Shop Orders are internal build orders for items that need to be assembled or produced in house. Shop Order demand can be determined based on inventory status reports, such as the Purchasing Recommendation report, or the demand can be based on specific customer orders.
Inventory Items that are built in-house are normally identified or flagged for reporting purposes. This allows your purchasing and assembly departments to differentiate between items that they purchase, and items that they build in-house from component parts when they are running reports.
In general, the logic in the system is to order from the top down. As customer sales orders are entered, the system reserves and tries to allocate inventory to each sales order line.
On a regular basis, the purchasing department runs a PO Recommendations report. The report indicates the items that are “needed”. The need is calculated based on current inventory quantities, inventory reorder quantities, and the minimum stocking level or reorder point for the item. The sales and shop order lines that have been entered into the system are included in the inventory quantities used by the report.
Once the needed items have been identified, purchase orders are created for the items that need to be purchased, and shop orders are entered for the items that need to be built.
Once the purchase and shop orders have been entered, the PO Recommendations report can be re-run to pick up any requirements resulting from the new shop orders that were created. The new requirements can be components needed to build the shop order items or they can also be finished goods that are also built in house and that are included in other shop orders. If necessary, shop orders and purchase orders are entered for these items and the process is repeated until you have handled the total demand.
The logic is that you reserve the items that you need by entering orders from the top down, and then build or complete the items from the bottom up (i.e. build the component items that are included in other shop orders, then pull those into the shop orders that use them, then complete those shop orders).