Using the accounting, distribution, and materials management functions in Oracle Applications, you define the relationships among inventory organizations, operating units, legal entities, and sets of books to create a multilevel company structure, as shown in below Figure.

 

Operating Units Are Part of a Legal Entity
Each organization classified as an operating unit is associated with a legal entity

Inventory Organizations are Part of an Operating Unit
Each organization classified as an inventory organization references an operating unit.

Inventory Organization Determines Items Available to Order Management
The Item Validation Organization parameter specifies which Oracle Manufacturing organization is used to validate inventory items. You must define all transactable items in this organization. Some inventory item attributes for Receivables and Order Management, including Tax Code and Sales Account, are specific to an operating unit or an accounting flexfield structure. Therefore, you should define an item validation organization for each operating unit.

Inventory Organization Determines Items Available to Purchasing
The inventory organization you specify in the financial options for each operating unit determines the items available in Purchasing. You can only choose an inventory organization that uses the same set of books as your operating unit.