This article is relevant if you are managing a sales process and you need to manage the consumption and control of customer purchase orders.
During a recent NetSuite implementation, our client needed better control over the reference of their customer’s purchase orders. In the client’s business to business model, large customers will routinely create purchase orders for the consumptions of goods and services. However, many times, the delivery of those goods and services need to happen over time. The challenge with this model is to stay on top of the purchase order to know how much has been consumed and and how much is still available for subsequent delivery. In general, I call this the Blanket Customer Purchase Order challenge.
To be careful, the word “purchase order” needs to be contextual. Respectfully, a customer’s purchase order from the supplier’s perspective represents a sales event. However, the customer creating the purchase orders views this a sourcing and disbursement obligation concern. Here, we will look at the concern from the supplier side where the purchase order represents a sales commitment. I will write a different article on how to manage blanket purchase orders when seeking to source goods.
The Simple Blanket Customer Purchase Approach
I have seen different models to take care of this concern. One model is to create a single Sales Order for the entire customer purchase order. Then, over time, produce partial item fulfillments and related invoices against the sales order to consume it. This basic model works. Yet, it may have consequences that affect the business operation:
- Inflated Sales: sales (not revenue) appears to have happened all at once. This may or may not be true depending on how the business views the customer commitment. This also may affect related commission calculations.
- Inventory Commitment: inventory for the entire sales order may end up being committed when in reality, only some of it is going to be consumed in the near future.
- Partial Shipment Schedule: there is no built-in NetSuite mechanism to indicate what part of the sales order should be shipped. Thus, another system of control (dare I say spreadsheet) would likely be offline to manage the process.
- Overstated Backlog: Some organizations work to avoid real delivery backlogs relative to the time that customers expect a shipment; this approach will distort what is indeed expected by customers and what goods are needed in the short term. However, depending on how the organization thinks about backlogs, this approach may actually be welcome.
The Advanced Customer Blanket Purchase Order Management Practice
For the reasons noted above, our client needed a superior capacity to manage the customer blanket purchase order practice. It was important for the client to keep their sales order flows consistent amoung on their entire customer base. In this client’s case, a Sales Order was meant to have all the information needed to “fully ship” quickly. Backorders were to be avoided. We only commit inventory that we indeed intend to ship. Sales (commited order) and revenue (earned invoice) were to be very closely related. The blanket helped with sales forecasting but the customer relationship needs to be nurtured to confirm their full commitment to their own blanket purcahse order; at the same time, the organization must watch for slow invoice payment history which may suggest other customer concerns to address.
As such, we leveraged the power of the NetSuite platform to get full control over the requirements. The key is to develop a custom Blanket Customer Purchase Order record that can be used to reference related transactions. Transactions can follow rules according to the state of the Blanket Purchase Order. Here are the key capacities:
- Blanket Purchase Order Record: define the customer, amount and reference information. Attach the hard copy of the purchase order to the record for easy reference.
- Consumption Information: distinguish sales orders and invoices that reference the blanket record. Summarize values to quickly understand consumption and the remaining sales capacity.
- Sales Order Purchase Order Referencing: During sales order entry, reference the customer blanket purchase order. Respect that a purchase order may be in a customer / sub customer tree. Control the information placed in the standard purchase order form to ensure proper document number references.
- Ensure Purchase Order Capacity: leveraging our “Transaction Approval Manager” tool, ensure that a sales order is not approved should there be insufficient remaining blanket purchase capacity.
- Consolidate Invoice Presentation: if the customer demands it, consolidate the presentation of multiple invoices into a single invoice to help the customer’s accounts payable function.
See related images to gain a feel for how the software works.
Take Control over Sales Order Customer Purchase Order Management
The above example illustrates how we work closely with our clients to leverage the power of the NetSuite platform to carefully listen to their concerns to offer fresh thinking and solutions. NetSuite’s core ERP system is strong, and in my mind, elegant. Yet, I appreciate how NetSuite has not made certain logic assumptions on how a business practice is supposed to work. In our client’s case here, one organization’s point-of-view on the way to manage blanket purchase orders may be completely opposite of another’s. The point is that because you are on NetSuite, you can indeed streamline your operation which will help you grow customer trust and drive down operating costs. If you would like to get in front of your customer’s purchase orders to streamline your business operation, let’s have a conversation.