starts with creating a purchase order and ends
with invoice verification. In the whole process, one of the important parts is
material valuation. While creating purchase orders, material price is a mandatory
field and it is automatically determined. It happens because material valuation is
maintained in the SAP system in the material master. Material valuation
represents integration between MM & FI (Financial Accounting) modules, since it
updates the general ledger accounts in financial accounting. The key points to
note about material valuation are as follows −
 Material valuation helps in determining the price of the material, and in
which general ledger account it needs to be posted.
 Material valuation can happen at company code level or plant level.
 Material can be valuated based on different types of procurement; it is
known as split valuation.
SPLIT VALUATION: Split valuation helps in valuating the stocks of a material in the
same valuation area (company or plant) differently. Some of the examples where
split valuation is required are as follows−
 Stock that is procured externally from a vendor has a different valuation
price than the stock of an in-house production.
  Stock obtained from one vendor is valuated at a different price than the
stock obtained from another vendor.
 Same material having different batch may have different valuation prices.
STANDARD PRICE: STANDARD PRICE is Fixed Price, the price difference will be
maintained in another GL account.
MOVING AVERAGE PRICE: It will vary the PO price difference based on changes in
price each day. MOVING AVG PRICE vary with Price entered in PO.