How to create purchase orders with Inventoro?


What are purchase orders?

In any business based on selling products, not services, we solve the purchase, storage and sale of our goods. We need to have sufficient quantity of goods for sales and orders in store until the next receipt of goods. We have to create purchase supplier orders (or distribution orders to superior store) to keep this quantity in stock.

How to create purchase orders?

We usually solve two basic problems during the creation of supplier orders:

In the case of more suppliers we take account of the delivery time, purchase price or quality. For advanced and sophisticated ordering there are extensions of ERP systems, such as Planning Wizard from Logio.

How much to order

Calculation of "how much to order" usually includes sale forecast, unsatisfied customer orders and supplier orders on the way are deducted. We should also take deviation of lead time and forecast error into consideration. Ordered quantity should last until the next order income, we do not want to have stockout.

When to order

The ordering point or point of order is determined when we decide when to order. In this moment the current stock level falls on or below the reorder level. The reorder level should take account of current on-hand inventories, safety stock, unsatisfied customer orders and supplier orders on the way. All ERP systems make basic orders by manually defined reorder levels, order quantity or sale forecast. Their main problem is that the most of inputs have to be placed manually or calculated by different averages. These inputs are usually not very accurate or are placed with high labour-intensity. Fortunately, there are fast and sophisticated tools for demand forecast and stock management. These tools are implemented without high cost for small and medium-sized businesses. Inventoro is one of them. .

How to create purchase orders with Inventoro

We need the following outputs from Inventoro:

  • Reorder level
  • Order quantity

We need the reorder level and the order quantity for every item in current month. It is a column called reorder_level_quantity and order_quantity from the Inventoro export file. From the ERP system we need:

  • Current stock level
  • Open supplier orders
  • Unsatisfied customer orders

We need all open purchase orders to suppliers and all unsatisfied customers orders from the past from ERP system and future orders that has to be satisfied until the next stock income. We can determine this moment in the following way: we add delivery time of item and order period to order day. The calculation consists of the following steps:

  1. Determination of the next stock income
  2. Calculation of the future stock level
  3. Order quantity adjustment
  4. Determination of order items

In order to demonstrate these steps we will the "Item X" as a model.

item_chart
The item chart in Inventoro. You can find it in the Dashboard section on the item level.
The values Reorder level, Order quantity and On Hand Invetory are important for ordering.

1. Determination of the next stock income

Ordered quantity has to last until the next stock income but we need to know how old customer and supplier orders have to be included. the date of the next stock income = order day + order period + delivery time

Example:

The results from Inventoro are from 1/1. Today is 2/1 and we want to order. For “Item X”: The delivery time of our supplier is 14 days and we order once in 30 days. The date of the next stock income = 2/1 + 30days + 14 days The date of the next stock income = 15/2 We include unsatisfied customer orders and supplier orders with the date of performance from past to 15/2 in order.

2. Calculation of the future stock level

We need to assess the future stock level so we are sure that we really need to order. If the current stock is above reorder level after consideration of all customer and supplier orders, we will not need order at all. The future stock level = current stock level + supplier orders – customer orders - expected sales

Example:

Today is 2/1 and we order “Item X”. The current stock level is 235.

Open supplier orders:
delivery date quantity
30/12 100 delay
10/2 100
25/2 100

We include all supplier orders until 15/2. Supplier orders = 200

Unsatisfied or not covered customer orders:
delivery date quantity
28/12 150 stockout
3/1 100
28/2 50

So we include all unsatisfied customer orders until 15/2. Customer orders = 250 Expected sales: Forecast for January 80, for February 50. For period 2/1 - 31/1: 80/31 = 2,6 a day => 30 x 2,6 = 78 For period 1/2 - 15/2: 50/28 = 1,8 a day => 15 x 1,8 = 27 očekávané prodeje za období od 2.1. do 15.2. = 105 When we include customer and supplier orders in stock and sales forecast, the calculation will be: Future stock level = 235 + 200 - 250 - 105 Future stock level = 80 If we do not create any order and we do not sell any extra goods, the stock quantity will be 80 on the day of the next order income.

3. Order quantity adjustment

Order quantity from Invetoro is quantity, which we need to next order. It includes sale forecast and order periods. The order quantity might be smaller, if we order more frequently and the period is shorter. According to the order quantity from Inventoro we order exactly in the time, when it achieves the reorder level. If it is below the reorder level, we have to increase the order quantity by difference between reorder level and future stock level. Order quantity = order quantity from Inventoro + reorder level from Inventoro – future stock level Example: The order quantity from Invetoro is 390. The reorder level is 240. The future stock level is 80. So we get this order quantity: The order quantity = 390 + 240 – 80 The order quantity = 550 The specific quantity, that has to be ordered, is 550. We order it 2/1, it comes 16/1. It has to cover sales and unsatisfied customer orders until 15/2, when the next order created 1/2 comes.

4. Determination of order items

We have to order items, whose future stock level is below or above the reorder level. For these items is characteristic: Future stock quantity <= reorder level Example: The future stock level of “Item X” is 185 and the reorder level is 240. The quantity for order is 445 (390 order quantity + 55 quantity below reorder level). We have to order 445 pieces of the item X. We use this calculation for all items controlled by Inventoro.

Stock development after implementation of Inventoro

During the described stock management the order always comes in stock, when the current stock level achieves the safety stock. There is the safety stock for the case of order delay.

Items with overstock

If there is an overstock, we will not determine the item as item for ordering and we wait for depletion of the current stocks.

Items with stockout

We take more items with stockout in store, because it has to be taken the safety stock into consideration and the setting Service Level (level of goods availability) has to be fulfilled.

Total stock development

Total stocks can be influenced by these scenarios:

  1. Reduction of total stock level – the main problem was overstock
  2. Maintenance or increase of stock level in the course of sale increase – the main problem was stockout

In the practice usually both scenarios get combined because different items suffers by different problems.