On Order
On order refers to goods or services that a business has requested through a purchase order but has not yet received or paid for. This term is commonly used in inventory management and logistics to keep track of items that have been ordered but are not in stock yet. The distinction of being “on order” is crucial for ensuring accurate inventory records, managing procurement processes, and effective supply chain operations.
Examples
- Retail Inventory: A clothing retailer orders 100 pieces of a new fashion line to restock their shelves. Until the items arrive, they are considered “on order.”
- Manufacturing Supplies: A car manufacturer orders a shipment of parts from a supplier. The components needed for the assembly lines are “on order” until they are delivered.
- Office Supplies: An office manager orders a monthly supply of printer paper and toner. While waiting for the shipment, these items are “on order.”
Frequently Asked Questions (FAQs)
Q1: Why is tracking goods “on order” important?
A1: Tracking goods on order is crucial for maintaining accurate inventory records, preventing stockouts or oversupply, and managing cash flow effectively.
Q2: How does the status of “on order” impact financial statements?
A2: Goods on order do not impact the financial statements until they are received and paid for. They are not yet considered assets or liabilities but are part of inventory planning.
Q3: What happens if goods on order are not delivered?
A3: If goods on order are not delivered, businesses need to follow up with suppliers to understand the delays, potentially revise purchase orders, or seek alternative sources.
Q4: Can a business cancel goods on order?
A4: Yes, a business can cancel goods on order, usually according to the terms agreed upon with the supplier. Cancellation may involve fees or penalties depending on the contract.
Q5: How do businesses manage goods on order within their inventory systems?
A5: Businesses use inventory management systems to record goods on order, track their estimated arrival dates, and update inventory levels upon receipt.
- Purchase Order (PO): A commercial document issued by a buyer to a seller indicating types, quantities, and agreed prices for products or services.
- Inventory Management: The supervision of non-capitalized assets (inventory) and stock items.
- Supply Chain: The sequence of processes involved in the production and distribution of a commodity.
- Logistics: The detailed coordination of a complex operation involving many people, facilities, or supplies.
- Procurement: The action of obtaining or procuring something, particularly for business purposes.
Online References
Suggested Books for Further Studies
- “The Lean Supply Chain: Managing the Challenge at Porsche” by Josef Packowski
- “Supply Chain Management: Strategy, Planning, and Operation” by Sunil Chopra and Peter Meindl
- “Inventory Management Explained: A focus on Forecasting, Lot Sizing, Safety Stock, and Ordering Systems” by David J. Piasecki
Fundamentals of On Order: Inventory Management Basics Quiz
### What does the term "on order" refer to in inventory management?
- [ ] Goods that are out of stock
- [x] Goods ordered but not yet received or paid for
- [ ] Goods on display for sale
- [ ] Goods reserved for customers
> **Explanation:** "On order" refers to goods that have been requested through a purchase order but have not yet been received or paid for.
### Why is it important to track goods on order?
- [x] To maintain accurate inventory records
- [ ] To increase sales prices
- [ ] To avoid ordering new stock
- [ ] To pay suppliers in advance
> **Explanation:** Tracking goods on order is important for maintaining accurate inventory records, managing stock levels, and ensuring efficient supply chain operations.
### Which document usually initiates the "on order" status?
- [ ] Invoice
- [ ] Delivery note
- [x] Purchase Order
- [ ] Receipt
> **Explanation:** A Purchase Order (PO) is a commercial document that initiates the "on order" status by requesting products or services from a supplier.
### How does the "on order" status affect financial statements?
- [ ] Goods on order are recorded as assets immediately
- [ ] Goods on order increase revenue
- [x] Goods on order do not impact until received
- [ ] Goods on order reduce liabilities
> **Explanation:** Goods on order do not impact financial statements until they are received and paid for; they are part of inventory planning.
### What is one common challenge related to goods on order?
- [ ] High selling price
- [x] Delivery delays
- [ ] Excess stock
- [ ] High storage costs
> **Explanation:** Delivery delays are common challenges with goods on order, requiring follow-up and possible adjustments to procurement plans.
### What term describes the sequence of processes involved in production and distribution?
- [ ] Procurement
- [ ] Logistics
- [ ] Inventory Management
- [x] Supply Chain
> **Explanation:** The supply chain describes the sequence of processes involved in the production and distribution of a commodity.
### Can goods on order be canceled?
- [x] Yes, according to terms agreed with the supplier
- [ ] No, they must always be fulfilled
- [ ] Only if the supplier agrees
- [ ] Only during specific seasons
> **Explanation:** Goods on order can typically be canceled according to terms agreed upon with the supplier, though this may involve cancellation fees.
### How do businesses typically manage goods on order within their inventory systems?
- [ ] Through manual checks
- [x] Using inventory management systems
- [ ] By relying on supplier updates
- [ ] Through customer feedback
> **Explanation:** Businesses use inventory management systems to track goods on order, update inventory levels, and manage arrivals efficiently.
### What can businesses do if goods on order are delayed?
- [x] Follow up with suppliers
- [ ] Immediately cancel the order
- [ ] Ignore and wait
- [ ] Increase other product orders
> **Explanation:** Businesses typically follow up with suppliers to understand the cause of delays and potentially look for alternative sources if needed.
### What is a purchase order?
- [x] A document indicating types, quantities, and agreed prices for products or services to be provided
- [ ] A receipt of delivery
- [ ] A sales agreement with customers
- [ ] An inventory report
> **Explanation:** A purchase order is a commercial document issued by a buyer to a seller, detailing types, quantities, and agreed prices for requested products or services.
Thank you for exploring the concepts and nuances of goods “on order” in inventory management. Keep enhancing your knowledge!
