For this episode I thought I would define some of the phrases and acronyms you are likely to hear if you find yourself working for a manufacturing company or a vendor supplying goods to a manufacturing company. You might also run into these words, phrases, and acronyms if you work for a dealer, distributor, or retailer that buys manufactured products for resale.
The acronym “PO” is short for Purchase Order. This is an authorization from a buyer to buy a certain quantity of goods at a particular price. (A PO could also be used to buy services but we’ll ignore that for now.) It would also specify where the goods are to be delivered. Usually there is a “purchase order number” or “PO Number” provided which the vendor is supposed to include on any future correspondence with the buyer. Purchase orders may be sent by mail, fax, electronic data interchange (EDI), or sometimes by email attachment.
When a purchase order is sent electronically, the supplier often replies with their own electronic message called a “PO Acknowledgement” to let the buyer know the order was received and the supplier has accepted the order.
You should be aware that when a vendor receives a purchase order from a buyer, the vendor may indeed turn around and issue purchase orders of their own to their suppliers. This linkage between suppliers to other suppliers who are in turn suppliers to a large manufacturing company is often called the “supply chain” by the manufacturer.
The buyer may occasionally need to alter a purchase order. They may, for example, need to alter the desired delivery date or shipping address. This type of transaction is often called a “PO Change” or “PO Change Request”.
The buyer may periodically issue an electronic message to the supplier requesting “Order Status”. The buyer may be concerned because a long time has passed with no word from the supplier, because only a portion of a large order has been delivered, or because the buyer’s inventory levels are low. The supplier will reply with the status using terms such as “shipped” to indicate the goods are on the way or “backordered” to indicate the supplier is out of stock and they are not sure when they will be able to fill the order.
The information technology systems of some manufacturing companies are sophisticated enough they are able to track the expected delivery of all components and raw materials they need to produce a product. They use this information to predict when everything required will be available that they can predict the date in the future when the product can be shipped (and maybe also when it can be delivered). They call this the “available to promise date” and this is used instead of saying that a product is “on backorder.”
“ASN” is short for Advance Shipping Notice. An ASN is used so that the buyer will know when to expect delivery from the supplier. This is helpful since the buyer might need to arrange to have a crew available to unload the goods. In the case of a retail buyer, the goods need to be put into inventory for sale. In the case of a manufacturer buyer, the goods may be moved immediately to the assembly line. ASNs are usually provided in situations in which the buyer uses electronic messages to manage their supply chain. Usually the ASN would reference the purchase order number as mentioned above.
Some buyers allow suppliers to make partial deliveries of their order. Some customers specify in the purchase order that delivery be spread over a specified time table. For example, the buyer may want the supplier to deliver 100 items per week. Often the supplier will refer to a partial delivery as a “release” against a purchase order. There may be several “releases” until the entire quantity that was ordered has been delivered.
An “invoice” is the itemized bill from the supplier to the buyer showing the agreed upon price, quantity delivered, taxes, shipping charges, and the total amount of money the buyer owes the supplier. Somewhere on the invoice, the supplier will put the buyer’s purchase order number as a reference so that the buyer can reconcile that the prices and quantities of goods match the buyer’s original agreement as specified in the buyer’s purchase order. Invoices may be sent by mail, fax, or electronic message.
In some manufacturing industries, a buyer will collaborate with their suppliers by sending the suppliers a “forecast” of how much they anticipate buying from the supplier over a period of time in the near future. This is done so that suppliers can make sure they can have adequate supply available to ship when the buyer issues a purchase order in the future. Buyers will periodically update their forecast (perhaps weekly) to adjust their manufacturing to inventory levels and market demands.
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