Optimize your sales order flow for manufacturing

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hey everybody I'm Rob jolliff and today I want to deal with a question that comes up all the time with customers um I've been asked this twice the past couple months and I just want to answer uh this question which is why do I need to have sales orders so let's get into it so I've been asked a couple of times why do I need to use sales orders by different clients recently and I wanted to put this video together to explain why you need to have sales orders when you're a manufacturing company and you're using an Erp um just a little bit of background I'm Rob jolliff I'm the president of saber limited and I'm an expert in supply chain it and Erp systems and this is my ask the expert Series where I try and answer questions that come in um a couple of assumptions if you're watching the video we are targeting and you probably will be a manufacturing company who's watching this video and also you're interested in understanding mid-market Erp systems not giant systems like sap where you spend two million dollars but smaller systems should be spending 100 200 000 in implementing and paying for an Erp system if you want to talk to me you want to ask me any questions about this video or any other videos uh in our series just don't hesitate to check out Below in the links that we Post in the in the video description for my uh for my contact form so that you can book a meeting with me it can be about any subject at all that you're interested in talking about just please leave me a note about what you want to talk about so that I have a time to prepare okay so why do I need to use sales orders first of all let's start with what is a sales order because I think that there's some confusion about what a sales order is but in short a sales order is basically the mirror image of your customers po so your customer is going to send you a PO you need to have a place to keep that in the old days we used to call it an order book and sometimes it was a literal book and we filled it in on a on a book and we kept track of the inbound orders that our customers have placed with us a sales order is that that is exactly what its purpose is so if you're an accountant then the idea of having some sort of an account reconciliation would be really familiar to you your customer sends you a list of their purchase orders and says hey I've placed all these purchase orders with you what are the statuses the sales orders are where you could go and you can match that and do that reconciliation you can reconcile your sales order book with your customers purchase order book and the two of you can kind of make sure you're on the right track um also sales orders allow out the business to track or generate like a cash flow projection or to track their sales reporting so you know your sales orders are your order backlog if you want to run a report and say how many dollars of order backlog do I have um how many dollars of orders have customers placed with me that's what the sales orders purpose is it's the purpose of it is so that you have the ability to see all of that in one place now there's one more really big purpose of a sales order which is why are sales orders needed for MRP because that's the number one reason from uh from an Erp implementation point of view that we want you to use sales orders so one of the strengths of an Erp system and the reason that you probably went and purchased one is because you wanted help with your planning Erp stands for enterprise resource planning and the purpose of the systems is really very much to help you plan the use of your resources and and in particular purchasing and material resources so MRP is a sub component of an Erp system but if you think of the terms erpmrp there there is a similarity between them because Erp derived from MRP so mrps were the original software packages they added features and then they became Erp systems so MRP is the purpose of MRP material resource planning is to analyze the demand uh for materials and the supply of materials that are coming into the business and it does this through a number of different types of documents that you can get so on the demand side you get sales orders the components on production are or the components on assembly orders Etc and on the supply side you get purchase orders and production orders assembly orders so and and Warehouse transfer so what what you've got is you've got a balance between the left and the and the right side if more demand shows up then you have to create Supply to match the demand and and if you have too much supply for the demand you have then then you have an unbalance you're going to have materials you don't want so MRP is designed to balance this but what I think most clients don't understand is that the demand descends or there's a path that the demand travels through in order to get from the customer to you so that you can get it out to your to your vendors or to your shop floor to manufacturer and I I did a video called supply chain 101. so if I just very very quickly recap the supply chain 101 where we have your customers the customer you and your supplier what happens is your customer sends you an RFQ and asks you quote on something and eventually places a purchase order and you create a sales order so the sales order then creates demand so the dotted line is the demand and that demand is drawing materials from all different parts of the business and ultimately if there's an imbalance if there isn't enough inventory of materials then that causes you to draw Supply from purchase orders so the sales order is what creates the purchase orders you need to create to match or meet what you need now there's all kinds of elements to this you have to have bills of material you have to create production orders or assembly orders and and schedule them but MRP if you have bills of material and you have either assembly production orders can skip that step it can predict what you're going to need place the purchase orders in advance of you even bothering to create your assembly orders or your production orders and that's why you need a sales order sales orders are the driving factor of MRP so it draws it kind of draws all the demand up into it it's kind of it's like suction that's saying hey I need this because to sell it to my customer which is the ultimate type of demand and as a matter of fact there's a special term for this this is called independent demand it's not demand because of you know I have a sales order and therefore I need parts the parts that I need for the sales order are dependent man the sales order itself is independent demand so um this is the critical starting point of the MRP process if you don't have dependent independent demand in your system MRP really doesn't work properly it's it's essentially going to be telling you any kind of assembly order you've created you should cancel you don't need this and and it's not going to tell you what to buy for that assembly order it's going to say you don't have an order this assembly order is unmatched to a supply order now there are there is one other type of manufacturing which is which is the the project manufacturing or Job Shop type manufacturing it's a little different and maybe sales orders aren't necessary in that but that's not most of my clients that I'm talking to and I would say even for a lot of those clients it is so the other type just a one last little aside the other type of independent demand would be something called a sales forecast and this is when you're running MRP so if you want to run MRP you need independent demand and they come from sales orders or sales forecasts sales forecast is a whole other thing and we'll we'll deal with that in a whole different video in the future so sales orders are a mirror of your customers Po and they allow you to create an order book which most businesses want to know what's on order when do I have to deliver it et cetera et cetera and that's what sales orders are for you can run those reports by having sales orders with the sales orders you can also reconcile with your customer their orders versus your orders and make sure you've captured all of their orders and missed something they drive the demand they're depend they're the independent demand that drives the MRP process generates the dependent demand which generates your purchase orders or your production orders they also Drive other reports like your predictive cash flow your your bat order backlog report your sales bookings Reports most of these things are absolutely required in order uh for successful implementation of a business so as always if you know check out all the links in the description below for other videos and articles that are related to this video and please um click the Subscribe and follow buttons um to follow our our um our Channel WE Post new videos regularly and if you um could like this channel it helps tell the internet that uh that this is popular content uh if you'd like to contact us this is our contact information thanks so much for watching see you soon have a great day