Case Study | Title: Purchase Order (PO) Ageing - GRM Institute

Case Study | Title: Purchase Order (PO) Ageing

By Simran Mahajan

PGDRM Batch Jan’20-21

 

What is a PO?
  • Purchase order is a document sent from a buyer to a supplier with a request for an order.​
  • Purchase orders help you better account for all of the goods and services your company has ordered. ​
  • You can track orders more confidently knowing that your supplier is contractually bound to deliver them at a specific time and date.​
  • PO is issued once the PR has been made.​

 

 

What is an Open PO?

 

  • Open PO, also called the standing PO means the supplier has not fulfilled the agreed purchase order or supplier has fulfilled but the company has rejected because of the quality issue and requested for re-supply.​
  • Closed PO- As per agreed PO, material received from the vendor and PO fulfilled.​

What is PO Ageing?
  • Purpose– To identify open, delayed PO’s where they haven’t been fulfilled.​
  • Monitoring Open PO’s– We check whether the goods are received or not. ​
  • Also need to ensure that any Open PO’s don’t get closed with unauthorized material/ service receipt and invoice.​

 

PO Ageing Reports/ Data

 

  • Formation of PO Ageing bucketing– Done to keep track of the Purchase orders in order to follow up with the vendor accordingly.​
  •  0-15, 15-30,30-60 days.​
  • PO Ageing Report– It contains the bucketing period, defines open PO’s in each category, also contains the vendor details.

 

 

Analytics we can perform

 

  • Production delays, delays in customer orders leading to emergency purchases at a higher cost or not fulfilling the order. The root cause to find out why such POs were raised, vendor contracts, vendor history;​
  • Empty shelves, loss of revenue (Retail);​
  • Material purchased from other vendors, PO not canceled. The vendor could dump material at a later date;​
  • Multiple open POs for same item leading to excessive inventory;​
  • Material procured at a higher cost from same/other vendors while low-cost POs are open;​
  • High-cost POs used when required to pay extra to vendor especially in products like cocoa, copper where there are common rate fluctuations;​
  • Delay in the procurement of Maintenance spares leading to plant stoppages;​
  • Need of material if open and if the material is still not procured; Link back to PRs. Check with budget leftovers, month-end dates, etc.

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