Purchase Return On Additional Investment Report overview

Purchase > Reports > PO Reports > PORBO

Function acronym: PORBO

Use this report to calculate the Extra Stock to Purchase, expressed in months and quantities. This report provides data to help with buying decisions when vendor price increases, incentives, and other factors suggest that additional investments, beyond what is required for normal service and turnover goals, may be worthwhile.

For example, if a vendor announces a price increase in your most popular product line, you may consider purchasing a quantity greater than your established line point.

Making decisions about investing additional funds in buying options can be complex and ambiguous and include other factors, such as the amount of stock you have on hand. This report includes these messages related to on hand quantities:
  • If the number of months' surplus you have on hand is greater than the number of extra months' stock, no purchase should be made. In this instance, this message is displayed:
    • Current Stock will not reach Line Point within the Recommended Time Frame
  • If you have surplus stock on hand, the number of extra months' stock is reduced by the amount of surplus stock you have. This message is displayed:
    • Recommended Purchase has been adjusted because stock level is above Line Point.
  • If you do not have any excess stock on hand, this message is displayed:
    • Product Available + On Order is < than Line Point: a full buy is Recommended

As with any formula, the Return on Additional Investment (ROAI) is a guideline to help you make decisions. The basic formula for the Extra Months Stock to Purchase calculation is:

(24 * Discount %) divided by (Goal ROAI + K %)

The numerator of this formula uses a constant, 24, multiplied by the percentage discount that your vendor gives you for purchasing additional goods. The denominator is the ROAI that you would like to achieve in purchasing the additional goods plus the carrying cost that is associated with warehousing the additional goods. The default goal ROAI is substantial at 40%. Specify any percent that you feel is necessary to achieve. The carrying cost is a prerequisite specified in Product Warehouse Description Setup. Because carrying costs may vary from warehouse to warehouse, the calculation is for the specific warehouse you enter, not a range.

The formula results are expressed for each active, stocked product within the product line. The quantity is not rounded to standard buying unit for the product. If a product's usage is zero, the suggested purchase quantity is also zero. The status of the products that are analyzed is validated with the Product Setup and the Product Warehouse Product Setup record. Labor, inactive, superseded, direct order, order-as-needed, and do-not-reorder products are not included in any calculations.

The established line points for your products determine what is considered extra. Faster moving products are closer to line point more frequently than slower moving products. There is less risk investing additional funds in products that turn more rapidly than other products.