Purchasing Criteria (PO09)

The Purchasing Criteria are defined in Maintain Purchasing Tables (PO09) and are assigned to Supplier Product records in Maintain Purchasing Info (PO13/Purchasing). Purchasing Criteria are used to determine when a Product should be reordered. Reorder Quantities (ROQs) are calculated by the system to determine the quantity to be ordered.

The following list defines every field on the PO09/Purchasing Criteria folder:

• Purchase Criteria Code - enter or select from the query the Purchase Criteria Code. The code can be a maximum of 2 alpha-numeric characters in length.

• Description - enter a description of the Purchase Criteria Code. The Description can be a maximum of 30 alpha-numeric characters in length.

• Min. Mos. for Max. Calculation - enter the number of months that a Product must be on file in order for the Recalculation routines (Forecast/Purch/Leadtime Recalc (PO25) and Forecast/Purch/Leadtime Edit (PO26)) to recalculate the Purchasing Criteria and Forecast automatically. You can enter a maximum of 24 months in this field. The default value for this field is 6 months.
  Note: If a product does not meet the Minimum Months for Maximum Calculation value specified here (meaning that there isn't enough demand history), then the Purchasing Criteria for the product will not be recalculated. These values (Minimum, Maximum, Reorder Point, Reorder Quantity and Line Point) must be maintained manually until enough history is accumulated. Monthly Forecast will be recalculated but is calculated as a straight average of Total Demand to Date divided by No. of Months Active (including or excluding the Current Month's demand).

• Re-calculate Maximum? - when selected, the Recalculation programs (PO25/PO26) calculate and define the Maximum stock level for Products, and automatically update Maintain Inventory Master (IM13/Warehouse). When this check box is not selected, the Maximums must be set manually in IM13/Warehouse for all Products.

• Maximum Factor - enter the factor to be used by the Recalculation routines for this Purchase Criteria Code to obtain system-calculated maximums. The default value is 1.
  • Note: The Maximum Factor can also be applied on a Supplier by Supplier basis if the 'Max. Factor' is defined in Maintain Supplier Master (PO11). In this case, all Products for a Supplier will use the Supplier’s 'Max. Factor', if it is greater than zero.

• Safety Stock Factor - enter the factor used by the Recalculation routines (PO25/PO26) to establish the Safety Stock (minimum) requirements for a Product. The default value is 0.5.
  • Safety Stock is calculated as:

    Minimum = Forecast x Lead Time x Safety Stock Factor

    Note: The Safety Stock factor defaults to 0.5 because Safety Stock units are included in the 'Reorder Point' and the 'Line Point' calculations; however, the Safety Stock factor may be equal to or any value greater than 0. The factor to use is dependent on the variances between actual versus estimated Lead Times and the Forecast. As Forecast and Lead Time values increase, the Safety Stock Factor should increase also.

• Method of ROQ Calculation - The method of Reorder Quantity (ROQ) calculation controls how the Purchasing system generates the suggested quantity of a Product to order each time the Product is in a position to be reordered.

  There are four methods of calculating the ROQ:

  • M - Manually set ROQ amount - the amount to be reordered is manually set for the Product in IM13/Warehouse. This amount may only be reset manually.

  • O - Order Up To Maximum - maximums are calculated in one of two ways, depending on whether the Supplier is reviewed cyclically or on an 'as required' basis:
    • If reviewed cyclically, Maximums are calculated as:

      Maximum = Line Point + Forecast x Lead-time x Maximum Factor

      The difference in quantity between available units and maximum units is the Reorder value, providing the Inventory level is below the Line Point. When available stock drops below the 'Line Point', and when Generate Preliminary POs (PO23) runs, a preliminary PO is generated to bring stock levels back to the 'Maximum'.

      Note: The 'Line Point' and the 'Maximum' values are stored in IM13/Warehouse. These values are updated on an on-going basis through the purchasing criteria review and generation process (PO25).

      Note: PO23 generates the Reorder values for any Supplier using this method of calculating ROQ.

    • If reviewed on an 'as required' basis (i.e. 'Review Cycle ROQ' is not selected), Maximums are calculated as:

      Maximum = Reorder Point + Forecast x Lead-time x Maximum Factor

      The difference in quantity between available units and maximum units is the Reorder value, providing the Inventory level is below the Reorder Point. When stock drops below the 'Reorder Point', and when PO23 runs, a preliminary PO is generated to bring stock levels back to the 'Maximum'.

      Note: The 'Reorder Point' and the 'Maximum' values are stored in IM13/Warehouse. These values are updated on an on-going basis through the purchasing criteria review and generation process (PO25).

  • C - ABC Classification - this method of calculating ROQ sub-classifies Inventory items in decreasing order of annual sales volume; for example, 5% of the Inventory that is maintained by the system may account for 30% of annual sales.
    • Classification codes are manually assigned to each Product in IM13, or are automatically assigned by Report/Reset Class Codes (IM61) on the basis of dollar or hit demand. The assumption in both cases is the higher the demand, the higher the sales dollar volume. Products that have a high dollar or hit demand (in proportion to the total $ demand) are coded with a higher-class code.

    • The Forecast Calculation (PO07) table maintains all the information required to calculate the forecast usage using PO25.

    • Maintain Inventory Tables (IM09/ABC Class codes) manages a table that includes the 'Days (ROQ)' filed used to calculate the Reorder Quantity and the 'Purchasing Criteria Code' that should be applied to the Products in this Class Code.

    • PO25 calculates the forecast for a Product and then, if the method of calculating the ROQ is C, the monthly forecast is reduced to a daily requirement and multiplied by the number of days, maintained for the product’s Class Code in IM09/ABC Class Codes. Normally Products that generate the highest unit forecast have the lowest number of days used to recalculate the ROQ. The assumption is made that a Product with high volume will be reordered more frequently.

  • E - Economic Order Quantity Method - The EOQ method of calculating ROQ utilizes an equation that calculates the optimum quantity to order; i.e. once the optimum reorder quantity has been calculated, it becomes a static amount. The theory behind the EOQ model supports the idea that each Product has an optimal order size (the EOQ), which will result in minimum total annual costs. The strategy is to order the same amount each time an order is placed.
    • The equation used to calculate the Economic Order Quantity for products is:

      
      

      Where,
      'R' = the cost to generate a Purchase Order,
      'K' = the annual cost of carrying 1 unit in stock,
      'Useage' = monthly usage calculated by Maintain Forecast Calc Code (PO07)
      

      Note: The default 'R Factor' and the 'K Factor' are maintained in Company Control Initialization (CC00/Purchasing). The 'R Factor' can be also be applied on a Supplier by Supplier basis in PO11. If the Supplier’s 'R Factor' is zero then the default 'R Factor' (from CC00) is used.

^{PO09/Purchasing Criteria}