The purchase order management in an ERP system is a key and essential function for the work flow. The purchase in most cases enables the planning of the production and the delivery to the customers. Thus it is a critical point in the process. The information that will be input into the purchase order will affect the whole process.
Intuitively the purchase order processing will be available in an ERP system. Therefore the process should be able to receive, enter and track purchase orders. The output should encompass, post, rout and handle exceptions. Other critical features are the monitoring and the interface with the MRP 2.
Creating a Request for Offer
As a buyer or purchaser in an organization you send to suppliers a request for an offer – you would like to know the price of the goods or services, the possible delivery date and the payment conditions.
This information is important for setting prices of sales offers, planning of the production and delivery and for financial planning. However you might want to send the request to more than one suppliers.
In that case the ERP system should allow you to replicate the supply request as many times as you need. The structure of the document will be something like the diagram.
The Header details are to be changeable in order to be able to submit the request to many suppliers without the need to create the request over and over again.
Creating a Purchase Order from the Request
When a supplier sends you an offer and you except it, effective ERP software will allow you to turn this request into an order with minimum effort. You already entered most of the detail; Supplier, product and quantity.
It is left for you to enter the prices and the delivery date. Another feature of the purchase order will be to update the delivery address when the good are to be delivered to another address than to your premises.
Controlling the Purchase Order
One of the challenges in managing the purchase is controlling the creation and release of orders in the system. Control of the purchase order (PO) allows the user to enter rules for releasing an order. For example:
- PO below $1000 – any user is allowed to create and release it
- PO above $1000 and less than $10,000 – an approval of the purchase manager is required
- PO above $10,000 requires an approval from the CEO
This control secures that users with no authority will not create or release purchase orders when they are not supposed to.
Data Automation of Purchase Order Details
The purchase order in the ERP system determines the availability of materials or goods for stock and delivery or the planning for manufactured parts. An effective ERP system offers possibilities for the user the capture the data very easy and process oriented.
For example, when entering an order for a certain supplier the system should initiate automatically the supplier details and suggest only its relevant products.
Another example – according to the land of origin of the supplier the system should enter to the order the international commercial terms (INCOTERMS) automatically. Such automation of data enter makes it easier for the user and eliminates the probability of mistakes.
Create and maintain Blanket/Master Purchase Orders
Blanket orders are an important process in the work flow when you have a long term relationship with your supplier and you would like to ensure an appropriate delivery of goods.
With blanket/master purchase orders you may plan the supply for the long term and ensure a certain level of prices. The system should be able to perform the generation of a master purchase order out of a blanket order. Each time an order is initiated the system should update the blanket order. In this way you will know the exact status of the blanket order.
Create Purchase automatically
The automatic creation of purchase orders is part of the MRP 2 – according to the calculation of the MRP 2 the system shall initiate purchase orders. In which cases you will need an automatic creation of the purchase orders?
- When you manage minimum quantity for your stocks – when the ERP system calculates the demand and notices that minimum quantities are about to dwindle – the system should create the orders automatically or at least alarm the user.
- When you are running MRP 2 and planning the deliveries and production plan, the system should be able to calculate the need for materials or components. According to the results the system shall decide whether purchase orders are required. And when the purchase orders are required the system should create the orders automatically or at least alarm the user.
Pricing Policy
Introducing pricing policy during the capture of a purchase order he is powerful tool. Again this is a bit SRM (Supplier Relationship Management) but will be carried out when entering an order; Pricing policy is managing different price codes for different cases, different discounts or surcharges that will be automatically initiated, entered or at least suggested to the user and he or she may decide whether to capture them or not.
In this way the management of purchase may supervise or enforce its policy automatically. If we take it one step further an effective ERP system will allow you to update purchase prices (with import function, for example).
Status Management of Purchase Orders
The status management of a purchase order is important in order to monitor sub processes in the supply chain management – approval of orders or submission to the MRP 2 process. In some cases the supplier will have to approve the order before it is submitted further.
The world of supply chain management is full of thousand cases where orders were submitted for process while the supplier had not given his consent yet. See how it all works with the next ERP software.
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