Written by Minami — Paddy & Water Inc. / Technology & Platform

Understanding the initial setup of FI, CO, AA, SD, MM, and PP starting from “why we configure it”

June 2026

How to Read This Guide

The initial setup (configuration) of SAP is not “the work of filling in the SPRO menu items one by one from the top.” Each setting is an act of translating a company’s organizational structure, business rules, and accounting policies into the SAP system. If you proceed without understanding the meaning of each setting, consistency errors will occur frequently in later stages, making fundamental corrections difficult after go-live.

For each transaction code, this guide describes the following four perspectives.

• [Purpose]: What this setting defines (What).

• [What Happens If Not Configured]: The business impact/errors if omitted (Risk).

• [How to Think About the Setting Values]: What values should be entered, and the key design decision points (How).

• [Points of Caution]: Common configuration mistakes, items that cannot be changed later, and dependencies (Note).

The principle for the order of implementation is “Client Level → FI Enterprise Structure → FI Financial Accounting → CO → AA → SD → MM → PP.” Because upstream settings become prerequisites for downstream settings, proceed while maintaining this order.

Chapter 1: Client-Level Settings (Highest Priority, Cannot Be Changed Later)

Group Currency Setting

Set a single “base currency for group consolidation” for the SAP S/4HANA client (the entire system).

• [Purpose]: Defines the common currency used to create the consolidated financial statements for the entire group of companies. For example, when a Japanese holding company adopts JPY, this becomes the base currency for converting and aggregating the USD-denominated financial figures of overseas subsidiaries into JPY.

• [What Happens If Not Configured]: Subsequent company code setup, currency conversion, and consolidated reporting (EC-CS) will not function properly. This is an item that must be finalized at the very beginning of the initial setup.

• [How to Think About the Setting Values]: The principle is to set the parent company’s functional currency. For Japanese companies this is usually “JPY.” For global groups whose base is USD, “USD” is selected.

[Point of Caution] Changing this after go-live affects the entire system’s currency conversion history, so it is effectively unchangeable. It must be finalized and approved at the Blueprint stage.

Material Number Length Setting (OMS9)

Sets the maximum number of digits (up to 18) for material numbers used across the entire system.

• [Purpose]: Determines how many characters are used to represent material numbers in the material master (raw materials, parts, finished products). Rules such as “fixed 8-digit numeric” or “18-character alphanumeric” are set here.

• [What Happens If Not Configured]: If left at the default (18 digits), the numbering scheme will not be standardized, and management will become chaotic as the number of materials increases.

• [How to Think About the Setting Values]: Align with the existing material numbering scheme (from the system prior to ERP migration), or, when designing new, design “a scheme from which material classification can be read” (e.g., the first 2 digits indicate the material category, the next 4 digits are a sequential number). Set a number of digits with enough margin to accommodate future expansion of material types.

[Point of Caution] Changing this after go-live is effectively impossible because it requires a bulk conversion of all existing material numbers. It must be finalized before master data migration.

Chapter 2: FI (Financial Accounting) Enterprise Structure Settings

The FI enterprise structure is defined in the hierarchy of “Company → Company Code → Business Area/Segment.” This hierarchy becomes the organizational unit for all financial postings, reporting, and tax filing.

Company Setting (OX15)

• [Purpose]: Defines the top-level legal entity unit of the consolidated group. It is the “identifier for the consolidated parent company in SAP.” Sets the group currency, address, and name.

• [What Happens If Not Configured]: Group companies will not be correctly aggregated in the consolidated financial statements (EC-CS). Also, the subsequent linkage with company codes (OX16) cannot be performed.

• [How to Think About the Setting Values]: Normally, one “Company” is set up per parent company that has legal personality. The difference from a company code is that “Company” is a concept for consolidation, while “Company Code” is the smallest legal unit that maintains an independent set of books.

Company Code Setting (OX02)

• [Purpose]: Defines the “smallest legal unit that maintains an independent set of double-entry bookkeeping books.” The “Japanese entity, US entity, and Singapore entity” each have their own independent company code. All FI postings, fixed assets, and payables/receivables belong to a company code.

• [What Happens If Not Configured]: Without a company code, no financial processing whatsoever can be executed for that legal entity. SD sales orders, MM purchase orders, and PP production orders are all linked to a company code as well.

• [How to Think About the Setting Values]: A company code is usually 4 characters (e.g., “JP01” for the Japanese entity, “US01” for the US entity). Each entity sets its own “currency, country, language, and Chart of Accounts (CoA).” Using EC01 (copy an existing company code) can significantly reduce the setup effort.

[Point of Caution] Changing the currency (company code currency), country, or CoA set for a company code afterward affects the entire history. Must be finalized before go-live.

Company Code to Company Assignment (OX16)

• [Purpose]: Links the “Company (consolidation unit)” created in OX15 with the “Company Code (books unit)” created in OX02. Defines the relationship “this company code belongs to this group” for consolidated reporting.

• [What Happens If Not Configured]: The figures for the relevant company code will not be incorporated into the consolidated financial statements (EC-CS).

Business Area Setting (OX03)

• [Purpose]: An organizational unit for creating “financial statements by business segment” that cut across company codes. Used, for example, to compare the “Electronic Components Division, Machinery Division, and Services Division” across the organization.

• [What Happens If Not Configured]: B/S and P/L by business area cannot be created. However, in S/4HANA, “Segment” (which supports IFRS 8) is recommended, and new adoption of business areas is often kept to a minimum.

• [How to Think About the Setting Values]: This depends on management’s decision as to “from which angle the group wants to perform segment financial reporting.” When applying IFRS, prioritize Segment, and consider limiting Business Area to a supplementary role for Japanese GAAP purposes.

Credit Control Area (OB45) / Company Code Assignment (OB38)

• [Purpose]: Defines the “Credit Control Area” that manages customer credit limits, and assigns it to company codes. This is the foundation for automatic credit checks performed during SD sales order entry and delivery.

• [What Happens If Not Configured]: Without a credit control area, credit limits cannot be set for customers, and sales orders/deliveries that exceed credit limits will pass through without restriction.

• [How to Think About the Setting Values]: There are cases where a single credit control area is shared across multiple company codes (managing one customer’s credit line collectively across the entire group) and cases where each company code has its own independent credit control area. To manage concentration risk on large global customers, the “group-integrated” approach is effective.

Segment Setting

• [Purpose]: Defines the “reporting segments” needed to satisfy IFRS 8 (“Operating Segments”) disclosure requirements. By linking segments to profit centers, B/S and P/L by segment are generated automatically.

• [What Happens If Not Configured]: If segments are not set up at a listed company applying IFRS, segment information disclosure in the notes to the financial statements cannot be produced. Also, Document Splitting in S/4HANA cannot create a B/S by segment.

• [How to Think About the Setting Values]: Define the “smallest independent unit of the business” from a management perspective as a segment. Under the notes to financial statements, a segment that accounts for “10% or more of total company revenue” requires individual disclosure (IFRS 8, para. 13).

Additional Local Currency Setting (OB22)

• [Purpose]: In addition to the company code currency (e.g., JPY), manages a “Group Currency (e.g., USD)” and a “Hard Currency (e.g., EUR)” in parallel within the same company code. All exchange rates for foreign-currency transactions are automatically converted and recorded simultaneously in multiple currencies.

• [What Happens If Not Configured]: Consolidation in the group currency cannot be performed without additional conversion work. It also cannot handle cases where a subsidiary in a hyperinflationary country requires hard-currency management (IAS 29: hyperinflationary accounting).

• [How to Think About the Setting Values]: The standard combination is normally “Currency Type 30: Group Currency” and “Currency Type 10: Company Code Currency (local currency).” For companies with many foreign-currency transactions, the accuracy of exchange rate management (OB08) also becomes important.

[Point of Caution] Adding this after go-live is extremely difficult because it requires conversion of existing balances. Must be finalized at the design stage.

Chapter 3: FI Financial Accounting Basic Settings

Fiscal Year Variant Setting (OB29)

• [Purpose]: Defines “when the fiscal year begins and ends, and how many periods it consists of.” Japanese companies commonly start in April and close in March (K4: Japan standard), while the calendar year (starting January, closing December) is K1. “Special periods (periods 13-16)” for closing adjustments are also defined here.

• [What Happens If Not Configured]: If the fiscal year variant is not set or is incorrect, the posting period for journal entries will not be determined correctly, and the period classification of financial statements will collapse. Also, month-end closing processing will not function properly.

• [How to Think About the Setting Values]: The standard configuration is “normal periods (1-12) plus special periods (13-16).” Special periods are used to record “closing adjustment entries (accrual of provisions, accrual of unpaid expenses)” after the regular monthly postings. Without special periods, all closing processing would need to be done only at the end of December (or March), which is practically difficult.

[Point of Caution] Changes after go-live retroactively affect past period settings and are therefore effectively unchangeable.

Posting Period Variant (OBBO/OBBP) / Period Opening (OB52)

• [Purpose]: OBBO/OBBP sets up the “variant that manages which accounting periods postings are allowed into,” and OB52 is used to open/close periods each month. The common operation is “the current month and next month are open; the previous month and earlier are closed.”

• [What Happens If Not Configured]: If all periods remain open, erroneous postings to past periods will occur. If closing is not performed, management confusion arises, such as “closing the monthly report while last month’s figures are not yet finalized.”

• [How to Think About the Setting Values]: OB52 is operated every month during the month-end closing process. The standard is “close the previous month, open the current month, and also keep the next month open (for advance posting).” Special periods (13-16) are opened only at year-end closing. It is common to set up separate variants for regular users and accounting administrators, allowing only administrators to post to special periods.

Ledger and Currency Type Setting (FINSC_LEDGER)

• [Purpose]: Configures the multi-ledger functionality of S/4HANA. In addition to the “Leading Ledger (0L: Japanese GAAP),” defines “Non-Leading Ledgers (L1: IFRS, L2: US GAAP)” and automatically generates journal entries for multiple accounting standards from a single transaction.

• [What Happens If Not Configured]: For listed companies that need to disclose both IFRS and Japanese GAAP in parallel, if a non-leading ledger is not set up, IFRS financial statements would need to be prepared in a separate system.

• [How to Think About the Setting Values]: “Which accounting standards to adopt” and “which ledger to use as the leading ledger” are decisions of management/finance strategy. For a Japan-listed company that voluntarily applies IFRS, a typical configuration is “0L: Japanese GAAP (leading) plus L1: IFRS (non-leading).” FINS_CUST_CONS_OHK_P allows advance checking for configuration inconsistencies.

[Point of Caution] Changing the leading ledger is effectively impossible after go-live. Because multi-ledger affects consolidation, tax filing, and management accounting altogether, thorough consideration is required at the design stage.

Global Parameters (OBY6)

• [Purpose]: Confirms/sets the “language, country, Chart of Accounts, and base currency” of the company code. This is the starting parameter for FI configuration.

• [What Happens If Not Configured]: Errors in the language/country setting affect the application of tax codes, bank formats, and date formats. Errors in the Chart of Accounts propagate to all subsequent G/L account settings.

Chapter 4: FI Financial Accounting Master Data Settings

G/L Account Number Length Setting (OB13)

• [Purpose]: Uniformly defines the maximum number of digits (up to 10) for G/L account numbers across the entire client. There are options such as “6 digits, 8 digits, 10 digits.”

• [What Happens If Not Configured]: Leaving the default value can create inconsistency with the existing accounting system’s account coding scheme.

• [How to Think About the Setting Values]: Align with the “number of digits of the existing system’s account code,” or, if newly establishing a group-wide common CoA, design “a number of digits that allows for a readable account classification scheme to be built in.” For example, with a 10-digit design, a scheme is possible such as “1000000000-1999999999: Assets, 5000000000-5999999999: Expenses.”

[Point of Caution] Changing this after go-live requires a bulk change of all G/L accounts and is therefore effectively unchangeable.

Chart of Accounts / Company Code Assignment (OB62)

• [Purpose]: Assigns a “Chart of Accounts (CoA)” to a company code. The CoA is “the master list defining all G/L accounts,” and the company code uses accounts from this CoA. Global companies sometimes also link a “Country Chart of Accounts” in addition to the group-common CoA.

• [What Happens If Not Configured]: If a CoA is not assigned, G/L accounts cannot be created or referenced, and no journal postings can be made at all.

• [How to Think About the Setting Values]: Management/accounting policy determines whether to share a single “Single CoA” across the whole group, or use a dual-management approach of country CoA plus group CoA. A Single CoA makes report consolidation easier, but managing country-specific accounts (e.g., the difference in granularity between the Japanese “Accounts Receivable/Accounts Payable” and the English “Trade Receivables”) becomes more complex.

Account Group Setting (OBD4)

• [Purpose]: Classifies G/L accounts into groups (e.g., “Assets, Liabilities, Equity, Revenue, Expenses”) and assigns a “number range and screen layout (required/optional field settings)” to each group.

• [What Happens If Not Configured]: If the account group is not set up, accounts cannot be created in FS00 (G/L account creation). Also, the account type (B/S account or P/L account) will not be correctly identified, resulting in errors in the classification of the financial statements.

• [How to Think About the Setting Values]: The account group defines “the boundary between the account number range and the account type.” For example, design it as “Group GLG1 (Cash and Deposits): number range 1000000-1099999, BS type” and “Group GLG5 (SG&A Expenses): number range 5000000-5999999, PL type.”

Retained Earnings Account Setting (OB53)

• [Purpose]: Specifies the “Retained Earnings account (or accumulated deficit account)” used in the annual profit carry-forward process (F.16: Carry Forward of Balances). When F.16 is executed, the balances of all P/L accounts for the current fiscal year are reset to zero, and their total (net income for the period) is transferred to this account.

• [What Happens If Not Configured]: If OB53 is not set, F.16 (annual profit carry-forward) cannot be executed, and the prior period’s P/L account balances would remain carried forward into the following period’s B/S.

• [How to Think About the Setting Values]: Designate the B/S account corresponding to “Retained Earnings” or “Carried Forward Profit.” Under Japanese GAAP, the “Retained Earnings Carried Forward” account applies; under IFRS, the “Retained Earnings” account applies.

G/L Account Setting (FSP0 / FS00)

• [Purpose]: In FSP0, set the account name and account type (P/L or B/S) at the CoA level (common to the entire company); in FS00, set company-code-level (entity-specific) items such as “tax code, foreign currency management flag, and field selection.”

• [What Happens If Not Configured]: If an account does not exist, no postings can be made to that account. Also, an error in the account type (B/S or P/L) directly causes misclassification in the financial statements.

• [How to Think About the Setting Values]: For “accounts involved in foreign-currency transactions (accounts receivable, accounts payable, foreign-currency deposits),” turn ON the “foreign currency management flag (open item management).” For “fixed assets and inventory,” which are automatically controlled by AA and MM, it is recommended to restrict manual postings.

Number Range Setting (FBN1)

• [Purpose]: Sets the numbering scheme for FI documents (journal entries). Assigns number ranges by document type (SA: G/L account journal entry, KR: vendor invoice, DR: customer invoice, AB: asset document, etc.).

• [What Happens If Not Configured]: If number ranges are not set, FI documents cannot be posted. Exhaustion of a number range (reaching the maximum number) is also a cause of posting errors.

• [How to Think About the Setting Values]: Choose between “reset per fiscal year (annual number reset: e.g., reusing 010000001-019999999 every year)” or “continuous throughout the year (no reset: sequential numbering).” From an audit/internal control perspective, the “annual reset method,” which makes clear “what number posting this is within the year,” tends to be preferred.

Financial Statement Version Setting (OB58)

• [Purpose]: Defines “how G/L accounts are classified and aggregated for display” on the B/S and P/L. Reports such as S_ALR_87012284 (Financial Statement display) aggregate and display accounts hierarchically according to this version’s settings.

• [What Happens If Not Configured]: If the financial statement version is not set or is incomplete, accounts will appear as “Unassigned” in the B/S and P/L reports. Since this is directly tied to tax and disclosure documents, assignment of all accounts is mandatory.

• [How to Think About the Setting Values]: It is common to create multiple versions, for Japanese GAAP, for IFRS, and for management accounting. It is efficient in global rollouts for the parent company to design the group-standard version, with subsidiaries applying it.

Chapter 5: FI Tax Code and Bank Settings

Non-Taxable Code / Company Code Assignment (OBCL)

• [Purpose]: Assigns the consumption tax code used for “non-taxable purchases (exports, non-taxable items)” to the company code. Referenced when processing non-taxable transactions in MIRO (invoice verification) in MM.

• [What Happens If Not Configured]: If the non-taxable code is not set, non-taxable purchases cannot be processed in MIRO. Mistakenly using a taxable code results in over-reporting or misreporting of consumption tax.

• [How to Think About the Setting Values]: In Japan, consumption tax codes such as “V0 (0% non-taxable), V1 (10% taxable), V2 (8% reduced rate)” are set up beforehand in FTXP, and among these, the non-taxable codes are assigned to the company code via OBCL.

Automatic Posting Setting (SM34: VC_T030K)

• [Purpose]: Defines the G/L accounts to which “tax journal entries” such as consumption tax and withholding tax are posted. This is a setting that “assigns a posting account for each accounting key (Accounting Key),” and all tax entries in FI, SD, and MM are automatically posted according to this setting.

• [What Happens If Not Configured]: When executing a posting that uses a tax code (MIRO, VF01, etc.), an “account not determined error” occurs. If the posting account for consumption tax is incorrect, the tax filing documents and the general ledger will diverge.

• [How to Think About the Setting Values]: Set up the mapping between accounting keys and accounts, such as “MWS (output tax) leads to the output tax account” and “VST (input tax) leads to the input tax account.” At period-end, output and input tax are offset to determine the “amount of consumption tax payable.”

[Point of Caution] This table (T030K) cannot be edited from OB40. Changes must always be made via SM34 (Table Maintenance Generator).

Bank Account Setting (FI12)

• [Purpose]: Registers the bank accounts held by the company (main bank, sub-banks, accounts in various currencies) in SAP. Used as the payment account for “which account to pay from” in F110 (Automatic Payment Program).

• [What Happens If Not Configured]: If FI12 is not set up, the payment account cannot be identified when running F110 (automatic payment), resulting in an error. Also, the target accounts for electronic bank statement import (FF67) cannot be identified.

• [How to Think About the Setting Values]: Set the “bank code (financial institution code), account number, currency, and G/L account (the corresponding account in SAP for the bank account).” Foreign currency accounts are registered as separate accounts respectively.

Electronic Bank Statement Setting (OT83)

• [Purpose]: Configures the “format definitions” and “automatic clearing rules (Auto-Matching Rules)” for importing electronic bank statements (standard formats such as MT940, BAI2, SWIFT, etc.) from internet banking into SAP.

• [What Happens If Not Configured]: Because automatic import of electronic statements will not function, staff must manually reconcile bank balances with SAP balances, which becomes extremely labor-intensive when there is a large volume of deposits and withdrawals.

• [How to Think About the Setting Values]: Automatic clearing rules are set with conditions such as “if the deposit amount matches the accounts receivable amount, clear automatically” or “if the remitter name includes the customer number, clear automatically.” The higher the automatic clearing rate, the more the workload of the AR staff is reduced.

Chapter 6: FI Accounts Receivable/Payable Management Settings

Customer Account Group (OBD2) / Number Range (XDN1)

• [Purpose]: Defines the “numbering scheme and screen layout” for the customer master. For example, defines classifications such as “Domestic Customer Group: 0001-4999, Overseas Customer Group: 5000-9999,” and sets the required input fields for each group.

• [What Happens If Not Configured]: If the customer account group is not set, XD01 (customer master creation) cannot be performed.

• [How to Think About the Setting Values]: In S/4HANA, BP (Business Partner) manages FI customers and SD customers in an integrated manner. The BP “roles (FI: Financial Accounting, SD: Sales)” correspond to the account groups in OBD2. Each account group can control “whether credit management applies” and “whether a reconciliation account is set.”

Customer/Vendor Tolerance (OBA3)

• [Purpose]: Sets the rule for automatically generating an adjustment entry to clear the difference and settle a receivable, when the “difference between the invoice amount and the payment amount (rounding, transfer fees, discounts)” during accounts receivable clearing (F-28, FEBA) is within a tolerance.

• [What Happens If Not Configured]: If the tolerance is not set (or set to zero yen), even a one-yen difference cannot be cleared, and staff must manually adjust it. If clearing stalls due to a large volume of receivable line items, management of outstanding balances breaks down.

• [How to Think About the Setting Values]: Determine settings such as “absolute value: automatically tolerate within 100 yen” or “percentage: automatically tolerate within 0.5%” based on business requirements. Setting too wide a tolerance risks overlooking fraudulent discrepancies. Also configure the “debit account for the difference (miscellaneous loss, discount expense)” and “credit account (miscellaneous gain)” at the same time.

Payment Program Setting (FBZP)

• [Purpose]: Performs all the prerequisite settings needed for F110 (Automatic Payment Program) to operate. Sets the “payment methods (bank transfer, promissory notes, checks, etc.),” “the bank account used for each payment method,” “bank ranking (priority order when multiple accounts exist),” and “fee codes.”

• [What Happens If Not Configured]: If FBZP is not set or incomplete, “payment method not set error / bank account not set error” occurs when running F110, and automatic payment cannot be executed.

• [How to Think About the Setting Values]: Sets “payment methods per company code (in Japan: T (bank transfer), W (promissory notes), etc.),” “the bank account used for each payment method (accounts already registered in FI12),” and “DME format (bank-specific remittance file format, such as the Zengin format).” Supporting the Zengin format requires a dedicated DMEE (Data Medium Exchange Engine) configuration.

[Point of Caution] Deficiencies in FBZP are the most common cause of errors in F110. In particular, always verify the operation of “the linkage between payment methods and bank accounts” and “the DME format setting” before going live.

Terms of Payment Setting (OBB8)

• [Purpose]: Defines the “period from invoice issuance to the payment due date, and early payment discount terms.” For example: “N30 = net payment within 30 days,” “2/10 N30 = 2% discount if paid within 10 days, net payment within 30 days,” etc.

• [What Happens If Not Configured]: If terms of payment are not set, default payment terms cannot be set on customer/vendor masters. The due date calculation in F110 (automatic payment) cannot be performed correctly, and automatic calculation of early payment discounts will also not function.

• [How to Think About the Setting Values]: Design payment term codes in advance that comprehensively cover domestic and international business practices and the contract terms with each business partner. In Japan, “end-of-month cutoff, payment at the end of the following month (M30)” and “end-of-month cutoff, payment at the end of the month after next (M60)” are common.

Chapter 7: CO (Management Accounting) Settings

Controlling Area Setting (OK06)

• [Purpose]: Defines the top-level organizational unit of SAP CO, the “Controlling Area.” All CO cost management, allocation, and planning is executed only within a controlling area. This determines “which company codes can perform cost allocation within the same controlling area.”

• [What Happens If Not Configured]: If the controlling area is not set, no CO functionality whatsoever can be used. Cost centers, internal orders, and product costing are all blocked.

• [How to Think About the Setting Values]: Decide between “1 controlling area = 1 company code (simple configuration)” or “1 controlling area = multiple company codes (when cross-group cost allocation is required).” Combining multiple company codes into one controlling area enables cost allocation between company codes, but requires currency unification (either unifying the controlling area currency with the company code currency, or performing conversion), which makes the design more complex.

Component/Activation Flag (OKKP)

• [Purpose]: Activates the various CO components: “CCA (Cost Center Accounting), CO-PC (Product Cost Controlling), CO-PA (Profitability Analysis), EC-PCA (Profit Center Accounting)” for each controlling area.

• [What Happens If Not Configured]: For example, if CO-PC is not activated, standard cost estimates (CK11N), production order cost collection, and variance analysis will not function. Activation here is required before using the needed functionality.

• [How to Think About the Setting Values]: The principle is to “turn ON only the components that are used.” Activating unused components creates unnecessary processing load. However, since activating a component later means no data exists for past periods, decisions should also account for future usage plans at the design stage.

Default Account Assignment (OKB9)

• [Purpose]: A rule that “automatically supplements the default CO object” for expense accounts where the “CO object (cost center, internal order, WBS element)” is not specified when posting an FI journal entry. Sets, for example, “postings to the utilities expense account are automatically assigned to the head office administrative cost center.”

• [What Happens If Not Configured]: When posting to an expense account for which OKB9 is not set, a “CO object not specified error (Account requires CO assignment)” occurs. Manual journal entries in, e.g., FB50 would then require entering the CO object by hand every time.

• [How to Think About the Setting Values]: For “company-wide common expenses (rent, communications, utilities, etc.),” set a default cost center via OKB9. For “production orders / project direct costs,” since these are explicitly specified on-screen at posting time, a default setting in OKB9 is unnecessary.

Cost Center Standard Hierarchy (OKEON/KEOEN)

• [Purpose]: Sets up the “parent-child hierarchy (tree structure) of cost centers” to which every cost center must belong. For example, a hierarchy such as “Whole Company, Manufacturing Division Group, Processing Section, Lathe Team.”

• [What Happens If Not Configured]: If the standard hierarchy is not set, cost centers (KS01) cannot be created. Also, allocation cycles (KSU5) do not apply to cost centers that do not belong to the hierarchy.

• [How to Think About the Setting Values]: Design in line with the organization’s management hierarchy (org chart). However, since the responsibility unit of a cost center is determined by “the granularity of cost management,” it may not fully match the org chart. The design principle that “the smallest unit of budget management equals the cost center” is important.

Planning Version Setting (OKEQ)

• [Purpose]: Defines the “planning version” into which CO cost plans (KP06/KP26) are entered. Version 0 is the official plan (Official Plan), and versions 1 and higher are simulations/alternative plans.

• [What Happens If Not Configured]: If Version 0 is not set, data cannot be entered into KP06 (cost planning) or KP26 (activity type price planning).

• [How to Think About the Setting Values]: Version 0 is managed as the “approved official plan.” “What-if” simulations, such as “the cost impact if revenue decreases by 10%,” are performed in Versions 1 and 2, without affecting the official plan.

Profit Center Setting (KE51)

• [Purpose]: Defines the unit for managing “internal profit and loss by business unit, product line, or region (Profit Center P/L).” By creating a B/S and P/L by profit center, profitability by business portfolio, which cannot be seen in the company-wide financial statements, is made visible.

• [What Happens If Not Configured]: If profit centers are not set up, EC-PCA (Profit Center Accounting) will not function. Profit center assignment cannot be made on key master data such as material masters, cost centers, and WBS elements, and revenue/expenses cannot be automatically posted to profit centers.

• [How to Think About the Setting Values]: Design based on the management purpose of “what axis you want to view internal profit/loss along.” When you want to manage a combination of product line axis, regional axis, channel axis, etc., the hierarchical design of profit centers is important. Always set up a dummy profit center (KE59) as a catch-all for transactions with no profit center assigned.

Chapter 8: FI-AA (Fixed Asset Management) Settings

Chart of Depreciation (EC08) / Company Code Assignment (OAOB)

• [Purpose]: In EC08, define the country-specific “Depreciation Calculation Rule Table (Chart of Depreciation),” and in OAOB, assign that table to the company code. In Japan, “JJMF (Japanese Standard)” is the standard template.

• [What Happens If Not Configured]: If the chart of depreciation is not set, asset classes (OAOA) cannot be configured, and fixed asset masters (AS01) cannot be created either. Fixed asset accounting will not function at all.

• [How to Think About the Setting Values]: In global rollouts, country-specific charts of depreciation are set up to accommodate “differing useful lives, residual values, and depreciation methods under each country’s tax law.” Define JJMF for Japan, a chart for US GAAP, etc., separately.

Asset Class Setting (OAOA)

• [Purpose]: Defines the types of fixed assets as classes, such as “Buildings (10), Machinery and Equipment (20), Vehicles (30), Software (40), Construction in Progress (AuC) (90).” For each asset class, sets “default useful life, account determination (the account to which entries are posted), and screen layout.”

• [What Happens If Not Configured]: If asset classes are not set, AS01 (fixed asset master creation) cannot be performed.

• [How to Think About the Setting Values]: For items such as “buildings,” where the accounting useful life (50 years) differs from the tax useful life (38 years), multiple “Depreciation Areas” are set up within a single asset class to run parallel calculations. Depreciation Area 01 is for accounting purposes, and Depreciation Area 15 is for tax purposes, thereby separating them.

Depreciation Area Setting (OAYZ)

• [Purpose]: Sets, for each asset class, “how many types of depreciation calculations are performed in parallel.” For a single fixed asset, “accounting depreciation, tax depreciation, IFRS depreciation, and group-consolidation depreciation” are simultaneously calculated using different methods and periods.

• [What Happens If Not Configured]: If a needed depreciation area is not set up, AFAB (depreciation posting) will not generate entries for some accounting standards. This is an essential setting for companies that are required to report separate depreciation expenses for tax filing and for IFRS disclosure.

• [How to Think About the Setting Values]: The depreciation area for the leading ledger (01) is mandatory. Companies applying IFRS add an “IFRS depreciation area (e.g., 31).” For tax filing purposes (accelerated depreciation, differences in residual value), a “tax area (e.g., 15)” is set up. For each depreciation area, set the “posting method (SM30: V_T093_00N)” to define the ledger linkage.

Depreciation Key Setting (AFAMA)

• [Purpose]: Defines the detailed logic of depreciation calculation methods such as “declining-balance method, straight-line method, double-declining-balance switch to straight-line method, and units-of-production depreciation.” Residual value, minimum amount, and maximum depreciation period can also be set.

• [What Happens If Not Configured]: If the depreciation key is incorrect, the depreciation expense calculated each month when running AFAB will not be correct, and the asset valuation in the financial statements will be wrong. This also affects calculation of special tax depreciation.

• [How to Think About the Setting Values]: Set up depreciation keys corresponding to the “declining-balance method (e.g., 250% declining balance)” and “straight-line method” under Japanese corporate tax law. Depreciation keys need to be updated with each tax reform, such as the response to the revised useful lives introduced in the 2024 amendment.

Chapter 9: SD (Sales and Distribution) Settings

SD Enterprise Structure (Sales Organization, Distribution Channel, Division)

• [Purpose]: Sets the three axes of the “Sales Area” that define “which organization (Sales Organization), through which route (Distribution Channel), sells which products (Division).” All sales orders, deliveries, and billing belong to this sales area.

• [What Happens If Not Configured]: If the sales area is not set, sales orders (VA01) cannot be created. Also, the customer master cannot be set up (VD01) with the sales area in which it transacts.

• [How to Think About the Setting Values]: “Sales Organization” is the profit-and-loss responsibility unit (e.g., domestic sales department, export department). “Distribution Channel” is the sales route (direct sales, distributors, e-commerce). “Division” is the product category (electronic components, mechanical parts). Register the valid combinations of these three axes in OVXGN.

Shipping Point Setting (OVXD) / Assignment to Plants (OVL2/OVXC)

• [Purpose]: The “Shipping Point” represents the starting point of shipping operations (warehouse, factory, distribution center). Sets, in OVXC, the rule for automatically determining “which shipping point to ship from” when creating a delivery (VL01N).

• [What Happens If Not Configured]: If the shipping point is not correctly assigned to materials/plants, a “shipping point could not be determined error” occurs when creating a delivery in VL01N.

• [How to Think About the Setting Values]: Automatic determination of the shipping point is decided by the combination of “material loading group, shipping condition, and plant” (OVXC). For example, a mapping is set such as “refrigerated item (loading group 02), standard shipping (shipping condition 01), head office plant” leads to “dedicated refrigerated shipping point.”

Pricing Procedure (V/03, V/06, V/07)

• [Purpose]: Configures SD’s “Condition Technique.” Defines “which condition table (V/03: a combination of search keys such as sales organization, customer, and material) to use, which condition type (V/06: PR00 = sales price, K007 = customer discount, etc.) to use, and in which order to search (V/07: access sequence).”

• [What Happens If Not Configured]: If the pricing procedure is not set, prices will not be automatically determined on sales orders (VA01). Sales staff would need to manually enter prices every time.

• [How to Think About the Setting Values]: Design a search priority such as “the highest-priority price (individually contracted price), then customer-specific discount, then the product price list, and finally the default price.” After registering condition records (the actual price values) in VK11, prices are automatically retrieved according to this search sequence.

Account Determination (VKOA)

• [Purpose]: A rule that automatically determines “which FI G/L account to post sales revenue and discounts to” when a billing document is posted (VF01). Defines the mapping “Sales Area x Material Group x Accounting Key (ERL: revenue, ERS: discount, etc.) leads to a G/L account.”

• [What Happens If Not Configured]: If VKOA is not set, an “account not determined error” occurs when posting an invoice (VF01). Sales journal entries are not automatically generated in FI.

• [How to Think About the Setting Values]: Set the posting account for each accounting key, such as ERL (revenue), ERS (discounts/rebates), ERF (freight), etc., in line with categories such as “domestic sales, export sales, service revenue, discounts.” Configure this together with the design of material groups (OMSF).

Material Ledger Setting (OMX2/OMX3/OMX1/CKMSTART)

• [Purpose]: Sets up and activates the Material Ledger, which has become a standard requirement in S/4HANA. The material ledger is the foundation for “Actual Costing” of inventory, where inventory is valued at standard cost during the period and, at period end, the difference from actual cost is absorbed to correct it to actual cost.

• [What Happens If Not Configured]: In S/4HANA, the material ledger is effectively mandatory. It is a required setting especially when using actual costing (CKMLCP).

• [How to Think About the Setting Values]: Set the material ledger type and currency type in OMX2, set the valuation level (plant level) in OMX3, activate each valuation area in OMX1, and start production operation in CKMSTART. CKMSTART is performed in two stages: “test run, then actual run after confirmation.” It cannot be deactivated after the actual run.

Chapter 10: MM (Purchasing and Inventory Management) Settings

Purchasing Organization Setting (OX08) / Assignment (OX01/OX17)

• [Purpose]: Defines the “responsibility unit for procurement (Purchasing Organization).” The configuration differs depending on whether “group purchasing headquarters procures centrally for the entire company” or “each business division procures independently.” Assign it to company codes via OX01 and to plants via OX17.

• [What Happens If Not Configured]: If the purchasing organization is not set, ME21N (purchase order creation) cannot be performed. The purchasing view of the vendor master (BP) also cannot be set up.

• [How to Think About the Setting Values]: Setting up a “Cross-Company Purchasing Organization” (centralized purchasing spanning multiple company codes) improves price negotiation leverage through volume consolidation across the group. However, a design is needed that clarifies where purchasing responsibility lies (which company code pays).

Pricing Schema Setting (OMFM/OMFP/OMFO)

• [Purpose]: Similar to the SD pricing procedure, this defines “how purchase order prices are automatically determined” in MM as well. Automatically retrieves the purchase price based on conditions such as “vendor, material, and quantity break.”

• [What Happens If Not Configured]: If OMFO (the purchase order pricing schema) is not set, prices will not be automatically entered on purchase orders (ME21N), and buyers must enter them manually each time.

• [How to Think About the Setting Values]: OMFO defines the search order in which the price conditions registered in MEK1 (purchasing conditions setup) and ME11 (purchasing info record) are referenced. A common priority order is “individually contracted unit price, then purchasing info record unit price, then standard list price.”

Invoice Verification Tolerance (OMR6)

• [Purpose]: Sets the tolerance for the difference between “purchase order price vs. invoice price” during MIRO (invoice verification). Differences within tolerance are automatically approved; if exceeded, an “invoice block (Payment Block)” is automatically set.

• [What Happens If Not Configured]: If the tolerance is not set (or is 0), even a one-yen price difference will cause every invoice to be blocked, greatly increasing the AP staff’s reconciliation workload.

• [How to Think About the Setting Values]: Set, from business requirements, values such as “price tolerance: plus or minus 5% or within 1,000 yen” and “quantity tolerance: 0% (quantity differences are not tolerated).” By setting a price tolerance, small invoice differences due to “shipping cost fluctuations, foreign exchange differences” can be automatically approved, and only large differences need to be checked by a person, which is an efficient operation.

Movement Type Setting (OMJJ)

• [Purpose]: All inventory movement operations (goods receipt, issue, transfer, scrapping, etc.) are identified by a “Movement Type.” Standard movement types (101: goods receipt, 261: issue to production order, 551: scrapping, etc.) are provided as standard, and OMJJ is used when adding company-specific movement types.

• [What Happens If Not Configured]: If OMJJ is set incorrectly, the “automatic account posting (which G/L account to post to)” during inventory movement will not be generated correctly. This directly leads to errors in inventory valuation.

• [How to Think About the Setting Values]: When you want to break down the reasons for scrapping (e.g., recording quality-defect scrapping, expiration scrapping, and design-change scrapping separately), create a “derived movement type” from the standard movement type 551.

Chapter 11: PP (Production Planning) Settings

Scheduling Parameters (CPU3)

• [Purpose]: Defines the factory calendar (working days, holidays) used for the “scheduling” of production orders and planned orders, and the “working hours per day (1 shift = 8 hours, 2 shifts = 16 hours, etc.).” When MRP works backward from “production must be completed by month X, day Y, so when must it start,” it references the CPU3 settings.

• [What Happens If Not Configured]: If the scheduling parameters are not set correctly, the production start/completion dates calculated by MRP will not match the actual operating calendar. For example, if “operating on weekends too” is configured, weekends will be counted as production days in the calculation, but a shortage will occur if the plant is actually closed.

• [How to Think About the Setting Values]: Set up a factory calendar that includes “Japanese public holidays and the company’s collective holidays (Golden Week, Obon, New Year).” When there are multiple shift patterns (day shift only, 2-shift, 3-shift), define a different capacity pattern for each work center (CR01).

Production Planning Profile (OPKP)

• [Purpose]: Defines, as a profile assigned to the material master, detailed parameters at MRP calculation time such as “checking mode (the method of allocating stock), backflush setting, and consumption strategy for planned independent requirements (Planning Strategy).”

• [What Happens If Not Configured]: A misconfiguration of the production planning profile directly leads to planning accuracy problems such as “MRP generating excessive production orders” or “necessary production orders not being generated.”

• [How to Think About the Setting Values]: Select the behavior to match requirements, such as “Checking mode 1 (ATP check): checks whether the materials needed to start a production order exist against Available Stock” or “Checking mode 2 (ATP plus planning): performs allocation within the MRP calculation.”

Order Scheduling Profile (OPPQ)

• [Purpose]: Defines, as a profile, behaviors such as “automatic release (release simultaneously with creation), backflush enabled (automatic consumption of materials), and availability check (checking whether materials are on hand)” that occur when a production order is created. Assigned per material and plant.

• [What Happens If Not Configured]: For example, turning “automatic release” ON puts the production order into a released (work-authorized) state the moment it is created, allowing shop floor staff to start work without approval. Conversely, turning it OFF requires manual release every time, increasing workload.

• [How to Think About the Setting Values]: An appropriate design based on item risk is, for example, “high-value items, prototypes, and special items require release approval (automatic release OFF)” and “mass-produced standard items use automatic release (OFF) to reduce workload.” Backflushing is effective for “low-value, high-volume consumables that do not require material tracking management.”

Order Type / Plant Assignment (OPL8)

• [Purpose]: Assigns production order types (PP01: mass production, PP10: prototype, PP02: repetitive manufacturing, etc.) to the plants where they can be used. Controls “which order types can be used” for each plant.

• [What Happens If Not Configured]: Attempting to create an order type in a plant that is not assigned in OPL8 results in an error.

• [How to Think About the Setting Values]: Access control such as “Head office plant: allow PP01 (mass production) and PP10 (prototype)” and “Partner factory plant: allow PP01 only” is possible.

Special Procurement Type Setting

• [Purpose]: Defines the codes for “procurement methods that differ from normal manufacturing/purchasing” set in the “Special Procurement Key” field of the material master’s MRP view. Major special procurement types: “30 (subcontracting: processing your own materials at a subcontractor), 40 (procurement from another plant: intra-group stock transfer), 50 (subcontractor).”

• [What Happens If Not Configured]: If special procurement key 30 is not set for a subcontracted material, MRP will generate an “in-house production order” instead of generating a subcontracting purchase order. The subcontracting design will not function.

• [How to Think About the Setting Values]: Set “in-house production (default: no special procurement), subcontracting (30), transfer from another plant (40), consignment manufacturing (50)” according to the procurement policy of each material. This key is an important setting that fundamentally changes MRP’s decision of “what to make vs. what to buy.”

End of document.