This chapter lists 11 basic guidelines that should be followed for purchasing to work properly and provide good results.
1. Never use descriptors as substitutes for stock items
Never use descriptors as substitutes for stock items. Descriptors are not compatible with manufacturing costing, MRP generation, and job release, all of which are inventory-based.
2. Maintain a Lead Days allocation against all P items
A Lead Days allocation must be maintained against all your P (purchased) items. The Lead Days is the number of calendar days allocated by MRP for procuring the item. Make sure sufficient days are allocated to cover the entire procurement process, including potential variations in supplier delivery time and receipt processing time. Among items assigned to the same default supplier, apply consistent allocations to achieve uniform due dates on multi-line POs.
3. Do not inflate allocation settings
Do not artificially inflate item Lead Days and Job Days allocations because all dates are inter-connected. Inflated allocations will push out other dates in a cascading fashion that corrupts the master schedule and makes it nonsensical.
4. Never bypass MRP with manual POs
MRP generates a coordinated master schedule in which all dates are inter-connected and work centers are prioritized based on meeting required dates. When you interject a manually created job or PO into the master schedule, it has no relationship with other dates and disrupts the schedule by misallocating material and distorting work center priorities.
Proper use of manual POs
This rule does not mean that you never create a manual job or PO line. What it does mean is that all POs related to actual or anticipated demand must always be generated by MRP. If you need to create a PO line for other purposes, you are free to do so.
Each set of POs generated by MRP represents a minimum action profile of the items that must be ordered immediately to meet item required dates. After a PO has been generated by MRP, you may wish to augment the PO manually within the Purchase Orders screen to accommodate special situations. If you wish to fill a truck or container to reduce unit shipping costs, you may wish to increase item quantities or add items that will be needed in the future. If you have a minimum volume level commitment with a supplier, you may wish to increase quantities or add items to meet your volume level.
5. Do not create blanket or future POs
Do not create blanket or future supply POs where a series of future quantities and due dates are scheduled for an item or a group of items. This is a crude form of forecasting that is not compatible with just in time planning and the master schedule. The correct way to purchase against anticipated demand for an item is to enter a monthly demand rate and Supply Days interval so that future POs will be generated by MRP in demand-driven intervals.
If open blanket POs exist
If open blanket POs exist, each such PO should be closed out and canceled. Indicate to your supplier that the blanket PO will be replaced by individual POs from this point forward. Establish a Monthly Demand rate and Supply Days interval against the item so that future POs will be generated by MRP in demand-driven intervals.
How to manage contract purchasing
If you contract with a supplier for a long term volume commitment in exchange for a fixed price, it is not necessary to manage this process with blanket POs. Instead, use the Order Policy screen to enter an actual Monthly Demand rate and Supply Days interval so that future POs will be generated by MRP in demand-driven intervals.
The supplier price table, which is accessed from the Sources tab within the Stock Items screen, enables you to establish the fixed price along with from and thru dates that define the duration of the price contract. You can use the price notes to indicate the volume commitment associated with the price.
If there is a contract reference number, we suggest you build that number into the supplier description for the item, which is the description that prints on the PO.
To monitor actual purchases against a price contract, you can use the PO Lines Summary or PO Receipts data view, which can be filtered for a given item, supplier, and date range.
6. Do not create manual POs for long Lead Days items
Do not create manual POs to anticipate demand for items with extremely long Lead Days allocations. Instead, assign such items a Stocking order policy along with a Monthly Demand rate and Supply Days interval so that MRP can generate a steady pipeline of staggered POs at consistent intervals. Staggered POs eliminate large fluctuations in supply and mitigate the risk of major shortages because any shortages that happen to occur will be of short duration.
Example
Let’s say you have an item with a 6-month Lead Days allocation, which equates to a 180 day planning period. Forecasted demand is 100 units per month. The program will calculate a Reorder Point of ‘600’, which is the amount required to cover total forecasted demand within the item’s planning period.
If you wish to generate a PO every 30 days, set the Supply Days interval to ‘30’. This will result in POs being generated in approximate 30-day intervals for a quantity of 100 each, which covers 30 days of forecasted demand. At any given time, six POs would be in progress, each due to arrive in approximate 30 day intervals. This insures a steady supply that minimizes the risk of shortages or severe over-stocking. If a shortage does occur, the next PO will arrive shortly, which minimizes the shortage duration.
7. Generate MRP on a daily basis
The most efficient way to perform just in time planning is to generate MRP on a daily basis. This way you always respond immediately to any new demand that arises. Unlike manual planning, which is time-consuming and therefore is often done only once or twice a week in lengthy sessions, daily MRP generation only takes a few minutes.
NOTE: If you ignore this rule and choose to generate MRP less frequently, such as twice a week, you must make two default settings to account for the interval time and avoid introducing late dates into the master schedule. First, set the MRP Interval in MRP Defaults to the number of shop days between MRP runs. Second, specify that same amount in the Require Date – To Order M Items setting in Sales Order Defaults.
8. Never generate partial or fragmented MRP sessions
Each MRP session is designed for complete generation and conversion through all job levels and always finishing with PO generation and conversion. Complete generation is an absolute requirement for achieving a coordinated master schedule. Never skip levels or generate jobs on one day and POs on another.
NOTE: This rule does not mean that two people cannot participate in an MRP session. A production planner, for example, could generate the entire session and convert jobs, but could pause the session after PO generation so that a buyer could convert the planned POs after verifying supplier prices and other details.
9. Never delay planned PO conversion
When MRP generates a planned PO, it must be converted immediately in order to avoid introducing late dates into the master schedule. Never delay conversion because this defeats the “just in time” nature of the master schedule.
10. Assign all PO lines a realistic supplier price when sending out POs
It is essential that all PO lines are assigned a realistic supplier price, which is translated into a unit cost that is applied to PO receipt transactions. The receipt cost updates the item’s inventory cost and is the cost basis for any subsequent job issue or sales picking transactions.
NOTE: Be aware that any discrepancy between the supplier invoice price entered in the PO Invoices screen and the associated receipt cost gets posted to Inventory Adjustments and makes no cost correction to past inventory transactions.
13. Regularly mass update your Estimated Purchased Costs based on Default Supplier Price
After any changes to your default purchase prices, you should go to the BOM>Estimated Purchase Costs screen and Mass Replace estimated costs using the Default Supplier Price. You should then go to the BOM>Cost Rollup screen and perform a batch rollup and apply the changes to your NEW status Jobs. It is important to actively manage your estimated purchase costs to improve your overall inventory value and cost of goods sold.
14. Never skip PO invoice entry and AP voucher transfer
Never skip the entry and matching of supplier POs in the PO Invoices screen and the AP Voucher Transfer process. Skipping these functions ruins the PO processing workflow because PO matching is required for closing PO lines, supplier invoice entry is required to offset the Received Not Invoiced balance, and the voucher transfer properly updates accounts payable.
