POs are generated by MRP, which stands for "material requirements planning". Four common sense item settings - the Lead Days, Reorder Point, Minimum Order, and Supply Days - are used by MRP to generate POs in response to the net demand within each item's planning period. POs are generated on a just in time basis within a lean master schedule that is coordinated with your job and sales order requirements.
Lead Days - The Lead Days, which is maintained in the MRP Setting screen, is the number of days allocated by MRP for procuring the item from its default supplier. The Lead Days amount is an "allocation" and is not the literal time it takes to procure the item. For example, an item may take only two days to be received from the supplier, but for planning purposes, you might set the Lead Days amount to four or five days to cover possible delays and to account for receiving processing time. To help you make this allocation, you can review the Delivery inquiry to get a listing of actual delivery days associated with past PO receipts.
Reorder Point - Some items with long lead times need to be purchased to stock so that they are immediately available when needed by jobs or sales orders. To purchase an item to stock, it must be given a Reorder Point within the MRP Settings screen. MRP will generate a PO whenever net demand within the item's planning period falls below its Reorder Point. The Reorder Point amount is established using the Reorder Calculator (see next), which is launched by clicking the button in the Reorder Point field.
Reorder Calculator - The Reorder Calculator is launched from the Reorder Point field within the MRP Settings screen. The Reorder Point must be sufficient to cover projected demand within the item's planning period. Projected demand consists of three elements - estimated monthly unit sales, estimated monthly usage, and a safety stock amount to cover potential variations in net demand that can occur in any given month. In the lower portion of the screen you can review past sales and usage history with monthly and quarterly averages to help determine your monthly estimates. The item's planning period is displayed, which is the number of days allocated by MRP for purchasing the item from its default supplier. The program translates the sum of the three monthly amounts into a daily average that is then multiplied by the item's planning period days to arrive at a calculated Reorder Point.
Minimum Order - The Minimum Order setting provides control over PO quantities. When MRP generates a PO, the quantity will be equal or greater than the Minimum Order amount, no matter how little the actual net demand may be. The Minimum Order amount can be directly entered when used as an economical order quantity to take advantage of supplier price breaks and to reduce unit shipping and handling costs that are typically higher with smaller orders.
Supply Days - If you wish to use the Minimum Order to manage extremely long lead time items or blanket purchase items, the Reorder Calculator, which is launched from the Min Order field, can be used to calculate a Minimum Order based on entering a Supply Days amount. The Supply Days represents the number of days of projected demand you wish to be covered by each PO. Projected monthly demand is entered in the form of estimated monthly sales, monthly usage, plus a safety stock factor. The program takes projected monthly demand, converts that amount into a daily average, and multiplies it by the Supply Days to generate a calculated Minimum Order amount. Using the Supply Days in combination with a Reorder Level solves two common purchasing issues - how to purchase items with extremely long lead times, and how to generate blanket purchases at regular intervals. See the PO Generation video above for details.
PO Generation - POs are generated within the MRP screen. To generate POs, click the Generate button and select the 'Generate Planned POs' option. POs are generated in response to each item's net demand relative to its Reorder Point. Within the item's planning period, "net demand" is the item's stock on hand, plus expected supply from open POs, less demand from sales orders and jobs. The item's planning period is the number of days allocated by MRP for purchasing the item from its default supplier. Any demand outside the planning period is responded to in a future MRP run. This makes the master PO schedule easier to manage because scheduling dates are short term and the number of POs is kept to a minimum. Each set of planned POs is displayed in the main grid for review and conversion.
Planned PO Conversion - Each set of planned POs is listed in the main grid of the MRP screen for review and conversion. You can click the Demand icon to launch the Stock Status Inquiry to view all the item supply and demand details as well as its MRP settings. Back in the main grid, you can change the default supplier on an exception basis, if you wish. As each PO is reviewed, it is flagged for conversion. After all POs are flagged for conversion, you click the Convert button to convert the planned POs into actual POs.
Job Subcontracting - The other type of POs required for manufacturing are for subcontract services such as painting, plating, and heat-treating that are performed during the course of jobs. In the Job Subcontracting screen, POs are automatically generated for subcontract services as needed within your open jobs. You simply select the Convert checkbox, then click the Convert button.
PO Schedule - The master PO schedule can be viewed in the PO Schedule screen. Because MRP only generates POs in response to the net demand within each item's planning period, POs are scheduled on a just in time basis. Therefore the master schedule is short term in nature. Demand beyond an item's planning period does not require an immediate PO and will be given a PO later when that demand falls into the planning period. This keeps the schedule lean and accurate for maximum efficiency.