This functionality is based on Products to Order overview.
That table shows list of all supplier products and calculates safety stock/reorder point for each supplier. To calculate this, it takes into account your sales history, supplier lead time, stock keeping costs, and some other factors.
You can check that table to figure out when you should order product from that particular supplier. For every supplier, the reorder point for that product can be different:
Now, the Auto generate button is very simple.
It looks into this table, but only for suppliers that are set as product default supplier. It current stock is below reorder point, the empty/blank/draft purchase order for that supplier is created. No product is added. It just exists so the back office employees knows what to check.
It's not perfect, and it's not for everyone, but it can help keep an eye on things.
No, the module currently does not do that. It's a good suggestion, I've added this enhancement request to the backlog.
We already have a similar ER to warn when the product is in another PO (draft or sent).