Orders of the Supply Chain

An order is an order is an order, right?

When it comes to supply chain solutions, orders have a single function in life — they connect the demand with the resources that provide supplies. The supplies can come from internal sources such as a factory or a warehouse, or external sources such as vendors or contract manufacturing facilities. Depending on where these supplies exist, an order can model several supply chain processes. For example, the purchasing process is modeled through purchase orders that model the purchase life-cycle from the decision to buy something through transmitting to the supplier, getting supplier confirmation, receiving, validating, closing, invoice verification, and the financial settlement.

Different types of orders model different supply chain processes. Here is an overview.

  1. Purchase Orders, Blanket Purchase Orders, etc.: They connect the demand to external supplies (at the corporation’s vendors) and model the purchasing process. Purchase orders are generally a one-time order while blanket purchase orders have effective start and end dates and to receive material against blanket purchase orders, buyer releases what are sometimes called release orders or release requests for material. Since the purchase orders are between two separate legal entities, they always have a financial settlement component to it.    
  2. Work Orders, Factory Order, Plant Orders, etc.: These orders connect demand with supplies that will be manufactured to meet the demand and model the replenishment process for manufactured (as against bought) finished goods. They control production resources and determine how these will be used, generally for plants controlled by the corporation, but they can also control manufacturing at contract locations depending on the contracts. Work orders generally have cost and overhead allocation components that account for the material and labor used in manufacturing. The financial transactions are typically internal GL entries between the divisions. Of course, if the work orders are raised on contract manufacturing facilities, it has the “purchase order” aspects to it so that the financial settlement becomes part of its life-cycle.
  3. Transfer Order, Distribution Orders, Material Transfer Requests, etc: These orders typically connect demand with internal supplies stocked at distribution centers or other facilities and models the replenishment process through internal transfers of material. These orders also have cost of material and overhead (stocking and handling) allocation components that account for the material supplied to fulfill the demand. The financial transactions are typically internal GL entries between the divisions.

Then of course, there are customer orders or sales orders that connect your supplies to the outside demand but that may more be a matter for CRM to consider.

Want to know more about supply chain processes? How they work and what they afford? Check out my book on Enterprise Supply Chain Management at Amazon. You will find every supply chain function described in simple language that makes sense, as well as see its relationship to other functions.




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