No company makes money on special orders

No company makes money on special orders. If a customer calls you and asks for a product that you don't stock, the best P&L decision you could make is to hang up the phone as quickly as possible.

Estimated costs of processing a purchase order vary between $50 and $300+ dollars. Lets use the low side of the range and assume a PO will cost your company $100. Even at 50% margin that means you should refuse all special orders under $200. But what if I combine it on another PO? Ok, what if the customer returns or refuses the item? Will you be able to return it to the vendor? Will it wander around your warehouse with no bin home until someone finally throws it away?

So I have come to the conclusion that the special order department should be a cost to the sales department. They are the only ones that have anything to gain from special orders through customer loyalty. If special orders are really important to your company, I am sure your salespeople will not mind the reduction in commission to fund the special order department.

While you are making changes in special orders, do some analysis on which customers use your special order service the most. Are they your best customers in sales and margin dollars or are they cherry picking you for your product research specialists?

In summary, I would like to stress the importance of tracking special order sales and costs separate from normal sales. Each sales order and PO related to a special order should be identifiable. In Dynamics GP, the sales orders should have a separate document ID and PO's should be committed to these orders. Use allocation accounts to apply shared expenses to the special order department to get a real picture of how much this service costs you.

Purchase Order Statuses

Dynamics GP has 6 statuses for purchase orders and purchase order line items:

New - The purchase order has been entered but not released to the vendor. Interestingly, new purchase orders do not update the on order quantity of an item but can be received against.

Released - The purchase order has been entered and released to the vendor. In a throwback to the 1970's, Dynamics GP considers a PO released to the vendor when printed. The printing process updates the on order quantity for the PO line items.

Received - Purchase order line items have been received but not fully invoiced.

Change Order - The purchase order was entered, released, and then changed but has not been re-released. Change order purchase orders can be received against but changes to quantities will not be reflected in the on order amounts until the PO is re-released (printed).

Cancelled - The purchase order has not been fully received or invoiced but no further activity is anticipated. For example, the purchase order was for 100 widgets and 99 have been received and invoiced. The PO would be cancelled if the receipt of the remaining 1 widget was not anticipated.

Closed - All line items on the PO have been received and invoiced or cancelled. These PO's can be removed from the system using the Remove Completed Purchase Orders window.

PO Commitments and Historical Sales Documents

A couple of my clients have experienced an interesting issue lately. Purchase order are tied to sales documents that are already moved to history. This puts the PO in a limbo state where it cannot be closed or cancelled. I don't know for sure the exact sequence of events that causes this but here is how it can be resolved:

1. Delete the records in the SOP60100 table related to the offending PO number. (Standard disclaimer about modifying SQL data applies here. If you are unfamiliar with SQL queries and/or Dynamics GP table structure, please call your partner for assistance.)

2. Reconcile the offending PO number.

3. Edit the PO and change the status to Cancelled.