A firm s game plans for saleable products and services provide the primary driver of procurement activities for material items. The game plans define item demands that form the first step in every purchase cycle. The nature of each game plan depends on the situation, as previously explained in Chapter 4, Sales and Operations Planning. For example, the game plan may involve sales forecast data, and planning calculations use a designated set of forecast data.
Planning calculations attempt to synchronize supplies with demands, and the underlying logic is reflected in several tools providing coordination of procurement activities. The primary coordination tool for a distribution environment consists of a requisition worksheet that suggests buyer actions to meet demand. In a manufacturing environment, the primary coordination tools consist of a planning worksheet and a subcontract worksheet that suggest buyer actions to meet demand.
A requisition worksheet identifies suggested action messages about new and existing purchase orders. The suggested actions can be analyzed , changed, and automatically implemented. The requisition worksheet also provides the starting point for execution of planning calculations. The requisition worksheet can have multiple versions identified by a user -defined template name . The use of different template names provides the ability to segment messages, as discussed below.
Execution of Planning Calculations The user initiates execution of planning calculations for purchased items from the requisition worksheet. The planning calculations require a specified planning horizon and an order date. The order date typically reflects today s date and provides the basis for several calculations, such as identifying the order start date for new purchases triggered by order-point logic. Planning calculations are typically executed for all items, but they can be executed for a subset of items based on item number, location, or other filter.
In a manufacturing environment, planning calculations are typically executed from and displayed on a planning worksheet that also identifies suggested actions for new and existing production orders. From the planning worksheet, suggested action messages regarding purchased material can be copied to the requisition worksheet. Chapter 8 provides further explanation of the planning worksheet.
Suggested Action Messages The requisition worksheet displays messages across the entire planning horizon specified for planning calculations. Planning calculations generate five types of messages regarding new and existing purchase orders as shown in Figure 6.3. Other message sources for a new purchase reflect sales order line items designated as a drop shipment or special order. The worksheet displays these messages based on two user-initiated processes to get the sales order information. A manually entered message for a new purchase represents a manual requisition for a G/L account or material item.
Segmenting Messages on the Requisition Worksheet Action messages may be segmented into subsets to support more effective coordination efforts. Each subset is displayed on a different version (template name) of the requisition worksheet. Planning calculations must be initiated from the desired template name using a filter such as a location, so that the template name displays the location s suggested action messages. There are other examples of segmenting messages on template names. For example, a different template name can be used to segment action messages for special orders and drop shipments, or for situations requiring immediate action based on the get action message function.
Messages are typically filtered by buyer responsibility with additional filters to focus attention on the subset of critical actions. For example, a filter regarding buyer responsibility can be based on the Product Group Code or General Product Posting Group. Messages for new purchases are typically filtered and sorted based on order start date to focus attention on near- term purchases.
Special attention is required for suggested purchases with an order start date or due date before today s date. Other approaches include filtering and sorting by vendor to improve the effectiveness of communications with the vendor.
The suggestion for a new purchase initially identifies the item s preferred vendor and a suggested price and discount based on agreements with the preferred vendor. The suggestion often requires further analysis.
The item s approved vendors and their vendor agreement information may be viewed and selected.
The vendor s blanket purchase order(s) for the item may be viewed, and a purchase order released against the blanket .
The item s supply/demand information may be analyzed to understand the rationale behind the suggested purchase.
The information about each suggested purchase can be changed to reflect analysis efforts or communication with the vendor. A suggestion can also be flagged as confirmed; this provides reference-only information that steps have been undertaken.
Messages are typically filtered by buyer responsibility with additional filters to focus attention on the subset of critical actions. Messages about existing orders are typically filtered and sorted based on order due date to focus attention on near-term activity. Special attention is required for existing orders with a due date before today s date. Other approaches include filtering and sorting by vendor to improve the effectiveness of communications with the vendor.
Suggestions about existing orders often require analysis of an item s supply/demand information to understand the rationale behind the suggestions and to assess the impact of not implementing a suggestion. The inability to reschedule an existing order, for example, may require changes to the sales order s shipment date. A suggestion can be flagged as having no planning flexibility to suppress further messages. As with a suggested purchase, suggestions about existing orders can be changed and/or flagged as confirmed.
Implementing Suggested Action Messages Messages are automatically implemented based on the accept action message flag and the user-initiated process to carry out action messages. Suggested messages further out in the planning horizon should be deleted or not accepted to avoid inadvertent implementation.
In a manufacturing environment, planning calculations are typically executed from and displayed on a planning worksheet. The planning worksheet displays suggested actions related to purchase, transfer, and production orders.
Suggestions regarding purchased items can be generated, analyzed, and implemented on the planning worksheet using the same approaches described above for the requisition worksheet. In particular, implementing suggestions can be carried out for just purchase orders or just production orders. This approach represents a combined buyer/planner role.
Alternatively, suggestions about purchased material can be copied to a specified requisition worksheet template name. This approach represents separate roles for the buyer and planner. In either case, the suggestions regarding manufactured items impact procurement activity. Chapter 8 provides further explanation of the planning worksheet.
Some manufacturing environments involve purchasing of outside operations. The subcontracting worksheet displays suggestions for new purchases of outside operations for released production orders, and is also used to create these purchase orders. A user-initiated process calculates new subcontract suggestions based on outside operations in the order-dependent routings, but does not generate other types of suggestions such as reschedule messages.
Each suggestion identifies information about the operation description, the related production order and external work center, and the preferred vendor for the external work center. Information can be changed such as overriding the vendor and unit cost. Each message can be automatically implemented based on the accept action message flag and the user-initiated process to carry out action messages.
In addition to manual entry, a purchase order for a material item can be created from a requisition worksheet, a planning worksheet, a purchase quote, a blanket purchase order, a reverse auction, a purchase return or credit memo. A purchase order for an outside operation can be created from the subcontracting worksheet.
Receipts represent the completion of purchase order processing, and also the starting point for returns to vendor.
Purchase Receipts Different approaches can be taken to report receiving activity for material items. The basic approach focuses on reporting receipts against line items on an individual purchase order. The received quantities and their stocking locations are entered on the purchase order window (or an equivalent version for receiving purposes). The window displays default values for each line item s quantity and stocking location to help minimize data entry efforts. Posting the data updates inventory balances .
Sometimes the vendor s invoice accompanies the material, so that posting can optionally create the purchase invoice. Chapter 7 describes other approaches for reporting receipts.
Purchase Returns Material received against a purchase order sometimes must be returned to the vendor. Returns cannot be recorded on the purchase order window. However, a purchase order line item entered with a negative quantity can be converted to a return order or credit memo.
A purchase return order provides a structured approach for handling returns to vendor and creation of the associated credit memo. Its structure and life cycle mirror that of a purchase order. The order header identifies the vendor, return address, and vendor s return authorization code. Each line item identifies the item and quantity to be returned, and related information such as reason code, price, and return date. Reservations can be made for the specific inventory to be returned.
When material must be returned to a vendor, there is frequently a requirement to purchase replacement material. A return order (or credit memo) line item with a negative quantity can be converted to a purchase order to obtain the replacement material.
The sales return window includes the ability to create a purchase return order for returning customers goods to the responsible vendor. It can also create a new purchase order for getting replacement items from the vendor.
The All-and-Anything company required a multistep receiving procedure that required extensions to standardized functionality. The procedure involves handling inbound material before and after recognition of a purchase order receipt. First, a purchased item could be assigned a receipt routing that defined the receiving steps, where one of the routing operations can be designated as the basis for recording the inventory receipt. Second, an item s yield percentage and inspection lead-time could be specified, and scheduled receipts were factored by planning calculations. Third, the item s yield factor and receipt routing were optionally included in cost calculations. Fourth, an inventory status (of on-hand, on-hold, and in-inspection) was added to inventory records and recognized by planning calculations. Fifth, unit completions by operation served to update purchase order receipts, with special handling for a scrap quantity (such as creating a return to vendor). The reporting of good and scrap quantities also provided the basis for vendor performance ratings concerning quality.
The All-and-Anything company wanted to improve coordination of purchasing activities by enhancing suggested action messages. Building on the concept of buyer responsibility assigned to items and purchase order line items, they extended the scope of suggested action messages on the requisition worksheet (and planning worksheet). Additional message types included follow-up on past-due receipt, suggested releases against a blanket order, and reviewing quotes and blanket orders about to expire. Message filters were also defined for various message types.
The Batch Process company purchased lot-traced material that required time-consuming compliance tests and could go into production subject to conditional release but not be shipped. As part of their customizations, they defined a lot attribute to identity status (such as a conditional release) that allowed usage, and prevented shipment of a lot-traced product comprised of lot-traced components with a conditional release.
The Equipment company wanted to improve coordination with key suppliers by providing visibility of anticipated purchases, which the supplier could then use as forecasted demand. A customized vendor schedule report identified existing purchase orders and suggested purchases for items supplied by the vendor. Each item s quantities were displayed in weekly buckets for an eight-week horizon and monthly buckets thereafter, with identification of suggested orders based on the item s preferred vendor. A report refinement supported a multisourced item, where an additional field for the item s approved vendors identified a supplied percentage that factored suggested purchase quantities.
 See Maximizing Your ERP System for further explanation of vendor performance ratings (pp. 263 “265), inventory status (p. 271), receiving inspection (pp. 319 “320), item yield (pp. 124 and 320), and coordination of receiving inspection activities (pp. 324 “325).
 See Maximizing Your ERP System for further explanation of buyer responsibility (pp. 116 “ 117), types of buyer action messages (pp. 261 “262), and message filters (pp. 268 “269).
The Fabricated Products company required several outside operations to produce an item. Several different contractors could perform each outside operation. Different levels in the bill of material defined each stage of manufacturing ”one stage for each outside operation ”and a production order was created for each stage. Each subcontractor was defined as a separate location, so that supplied material and a completed item could be identified by inventory location. Material was shipped to the subcontractor performing the first operation and auto-deducted based on production order output. The output was placed into the location corresponding to the next subcontractor. This approach allowed planning calculations to synchronize supplied material with the subcontractor performing each outside operation, and also minimized transaction processing about material movements between subcontractors.