Item Categories: Item categories are defined to provide additional control functions for the sales

documents and thus meet the demands resulting from different business transactions. A separate
control is defined for each of these item categories. For example, the functions of a standard item are
completely different from those of a free-of-charge item or a text item.
The following graphic shows some of the item categories which are defined in the standard system. For
instance, the first example displays the item categories for a standard item in the inquiry, in the
quotation, and in the sales order.

Item Category Control: The system uses an item category to process a material differently in each sales
document type. For example, you can define a different control for a material in an inquiry and a
material in an order. The following graphic shows an example of how a material is controlled in an
inquiry and how it is controlled in an order.
In the inquiry, the standard item is priced but is not relevant for delivery. For the free-of-charge item,
however, which is subordinate to the standard item, no pricing is carried out and it is not relevant for
delivery.
In the sales order, the situation is different. Both items are relevant for delivery but pricing is carried out
only for the standard item.

Control Elements in Item Categories: Depending on the sales document type, different item categories
are allowed. The item categories can also be adapted using control elements to meet the special
requirements of your installation. The answers to the following questions form the basis for deciding
how to define a particular item category:

General data
Should pricing be carried out for the item?
When should an item be regarded as completed? A quotation item, for example, can only be regarded
as completed if the entire quantity has been copied into a sales order.
Does the item refer to a material or is it a text item?
Are schedule lines allowed for the item?
May general business data, for example, the terms of payment at item level, deviate from those at
header level?
Should a system message appear if the item cannot be fully delivered?
Which fields are relevant for the incompletion log?
Which partner functions are allowed at the item level and which are mandatory?
Which output (for example, an order confirmation) is allowed for the business transaction and which
output determination procedure is used?
Shipping data
Is the item relevant for delivery?
Should the weight and the volume of an item be determined?
Billing data
Is an item relevant for billing?
Should the cost of the item be determined?
Is it a statistical item? The system prices statistical items, but they are not added to the value of the
order. In other words, the customer is not charged for them.
Should a billing block be set automatically for an item? For example, this may be important for items
whose prices have to be clarified before billing.
Is it a returns item?

Determining the Item Category: The item category in the sales document depends on the sales
document type and the material. An item category group is defined in the material master record. For
example, in the standard SAP System, the item category group NORM is defined for materials kept in
stock and the group DIEN for services and non-stock material.
The following graphic shows how the system determines the item category. For a material with item
category group NORM, the system determines the item category AFN for an inquiry (sales document
type IN) and the item category TAN for a standard order (sales document type OR).
Determining the Item Category for Sub-Items: Services and free goods can be entered as separate
items or can be allocated to other items. An item which is allocated to another one is called a sub-item.
Determining the item category for sub-items depends on the higher-level item.
If a free goods item is allocated to a standard item in a standard order (item category TAN), the item
category TANN is used for the sub-item in the standard version of the SAP System, and the sub-item is
processed as a free-of-charge item.

Functions of Item Category in SAP SD Process

Item category is used to define whether system run automatic pricing for an item or not

Is it required the item appears on an invoice or not.

Which fields are recorded in the incompletion log for respective item category if they were not entered
in sales order?
Item category is used to define which partner function belong to which item
Whether the item appears on a delivery or not.
The delivery relevance indicator is only for items without schedule line. For example, you can indicate
that as a text item is relevance for delivery so that the system copies this into delivery document. Item
category has indicator to define whether you can create schedule lines for the item
You can configure an item category whether business data (incoterms and payment terms) at item level
should differ from business data from header level.

Bill of material:
To determine how far the BOM should be exploding in the sales document, you need to define the
extent of the structure of the item category of the main item.
In customizing for item category, you control which item(s) are relevant to pricing and how you want to
implement requirement transfer.
All items in BOM that you want to control in the sales document must be flagged as ‘relevance for sales’.
Item category is maintained as functions of copy control and updating the document flow.
In document referencing, completion rule is defined at item category.
Maintain value contract material at item category to determine account assignment, taxes and
statistical update.
Item category is used to define billing plan type.
Billing relevance indicator is mentioned in item category. Indicator A is for delivery related billing and
indicator B is for order related billing.
Billing block is set at item category.
Item category is responsible for figure out which kind of material it is like standard material or special
stock (Consignment material, make to order material Etc.).
1. DEFINE ITEM CATEGORIES:

Item type: A way of classifying items that require different kinds of processing by the system. The
system processes items that refer to a specific material differently than items that do not refer to a
material. For example, text items do not require processing for pricing, taxes, and weight calculations.
Completion rule for quotation / contract: The rule for establishing when a quotation or contract is
complete. Example: Specify that a quotation is complete only after its quantity has been fully referenced
by subsequent documents. The system uses the completion rule to determine the status of a quotation
or contract that has been referenced by other documents (by subsequent sales orders, for example).

Special Stock Indicator: If you need to separately manage certain stock (for example, consignment stock,
sales order stock) of a material, the stock type in question is defined using this indicator.

Business Item: Business data allowed at item level? Indicates whether, during sales order processing, the
business data that you enter for an item is allowed to differ from the business data in the header.

Schedule lines allowed: Indicates whether you can create schedule lines for the item.
Items that are relevant for delivery, such as sales order items, can always have schedule lines. On the
other hand, items that are not relevant for delivery, such as items in contracts and credit memo
requests, do not have schedule lines.

Item is relevant for delivery: Indicates whether a text or value item is relevant during delivery
processing. The item itself is not delivered, but serves only for information purposes.
Example: You can refer to a text item as relevant for delivery so that the system copies it from a sales
order into a delivery note.

Returns: This item is a returns item if the field is selected.

Relevant for weight/volume: Indicator that controls whether the system calculates weight and volume
for the item.

Credit Active: Specifies whether the credit management functions (credit checks and update statistics)
for order, delivery, or invoice items are active. Select this field if the values of the item type in the total
liability are to be updated. In the documentary payments (letter of credit), only those item types that
have this field selected are included.
Determine cost: Indicates whether, during pricing, the system determines the cost (stock value) of a
sales document item. The system checks the cost determination indicator as a requirement before
applying the condition type that calculates the cost (condition type VPRS).

Relevant for Billing: Indicates what should be the basis for billing.
A: Relevant for delivery-related billing – Billing is based on the outbound delivery. The billing status is
only updated in the outbound delivery.
B: Relevant for order-related billing – Billing is based on the sales document. The billing status depends
on the requested delivery quantity. Item categories REN (returns) and BVN (cash sales items) are set up
with billing relevance B in the standard system.
C: Relevant for order-related billing – Billing is based on the sales document. The billing status depends
on the target quantity. Item categories G2N (credit memo) and L2N (debit memo) are set up with billing
relevance C in the standard system.
D: Relevant for pro forma – To create a pro forma invoice, the billing relevance indicator must not be
blank. Indicator D is also used as follows for cross-company-code business processing:
If there are free-of-charge outbound deliveries, the company code that is responsible for the delivery
should be granted an internal settlement. You can use indicator D to enable this for free-of-charge
deliveries.
F: Relevant for order-related billing - Status based on invoice receipt quantity – Relevant for order-
related billing based on the invoice receipt quantity (third-party business). The system does not transfer
the order to the billing due list until the vendor invoice has been received and processed in the
purchasing department. After each invoice receipt, a customer invoice is created for the quantity that
appears on the vendor invoice. The order has status "Billed" until the next vendor invoice is received.
Item category TAS (third-party business) is set up with billing relevance F in the standard system.
G: Relevant for order-related billing of the delivery quantity – The order is relevant for billing; more
specifically, the cumulated quantity that has already been delivered is relevant. You can use this
category to bill for multiple partial deliveries in one process.
H: Relevant for delivery-related billing – no zero quantities – You can use this category to prevent items
with a value of zero from being included in billing.
I: Relevant for order-related billing – billing plan – Billing takes place using the billing plan and its status.
The status of the order item can be understood as the overall status of the billing plan billing statuses.
Item categories WVN (maintenance contract item), MVN (lease item), and TAO (milestone billing) are set
up with billing relevance I in the standard system.
Billing Plan Type: Controls which fields are offered for processing. It also specifies how billing is
performed for the billing dates in a billing plan of this type. The following options have been defined:
Periodic billing: The entire value to be billed is billed in full on each billing plan date
Milestone billing: The total value to be billed is distributed between the individual billing plan dates (the
value billed on each date can be fixed amount or a percentage)

Billing Block: Indicates if the item is blocked for billing. The system can automatically propose a billing
block for sales documents that must be checked before billing (for example, returns, credit and debit
memo requests).

Pricing: Indicates whether the system automatically carries out pricing at the item level.

Statistical value: Indicates whether the system takes the value of an item into account when it determines the
total value of a document.
Incompletion procedure, Partner determination procedure, text determination procedure.

2. DEFINE ITEM CATEGORY GROUPS:

Using the item category group, it is possible to group together different material types for item category
determination from the SD view. For every material type, you can define a default item category group
which is proposed by the SAP System when you create a material master record.

In the sales document, the system determines the item category from the item category group of the
material and from the sales document type and proposes this item category in the document. You assign
item categories to sales order types and item category groups elsewhere.

3. DEFINE DEFAULT VALUES FOR MATERIAL TYPE:

Here you can assign an item category group for each material type. This item category group is proposed
when you create a material master record of this material type. The default value can be changed
manually in the material master record.

4. DEFINE ITEM CATEGORY USAGE:

Here we specify the item category usages which control the usage of an item. Item category usage
controls, for example, the system response if during document processing an item does not refer to a
material but to a text item.
Default settings: In the standard SAP R/3 System, the following usages are defined:
 Batch split
 Text item
 Service item relevant for billing
 Service item not relevant for billing

5. ASSIGN ITEM CATEGORIES:

In this menu option, you can specify which item categories the system proposes during document
processing for each sales document type and item category group. At the same time, you can specify
additional item categories with which the system default can be overwritten. There is a maximum of
three possible alternative item categories.

The system default item category based on the following criteria:

 sales document type

 item category group
 item category of the higher-level item
 item category usage

The SAP System automatically copies the item category determined for a sales document item to the
delivery.

To define item category determination, proceed, for example, as follows:

1. Choose the sales document type to which you want to assign item categories.
2. Then choose one of the item category groups.
3. Specify all the allowed item categories for the combination of sales document type and item category
group.
If you are dealing with a non-material item, you must specify the corresponding item usage.
If it is a sub-item, specify the item category of the higher-level item.
If it is an item category that is to be proposed in the sales document, you must indicate the combination
of item category, item category group and sales document type as a default value.
4. If necessary, specify between one and a maximum of three item categories, with which the system
default can be manually overwritten during document processing.