Purchase Order Commodity Code

Overview

The PO Commodity Code contains default values for a number of fields on the PO Item Master. These fields affect activity in Purchasing for Purchased Items, Subcontract Items, and Outside Operations.

  IMPORTANT  Each purchased item must be assigned a PO Commodity Code. A PO Commodity Code is a prerequisite to adding new PO items to the system. 

Items with similar characteristics can be grouped and managed through a single Commodity Code, simplifying the entry and maintenance of these parts. 

Purchasing Commodity Codes must be created for Direct (including subcontract), Indirect, and Service Items.

Application

PO Commodity Codes are created automatically when any Inventory Commodity Code is created. Therefore, to create a new PO Commodity Code, an Inventory Commodity Code (Navigation = System Setup > Inventory Commodity Code) must be first created. PO Commodity Codes cannot be independently created, but once they exist, any editing of the PO Commodity Code is done directly to the PO Commodity Code.

Navigation

Purchasing > PO Commodity Code

Step 1 - Edit

To edit an existing Purchasing Commodity Code, select the ‘Edit’ function and the row to be edited from the list view.

Fields

Division:  Must be a valid Division from the Division Master (SYDIV).  This is not a user-maintained field as this record is created when the Inventory Commodity Code record is created.  

Commodity Code:  This is a user-defined PO Commodity Code automatically created when the Inventory Commodity Code record is created.

Description:  This is defaulted from the Inventory Commodity Code but can be overridden.
 
Buyer:  Identifies the individual responsible for buying items assigned to this Commodity Code. This must be a valid Manufacturing User on the User File (SYUSR).

Purchasing UOM:  This is the unit of measure in which items using this Commodity Code are purchased.  It is a default value that can be overridden on the Purchasing Item Master and/or Item/Vendor master record.

Inventory UOM:  This is the Unit of Measure that is set (defaulted) on an Inventory Item Master when it is associated with the given Commodity Code. It is the UOM used for all Inventory Transactions. The Unit of Measure can be overridden at the Inventory Item Master level if desired.

Qty Decimals:  This Initial value defaults from the corresponding Inventory Commodity Qty Decimal Value.  It controls the number of decimal places available when defining quantity on the Purchase Order Line.

This field specifies the decimal precision in which purchases are expressed, not the decimal precision in which inventory quantities are expressed.

  EXAMPLE  The entry of 3 indicates the purchases of the item will be held in 3 decimals of precision.

When a Purchase Item Master record is added, the Purchase Item Master Qty Decimals field is initialized to this value.

For Indirect and Service Items, this is initialized to zero. The user can override this value.

Lead Time, Req Convert:  This is the administrative time in days from the date of firming the requisition until the requisition is both approved and converted to a Purchase Order. These days are used in the calculation of MRP lead time. MRP derives the scheduled firm date of the requisition as this number of days subtracted from the Due Date. The number of days subtracted from the Due Date is based on the combined lead times of:

• Receiving / Inspection.

• Vendor Ship (of finished goods from the Vendor to the dock of the Customer).

• Vendor lead time (i.e., the time the Vendor requires from receipt of your order to have the item available to ship).

• Shipping of subcontract component material to Vendor.

  NOTE  Shipping of subcontract component material to the Vendor is only for subcontract items where the Buyer supplies some or all of the components to the Vendor.  Simply put, Lead Time, Req Convert is the number of days it takes to get approval for a ‘firmed requisition’ and to convert an ‘approved requisition’ to a Purchase Order.

Lead Time Vendor:  This represents the number of days the Vendor needs to get the purchased items available to ship.  It includes the time the Vendor requires to process the Purchase Order and perform the assembly, production, and packaging of the finished item.

  NOTE  Lead Time Vendor does not include the time it takes to ship the item from the Vendor to the customer’s dock.

Vendor lead time is used in the calculation of MRP lead time when MRP plans the scheduled ‘Purchase Order PLACE DATE’ of the requisition as this number of days subtracted from the Due Date. The number of days subtracted from the due date is based on the combined lead times of:

• Receiving / Inspection.

• Vendor Ship (of finished goods from the Vendor to the dock of the customer).

• Vendor lead time (i.e. the Vendor's own production lead time).

• Shipping of subcontract component material to Vendor.
   

  NOTE  If this is not a subcontract item, the value is zero.

When a Purchase Order Line is added through PO Entry instead of requisition conversion, the user sets the Scheduled Receipt Date (the date the item is required at the buyer’s site) manually. 

If the Purchase Order Line is material (Direct or Indirect), the system will subtract the Lead Time Vendor Ship days from the Scheduled Receipt Date to calculate the Scheduled Vendor Ship Date.  It then subtracts the Vendor Lead Time (this field) to calculate the Scheduled Pick Date.

This Lead Time is used differently for Direct/Indirect material versus Service.

  NOTE  If this is a Service item, the computation will start with the Scheduled Receipt Date (Dock Date on the Purchase Order Line) and will then add this Vendor Lead Time to get the Scheduled Due Date.

Item Type:  There are 4 values:

• Direct purchases (includes Subcontract items)  (Inventoried Items)

• Indirect material  (Non-Inventoried items, such as office and shop supplies)

• Service (for example, copy machine repair, landscaping, etc.)

• Outside Operation (for 3rd party work in the manufacturing process)

  NOTE  The 'Outside Operation' will be available in the Item Type select list only when the 'Outside Operations Booking Active' on the Division is enabled.

Service Type:  This field is only visible if the Item Type is Service and indicates how the service is to be charged:

• A - Amount for Service.

• H - Number of Hours specified for Service.

• D - Number of Days specified for Service.

• M - Number of Months specified for Service.

Std Cost Update Indicator:  This field is not used for Indirect and Service items.

• The value in this field will initialize the Standard Cost Update Indicator for Items associated with this PO Commodity Code. 

• The field options are ‘Manual’ or ‘Calculated’.

• If the value of this field is set to ‘Manual’, the Standard Cost Update Indicator will be set to ‘Manual’ when a Purchase Item Cost record (POITEMCST) is added.

• If the value of this field is ‘Calculated’, the Standard Cost Update Indicator will be set to ‘Calculated’ when a Purchase Item Cost record (POITEMCST) is added.

• This field can be changed, but the change will not update any existing Purchase Item Cost records.

• The purpose of the Standard Cost Update Indicator field is to provide the system with the criteria as to how the Standard Material Cost will be updated when the program ‘Derive Purchase Mtl Costs from PO Activity’ is run.  This program is located in the Standard Costs menu.

• If the Standard Cost Update Indicator is ‘Manual’, the Standard Material Cost can be manually updated by the user.

• If the Standard Cost Update Indicator is ‘Calculated’, the Standard Material Cost is updated by a batch program. This batch program will update the Standard Material Cost based on the current average (or historical) prices from the Purchase Item Cost records.

• The Standard Material Cost is used as the basis for determining the standard purchase cost for the standard cost rollup.
   

PO Price Option:  There are two valid values:

• Enter New Price

• Use Last Price
   

  NOTE  If a Purchase Order is automatically added, this field indicates whether to use the last PO price of the previous line from a Purchase Order or whether to use a new PO price. If the option is ‘Enter New Price’, the price field on the Purchase Order Line will be blank and must be entered by the user. If set to ‘Use Last Price’, the last PO price from the previous line is used (if there is a previous price).

Historical Costs Weight Factor:  This field is not used for Indirect and Service items. Must be positive or zero.

• The sum of Current Costs Weight Factor and Historical Costs Weight Factor must equal 1.0

• This is the ‘weighting factor’ to be applied to the Purchase Item Cost Cumulative Average Price for those items associated with this Commodity Code.

• See the description of the formula in Std Cost Markup Down.

Over Receipt Indicator:  If checked, this checkbox indicates that over-receipts are to be allowed for an Item associated with this item group. If not checked, the Purchase Order Line will need to be adjusted to the actual receipt quantity to receive more than originally ordered.  

  IMPORTANT  If this checkbox is not checked, Over Receipts will not be allowed.

On Purchase Order Line entry, the Over Receipt Indicator is set to:

• This Over Receipt Indicator value if the Purchase Item Commodity Override Indicator for this field is Checked.

• The Purchase Item record Over Receipt Indicator if the Purchase Item Commodity Override Indicator is Not Checked.

This is a checkbox. It is the default that will actually initialize the Purchase Order Line Override Receipt Indicator. So, if this checkbox is checked, on a PO ‘Over’ receipt the system will INCREASE the Purchase Order Line Quantity Required so that there is nothing remaining to receive and, at the same time, the Purchase Order Line Quantity Outstanding will be set to zero and the Purchase Order Line Status will be set to Complete.

Override VAT Class:  When set, PO Items associated with this PO Commodity Code will use this value rather than the Primary VAT Class defined on the associated Division Master.

Subcontract Component Issue From Site:  The site from which subcontract components are to be issued.

Subcontract Component Issue From Loc ID:  The Inventory Location ID from which subcontract components are to be issued.

Std Cost Markup/Down:  This field is not used for Indirect and Service items. A factor that can be positive or negative or zero, but it cannot be less than -1.0. 

The cost rollup starts with historical prices and then applies this field as a factor (positive or negative) to set the Standard Material Cost Field.  For Example, a -.2 would decrease cost by 20%, and 1.0 would increase the cost by 100%

The rollup process works as follows:

• For a given Purchase Item Cost Record, the system retrieves the Item’s PO Commodity Code.

• It then sets a working storage variable to (Current Costs Weight Factor * Purchase Item Cost Current Average Price).

• It then adds to that value the following:  (Historical Costs Weight Factor * Purchase Item Cost Cumulative Average Price).
   

  NOTE  Current Costs Weight Factor and Historical Costs Weight Factor must add up to 1.

• It then multiplies that value by the absolute value of the Std  Cost Markup Down Value and:

• if the Std  Cost Markup Down Value is negative, it subtracts this number from the total computed in the step above.

• if the Std  Cost Markup Down Value is positive, it adds this number to the total computed in the step above.

• the Purchase Item Standard Material Cost is set to the result.
   

Current Costs and Historical Costs Weight Factors:  This is the ‘weighting factor’ applied to the Purchase Item Cost Current Average Price for those items associated with this Commodity Code.

• These fields are not used for Indirect and Service items.

• Each can be positive or zero, but together must total 1.0.

• See the description of the formula in Std Cost Markup/Down above.

Accounting Dimension Value: This is the default Dimension Value for Purchase Orders entered in this Division. This may only be selected from the list of valid dimension values. This is not a required field.

Organizational Department:  This is the default Organizational Department for Purchase Orders entered in this Division. You may only select existing Organizations here.  This is not a required field.

Inspection Order Template: The Inspection Order Template to be used when creating Inspection Orders for PO Items using this PO Commodity Code, although it may be overridden to a different value on a given PO Item.

Subject to Withholding Tax: When checked, a Purchased Item associated with this Commodity Code will be subject to Withholding Tax. See Withholding Tax documentation for more information.

SEE ALSO

Purchase Order Overview
Inventory Commodity Code
Subcontract Purchase Order Processing
MRP Concepts