What is Planned Order?
A planned order is a procurement proposal created to mitigate product shortfall during peak orders. The proposal is made manually or automatically based on a manufacturer’s average order rate and inventory level. A planned order can sometimes vary from a production order, as planned order proposals might be changed and revised before a production order is made.
Significance of Planned Order in an E-commerce Shipping and Delivery
Planned orders allow sellers to cover demand and maintain an optimum inventory level. It also adds the following benefits to an e-commerce company:
- Demand fulfillment: Using planned orders in inventory procurement and manufacturing ensures that a seller always has enough stock. Furthermore, it is done to ensure minimal inventory loss in the case of perishable goods.
- Seamless sales and procurement integration: Recurring planned order process created by the MRP in context to the external order rate paves the way for a seamless sales process. Integration between the sales team and the procurement team becomes more manageable as planned orders provide an idea of maximum fulfillment to the team that is generating the demand.
Prerequisites of Planned Order and How It Works
The requirements of a planned order have been listed below.
- Average order rate every month
- Inventory level during a specific period
- Forecasted inventory requirement per the opted sales target
Once the mentioned requirements are fulfilled, a planned order is used in the following ways:
- Planned order creation: The seller or their material requirement planning (MRP) member creates a planned order.
- Approval: The drafted planned order is acknowledged or revised per certain factors.
- Production order: After approval, the production order is placed per the approved planned order.
Use Case with Planned Order
A dairy product seller in Australia has an average order rate of 700 units per month for butter and 1,200 units per month for curd. However, in a single month, the seller received 1,500 orders for butter and 2,000 orders for curd. Accordingly, a planned order was drafted to stock up 1,500 additional units of curd and 2,000 additional units of butter to suffice the current demand while ensuring enough supply to fulfill the next month’s orders.