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Intercompany Sales Processing in SAP

The following blog is written by Kevin McKenna – Senior Education Consultant in the North America SAP Education Delivery Organization.  Kevin specializes in the areas of Sales and Distribution, Logistics Execution and Warehouse Management and is a subject matter expert in the areas of Global trade Services and Sales and Use Tax.  Kevin has over 17 years of SAP experience and is certified Sales and Distribution and Logistics Execution at the Associate level. Kevin can be contacted via email at




Given that the competitive landscape for business is being expanded to a global playing field, it is increasingly necessary to represent and support the global organization in your Enterprise system. Not only must the appropriate organization structures be represented, but also the business processes that utilize these structures must be flexible enough to support your legal and business reporting requirements.


This article will review the organization structures necessary to support a global enterprise, as well as reviewing the sales processes that rely on these structures. In particular, we will focus on the Inter-company sales process.


Organization Structures


In order to establish the organization structures necessary to support global business processes, it is necessary to review the organizational structures in SAP ECC, and relate them to your Enterprise. The organization structures are represented in three functional areas: Financial, Sales and Distribution, and Logistics. All allowable organizational structures must first be defined in customizing, and then can be assigned relationships to other organizational structures.


The Financial organizational structure represented in SAP ECC is the Company Code. It is the organizational structure that identifies the legal financial entity from a reporting perspective. A company code must be established for each country where financial transactions are to be reported. It is the level of financial integration for all SAP business transactions. All business transactions that post to general ledger accounts do so at the company code level. All postings to the general ledger from subsidiary applications are created automatically.  Therefore, the company code must be determined automatically in that application.


The Sales and Distribution organizational structure is called the Sales Area. The sales area is a combination of three individual organizational structures: the sales organization, the distribution channel, and the division. The sales area is used for capturing sales data, it helps establish the pricing strategy for the sales document, and it can be used to determine default master data for the sales order.


The sales organization is the highest level for reporting sales information. It represents the selling company’s legal responsibilities. It defines the customer’s rights of recourse for product liability. It answers the question: Who did the selling? In configuration, a sales organization is uniquely linked to one company code. This is how the SAP ECC system determines the company code used to post general ledger accounts at billing time.


The distribution channel identifies how our sales efforts reach our customers. It answers the question: How did we sell? Examples of distribution channels may be wholesale, retail and direct marketing. For global enterprises, you may define a separate distribution channel for international and domestic sales, for example. For each sales organization, we configure the valid distribution channels that can be used.


The division identifies the product categories that we sell. It answers the question: What did we sell? The division is a part of the sales area, and as such helps define reporting, pricing, and master data default data. It is also a field that can be stored in the material master, and can be configured to be defaulted to the line item level of the sales order. Therefore, it can be used for product line sales reporting.


The Logistics structure necessary to support global business processes is the Plant. The Plant is the highest level in the Materials Management application and is used to track inventory. Examples of plants can be distribution centers and manufacturing facilities. The plant is related to the Company code in SAP ECC to determine financial ownership of the inventory. Although it represents where the inventory is located, it may be necessary to define multiple Plant codes to represent inventory that is stored in one physical location but owned by different Company codes. This relationship is used at the time the goods issue is recorded. It determines the company code that is used to financially record the reduction in the inventory General Ledger account, and post the offset typically to the cost of goods sold account.


The plant code is also related to Sales organization structures. We must configure allowable combinations of Sales organizations and Distribution channels that can sell from a specific plant.  For example, the US Sales organizations for “domestic wholesale” distribution channels can sell from US plants that are distribution centers, while the US Sales organization for “international wholesale” distribution channels can sell from both Domestic and International Distribution channels located throughout the world. In both cases, we may establish that, in general, we are not allowed to source a sales order directly from a manufacturing facility. Manufacturing “plants” only transfer inventory to distribution center “plants”.  This is merely an example of how to use the relationship of plant to sales organization and distribution channel, not a recommendation or limitation of the SAP ECC system.


The plant code is determined automatically for each sales order line. The SAP ECC system uses a specific sequence of master records to default the delivering plant into the sales order item. We first check the Customer Material Information master record. This record is stored based on the combination of sales organization, distribution channel, sold-to customer and material. This means different combinations of sales organizations and distribution channels can propose different delivering plants for the same sold to customer and material. If this record is found, we will check to see if a delivering plant is stored in this record. If so, the search is ended, and the delivering plant is returned to the sales order line. If no Master record exists, or a delivering plant is not found, we continue to the Ship-to customer master. The delivering plant on the Ship-to customer master is stored based on the sales area. Therefore, different sales areas can propose a different delivering plant for the same ship to customer. The delivering plant is stored on the shipping tab of the customer master. Once again, if found, the search ends, and the delivering plant is returned to the sales order item. If not found, we proceed to the material master. The delivering plant is stored on the material master, based on the combination of sales organization and distribution channel. Once again, different combinations of sales organizations and distribution channels can propose a different delivering plant for the same material. When the delivering plant is determined, it is also checked to make sure we are allowed to sell from that plant based on the sales organization and distribution channel on the order.


Inter-Company Sales


The definition of inter-company sales in SAP ECC is when the company code that is determined by the delivering plant at goods issue time differs from the company code determined by the sales organization at billing time.  In essence, inventory was sold that belonged to a different legal entity. In order to “balance the books”, after posing goods issue from the delivering plant, two billing documents need to be generated. The first billing document, which is issued to the customer, is used to record the revenue and accounts receivable in the company code that is related to the sales organization of the sales order. The second billing document is used to record the “intercompany” sales. That is, the company code related to the plant that provided the inventory bills the company code related to the sales organization that received “credit” for the sale.


Let us review each billing document to see how they are used to post an intercompany sale. In the customer, the billing document type is defaulted from the order type. Order type “OR” defaults billing document type “F2” in the standard system. The sales area is determined from the sales order. The payer customer is defaulted from the sales order. The pricing procedure is determined using these influencing factors.  In this billing document, pricing procedure RVAA01 is provided. Revenue is posted using the standard pricing condition type PR00. The cost however, is determined with an intercompany condition type PI01 “intercompany price”. It is defined at the level of the sales org and the delivering plant. This means that the same product can have a different intercompany price, or cost, based on which sales organization is selling the product, and which plant it is being delivered from. This allows flexibility in recording profitability for the sale to the customer.


In the second invoice, which is used to record the intercompany sale, the sales area is determined based on the delivering plant. The payer customer is determined based on the sales organization of that sales area. The perspective is that the sales organization is “buying” the inventory from the delivering plant to support the sale. Therefore, the sales organization is providing the customer, and the delivering plant provides the sales area for the intercompany invoice. The intercompany invoice also defaults the billing document type from the sales order type. Order type “OR” defaults billing document type “IV”. Using the intercompany sales area, internal customer and billing document type “IV”, a different pricing procedure is determined. Pricing procedure ICAA01is determined. The revenue is posted using condition type IV01, which references the pricing data from condition type PI01. The reason different condition types are used is due to financial controlling. Basically, a condition type can be mapped as either revenue or cost, but not both. The cost on the intercompany invoice uses the standard condition type VPRS, which determines the cost form the material master. It is logical that we use the same data as condition type PI01, as the cost on the customer invoice is actually the cost on the intercompany invoice.


The intercompany business process is covered in detail in the SCM680 Cross Application Processes in MM and SD. This 3-day class covers the configuration alluded to in this presentation. The organization structures covered in this presentation are topics of several SD classes, as it is the foundation for all business processes. This material is also covered in the Certification academy TSCM60 and TSCM62. The organization structures account for up to 8% of the questions on the C_TSCM62_65 certification exam.

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  • i can't imagine an intercompany process without vendors. also, since Eh4 there's a whole new reconciliation ledger for selection and matching of intercompany customer/vendor company code balances.