Hi,
First off, you do have to link the vendor to the item. The system should automatically ask for that information. The item needs to linked to the site as well.
As far as Inventory/NonInventory, when you try to create a PO, make sure you are displaying 'Item Number' and not 'Vendor Item Number'. You select which you want to default on the window in the Purchase Order Processing setup window.
Kind regards,
Leslie