The Inventory file contains quantity, price, supplier, and warehouse location data for
each item of product inventory. The purchasing process begins with a review of the inventory
records to identify inventory items that need to be ordered. In a retail organization,
this step is performed when sales of finished goods to customers are recorded in the
inventory records. In this case, the purchasing process involves replenishing the finished
goods inventory. Purchasing systems of manufacturing firms replenish raw materials inventory
as these items are used in the production process. In either case, when inventory
items are sold or used in production, the Quantity-on-Hand field is reduced accordingly
by a computer application. With each inventory reduction, the system tests for a “reorder”
condition, which occurs when the quantity-on-hand falls below the reorder point.
At that time, the system prepares a purchase order, which is sent to the vendor, and
adds a record to the Purchase Order file. The quantity-on-hand value will remain below
the reorder-point until the inventory is received from the supplier. This process may take
days or even weeks. To signify that the item is on order and to prevent it from being
reordered each time the computer application detects the same reorder condition, a
computer-generated purchase order number is placed in the PO-Number field of the inventory
record. Normally, this field is blank.