Accounting Best Practices, Fifth Edition

16–7. Compare Open Purchase Orders to Current Requirements

Between the time when a company issues a purchase order to a supplier and the date when the ordered items arrive, several problems may arise that render the original purchase order inaccurate. First, customer orders to the company may change, resulting in a modified production schedule that no longer requires certain parts from suppliers. Second, ongoing changes in the design of company products may render some parts obsolete. Third, adjustments to recorded inventory balances through the cycle-counting process may result in a need for fewer or more parts than are currently on order. For these reasons, by the date of their arrival, the amount of goods delivered by suppliers may vary significantly from a company’s needs.

To alleviate this problem, one can design a report that should be run through the corporate materials planning system on a daily basis, comparing the amount of outstanding balances on open purchase orders to the company’s needs, as listed in the material requirements portion of the company computer systems. By reviewing this report, the purchasing staff can modify the amounts listed on open purchase orders, thereby resulting in an ongoing reduction in the amount of inventory kept on hand. This report is a standard part of any material requirements planning system, but must be created as a custom report for those companies without such a system.

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