The first step in the restocking process is to create a list of products to be reordered. This is done by selecting Make Purchase Order List from the Purchase Order menu. This process determines which products need reordering and their reorder quantities by looking at the Qty on Hand, Reorder Point, Order Quantity, Outstanding Orders, and Qty Committed fields in the inventory master file. It also takes into consideration any pending purchase orders.
The following example uses product 01c055 to show how the reorder quantity is determined. The value of the relevant fields in the inventory master file for product 01c055 are shown below.
Qty on Hand = 200
Outstanding Orders = 55
Qty Committed = 91
Reorder Point = 100
Order Quantity = 50
To determine the reorder quantity, the stock level is calculated by subtracting the quantity of outstanding sales orders and the quantity committed from the quantity on hand (200 - (55 + 91) = 54). Since the stock level, 54, is below the reorder point, 100, the product should be reordered.
The quantity to reorder is determined by adding the reorder point quantity to the order quantity and subtracting the stock level: (100 + 50) - 54 = 96. If there are any purchase orders for product 01c055 that have not been received, these are subtracted from the quantity to be reordered to give the final reorder quantity. In this example there are no pending purchase orders, so the reorder quantity is 96.
Next, the process searches the vendor price file to find the best price for the reorder quantity. The entries in the vendor price file for product 01c055 are displayed below.
Vendor Min. Qty Order Size Price U/M
h05400 0 1 21.00 5
60 20 20.50 5
120 20 20.00 5
300 50 19.50 5
500 50 19.00 5
s15700 0 1 29.25 1
50 5 29.23 1
Each price listed shows the minimum order size as well as the package or lot size. In other words, if the product is sold in boxes of 20, the reorder quantity must be a multiple of 20 (20, 40, 60, etc.). Before the process can determine if the reorder quantity meets the minimum quantity and order size requirements, it must convert the reorder quantity from product units to vendor units. The value in the U/M field tells it how to do this. U/M, or unit of measure, is the ratio of the product units to the vendor units (u/m = product units / vendor units). A U/M value of 5, as shown above for vendor h05400, means that one unit of product 01c055 sold by vendor h05400 is stored as 5 product units in inventory.
In our example, the reorder quantity is 96 product units. The unit of measure conversion for vendor h05400 converts this to 19.2 vendor units (vendor units = product units / u/m or 96 / 5). Although 19.2 meets the minimum quantity requirement for the 21.00 price, it is not a multiple of order size 1. The reorder quantity 19.2 meets neither the minimum quantity nor the order size requirement for any of the other prices listed for vendor h05400, which prevents the process from choosing any of these as the "best price".
The vendor s15700 also has prices listed for product 01c055. The U/M for vendor s15700 is equal to 1. This means that 1 unit of product sold by vendor s15700 is stored in inventory as 1 unit. The reorder quantity amount of 96 meets both the minimum quantity and order size requirements of the 29.25 price. Although it is well above the minimum quantity of 50 for the 29.23 price, it is not a multiple of order size 5 which prevents it from qualifying for the 29.23 price. The "best price" (in this example it is also the only price) for 96 units of product 01c055 is 29.25 from vendor s15700.
The best discounted price is also determined. Although the discounted price is lower per product unit than the "best price", more units have to be ordered so the total price is higher. This is discussed in more detail below.