In inventory management, ensuring stock is available when needed is critical. Two key performance indicators (KPIs) – Purchase Requisition (PR) to Purchase Order (PO) Conversion Time and Overdue Purchase Order Lines – directly affect this. Here’s why they’re vital, explained simply with a mathematical example for management unfamiliar with SAP.
What Are These Terms?
- A Purchase Requisition (PR) is a request to buy something.
- A Purchase Order (PO) is the official order sent to the supplier.
- Conversion Time is how long it takes to turn a PR into a PO.
- Overdue Purchase Order Lines are items not delivered by the expected date.
Why Do They Impact Stock?
If it takes too long to convert a PR to a PO, or if a PO is overdue, stock doesn’t arrive on time. This can lead to stockouts – running out of items – which disrupts operations and disappoints customers.
A Simple Example
Imagine a product with:
- Daily Demand: 10 units per day.
- Safety Stock: 20 units (a buffer for unexpected delays or demand spikes).
- Reorder Point: 80 units (when stock hits this, we order more).
- Expected Conversion Time: 1 day.
- Expected Lead Time: 5 days (time from PO to delivery).
When stock reaches 80 units, a PR is raised. Normally:
- PR becomes a PO in 1 day.
- Stock arrives in 5 days.
- Total Time: 1 + 5 = 6 days.
- Units Used: 10 units/day × 6 days = 60 units.
- Stock Left: 80 – 60 = 20 units (equal to safety stock).
Everything’s fine – stock arrives just as the buffer is reached.
Scenario 1: Slow Conversion
If conversion takes 3 days instead of 1:
- Total Time: 3 + 5 = 8 days.
- Units Used: 10 × 8 = 80 units.
- Stock Left: 80 – 80 = 0 units.
The safety stock is gone. Any extra demand or delay means a stockout.
Scenario 2: Overdue PO
If the PO is delayed by 2 days:
- Total Time: 1 + 5 + 2 = 8 days.
- Units Used: 10 × 8 = 80 units.
- Stock Left: 80 – 80 = 0 units.
Again, no buffer remains, risking stockouts.
The Maths Behind It
For every extra day of delay (in conversion or delivery):
- Stock drops by 10 units (daily demand).
- A 2-day conversion delay = 20 units less stock.
- A 3-day overdue PO = 30 units less stock.
If stock falls below 20 units (safety stock), you’re at risk. Below 0, you’re out of stock.
Why Actively Manage These KPIs?
Tracking and minimising conversion time and overdue POs ensures stock arrives as planned. Without this oversight, delays creep in, stock levels drop, and stockouts occur – it is as simple as that. These KPIs aren’t just numbers; they’re a direct line to keeping bins stocked and end-users happy.
