You can review the different types of purchase order scenarios.
Note: Though not illustrated in these scenarios, cost
factor retrieval is a standard part of cost calculation.
Standard PO - scenario 1 – see Figure 1
A purchase order is created for item ABC. The PO creation
message has identified the expected supplier (S1) of ABC for this
particular transaction. A quantity of 50 pieces is required. On entry,
the replacement cost for buying ABC from S1 is retrieved and stamped
on the PO as the line price. A quantity of 50 pieces of ABC is received
against the PO line (or ASN). For each receipt the value of inventory
at the receiving location is recalculated and a new average cost,
based on the received quantity and expected cost of the PO line, is
determined. Finally, the information about the receipt (quantity received,
item, expected price) is sent to the financial application.
- Sterling Selling and
Fulfillment Foundation perform
Replacement Cost Retrieval
- Criteria used: Order Date, Supplier, Item, Order
Quantity
- A user exit allows the standard Sterling Selling and
Fulfillment Foundation retrieval
to be bypassed
- If no user exit is implemented, Sterling Selling and
Fulfillment Foundation retrieves
the price from the specified Price List
- Sterling Selling and
Fulfillment Foundation updates
the PO line with expected cost – from either the user exit invocation
or retrieval from Sterling Selling and
Fulfillment Foundation
- Result PO price = $2.00 each piece
- Each receipt line transaction in Sterling Selling and
Fulfillment Foundation performs
the steps 3 through 5.
- Sterling Selling and
Fulfillment Foundation recalculates
the Inventory Value
- Current Inventory
Value = $250
- Value of new receipt = 50*2.00 = $100
- New Inventory Value = $350
- Sterling Selling and
Fulfillment Foundation recalculates
the Average Cost
- On-Hand Inventory (pre-receipt) = 120
- On-Hand Inventory (post-receipt) = 170
- New Inventory Value = $350
- New Average Cost = 350/170 = $2.058824
- Sterling Selling and
Fulfillment Foundation publishes
the change in inventory value (used for integration to financial applications).
Figure 1. Purchase order scenario 1
Standard PO - scenario 2 – see Figure 2
A purchase order is created for item ABC. The PO creation
message has identified the expected supplier (S1) of ABC for this
particular transaction. A quantity of 50 pieces is required. On entry
the replacement cost for buying ABC from S1 is retrieved and stamped
on the PO as the line price. On receipt of the PO acknowledgement
from S1, it is noted that the per-unit price has been increased. This
new price is entered on the original PO as a PO change. A quantity
of 50 pieces of ABC is received against the PO line/Shipment. For
each receipt the value of inventory at the receiving location is recalculated
and a new average cost, based on the received quantity and expected
cost of the PO line, is determined. Finally the information about
the receipt (quantity received, item, expected price) is sent to the
financial application.
- Sterling Selling and
Fulfillment Foundation performs
Replacement Cost Retrieval
- Criteria used: Order Date, Supplier, Item, Order
Quantity
- A user exit allows the standard Sterling Selling and
Fulfillment Foundation retrieval
to be bypassed
- If no user exit is implemented, Sterling Selling and
Fulfillment Foundation retrieves
the price from the specified Price List
- Sterling Selling and
Fulfillment Foundation updates
the PO line with expected cost – from either the user exit invocation
or retrieval from Sterling Selling and
Fulfillment Foundation
- Result PO price = $2.00 each piece
- Sterling Selling and
Fulfillment Foundation updates
the PO Price from Supplier
- Price from inbound message must change PO price
- New price = $2.10
- Each receipt line transaction in Sterling Selling and
Fulfillment Foundation performs
steps 2 through 6.
- Sterling Selling and
Fulfillment Foundation recalculates
the Inventory Value
- Current Inventory
Value = $250
- Value of new receipt = 50*2.10 = $105
- New Inventory Value = $355
- Sterling Selling and
Fulfillment Foundation recalculate
the Average Cost
- On-Hand Inventory (pre-receipt) = 120
- On-Hand Inventory (post-receipt) = 170
- New Inventory Value = $355
- New Average Cost = 355/170 = $2.088235
- Sterling Selling and
Fulfillment Foundation publishes
the change in inventory value (used for integration to financial applications).
Figure 2. Purchase order scenario 2
Standard PO - scenario 3 – see Figure 1
A purchase order is created for item ABC.
The PO creation message has identified the expected supplier (S1)
of ABC for this particular transaction. A quantity of 50 pieces is
required. On entry the replacement cost for buying ABC from S1 is
retrieved and stamped on the PO as the line price. A quantity of 40
pieces of ABC is received against the PO/ASN. For each receipt the
value of inventory at the receiving location is recalculated and a
new average cost, based on the received quantity and expected cost
of the PO line, is determined. Finally the information about the receipt
(quantity received, item, expected price) is sent to the financial
application.
- Sterling Selling and
Fulfillment Foundation performs
Replacement Cost Retrieval
- Criteria used: Order Date, Supplier, Item, Order
Quantity
- A user exit allows the standard Sterling Selling and
Fulfillment Foundation retrieval
to be bypassed
- If no user exit is implemented, Sterling Selling and
Fulfillment Foundation retrieves
the price from the specified Price List
- Sterling Selling and
Fulfillment Foundation updates
the PO line with expected cost – from either the user exit invocation
or retrieval from Sterling Selling and
Fulfillment Foundation.
- Result PO price = $2.00 each piece
- Each receipt line transaction in Sterling Selling and
Fulfillment Foundation performs
steps 3 through 5.
- Sterling Selling and
Fulfillment Foundation recalculates
the Inventory Value
- Current Inventory
Value = $250
- Value of new receipt = 40*2.00 = $80
- New Inventory Value = $330
- Sterling Selling and
Fulfillment Foundation recalculates
the Average Cost
- On-Hand Inventory (pre-receipt) = 120
- On-Hand Inventory (post-receipt) = 160
- New Inventory Value = $330
- New Average Cost = 330/160 = $2.0625
- Sterling Selling and
Fulfillment Foundation publishes
the change in inventory value (used for integration to financial applications).
Note: Any additional receipt transactions that receive
the outstanding quantity, follow the above process. But any adjustment
to an existing receipt that is done in a warehouse management system
must be manually entered in the financial application.
Standard PO - scenario 4
Item JJJ currently has an average cost of $3.50. The
current on-hand quantity in the system is -20 and the inventory value
is -$70. A receipt is made for 15 units of JJJ against a PO that has
a line price of $4.00.
- Sterling Selling and
Fulfillment Foundation sets
the average cost to the PO line price (Average cost from $3.50 to
$4.00)
- New on-hand quantity = -5 (-20+15)
- Sterling Selling and
Fulfillment Foundation recalculates
the new inventory value
- Since the on-hand quantity started as negative, Sterling Selling and
Fulfillment Foundation uses
the MODIFIED calculation
- New Inventory Value = On-Hand * New Average Cost
= -$20
- Sterling Selling and
Fulfillment Foundation determines
the write-off in inventory value
- A standard inventory event publishes an increase
of $60.00 (15 * $4) to the inventory value of the item
- An additional inventory write-off event publishes
the write-off amount as $10.00 calculated as (Old Inventory value
+ Change in inventory value due to the receipt – New final inventory
value) or (-$70 + $60 – (-$20) = $10.00
Standard PO - scenario 5
Item JJJ currently has an average cost of $3.50. The
current on-hand quantity in the system is -20 and inventory value
is -$70. A receipt is made for 25 units of JJJ against a PO that has
a line price of $4.00.
- Sterling Selling and
Fulfillment Foundation sets
the average cost to the PO line price (Average cost from $3.50 to
$4.00)
- New on-hand quantity = 5 (-20+25)
- Sterling Selling and
Fulfillment Foundation recalculates
the new inventory value
- Since the on-hand quantity started as negative, Sterling Selling and
Fulfillment Foundation uses
the MODIFIED calculation
- New Inventory Value = On-Hand * New Average Cost
= $20
- Sterling Selling and
Fulfillment Foundation determines
the write-off in inventory value
- A standard inventory event publishes an increase
of $100.00 (25 *$4) to the inventory value of the item.
- An additional inventory write-off event publishes
the write-off amount as $10.00 calculated as (Old Inventory value
+ Change in inventory value due to the receipt – New final inventory
value) or (-$70 + $100 – ($20) = $10.00