Purchase Order — Definition, Comparison, Examples + Template

What is a Purchase Order?

A purchase order is a formal request detailing a company’s intention to buy products or services. It can be submitted in written or digital form and follows a process defined by the company’s procurement team. Timely purchase orders are crucial because any delay can disrupt daily operations, such as a printing company unable to buy necessary materials.

The reason for using a purchase order instead of buying outright is budget control. It helps companies track expenditures and prevent overspending. This formal process ensures procurement is organized and aligned with the company’s financial planning.

5 Key Differences Between Purchase Orders and Invoices

​3 Examples of How a Purchase Order Is Used

1. Office Supplies Purchase Order

A company needs to restock office supplies such as paper, pens, and printer ink. The procurement team creates a purchase order specifying the quantities, brand preferences, and delivery timelines. This ensures the right items are ordered and prevents confusion with multiple suppliers. By following this process, the office maintains smooth daily operations without running out of essentials.

The supplier receives the purchase order and confirms the pricing, availability, and expected delivery date. This formal process also allows the company to track expenses and avoid overspending. In case of any discrepancies, the purchase order serves as a reference for resolving issues quickly. It keeps both the buyer and supplier aligned on expectations.

2. Manufacturing Raw Materials Purchase Order

A factory requires steel sheets and components for its production line. The procurement team issues a purchase order detailing the type, quantity, quality standards, and delivery schedule. This ensures the factory receives exactly what is needed for production. Accurate purchase orders prevent delays and costly errors in manufacturing.

The supplier reviews the order, confirms availability, and arranges shipment. The purchase order acts as a legal document to track costs and delivery commitments. It also provides a reference for any future disputes or adjustments. By using purchase orders, the factory can plan production efficiently and maintain consistent output.

3. IT Equipment Purchase Order

An IT department plans to upgrade computers and software licenses for employees. They submit a purchase order listing exact specifications, models, quantities, and required delivery dates. This ensures that the correct equipment is supplied and avoids compatibility issues. A clear purchase order also prevents unnecessary spending on the wrong items.

The supplier processes the order, confirms the schedule, and delivers the equipment on time. The purchase order allows the company to monitor costs and maintain its IT budget. In addition, it provides documentation for inventory and accounting purposes. Using purchase orders ensures smooth implementation of IT upgrades without operational disruptions.

The Purchase Order Workflow

As previously mentioned, the purchase order is a document that states the formal intention of an organization or company to procure services or goods for the benefit of the company/organization. As such, before the purchase order can be finalized, there are major checkpoints that a purchase order has to go through before it’s finally approved by the procurement department head and then sent for delivery to the supplier.

These checkpoints are also considered as the purchase order workflow. Each step is important because it determines whether the details placed in the order are true and accurate. Different procurement teams have different purchase order workflows, but you know us at Procurement Tactics; simplicity is beauty and efficiency. So, we opted for this easy-to-follow purchase order workflow:

• Create a purchase order
• Send out multiple Request for Quotation or RFQ
• Analyze and select a potential vendor
• Negotiate the contract and send PO
• Receive the goods/services
• Receive and check the invoice 
• Authorize the invoice
• Pay the vendor
• Record all receipts, bills, and other expenditures.
• Close the purchase order

Sounds good, right? For more information about this equally simple but awesome purchase workflow, head to our Negotiation Course For Procurement Professionals and learn everything there is to know about each of these purchase order workflows.

How Purchase Orders Are Used Online

Nowadays, purchase orders are increasingly managed through a digital procurement system, which automates and standardizes the workflow. These systems allow procurement teams to create, approve, and track orders efficiently, reducing manual errors and saving valuable time. By using online purchase orders, companies can ensure that every request is properly documented and aligned with internal budgets and policies. This also improves transparency, as managers can easily monitor the status of each order in real time.

Online purchase order systems can automatically generate orders, send them to suppliers, and confirm delivery schedules. They provide a clear record of all purchases, making auditing and reporting much easier. For example, a retail company can automatically generate POs for weekly stock replenishment, ensuring shelves are always stocked without delays. Another example is a manufacturing plant that uses online POs to order raw materials precisely when needed, preventing production stoppages.

Additionally, these systems improve communication with vendors by sending instant notifications and updates on order status, streamlining the procurement process. Overall, using purchase orders online enhances efficiency, accuracy, and decision-making in supply management.

Conclusion

Purchase orders are a fundamental tool in modern procurement, providing a structured way for companies to request goods and services. They help ensure that purchases are planned, budgeted, and properly documented, reducing the risk of errors or overspending. By following a clear purchase order workflow, organizations can maintain smooth daily operations and avoid delays.

The comparison between purchase orders and invoices highlights their distinct roles in the procurement process. While purchase orders authorize and confirm orders, invoices request payment for delivered goods or services. Understanding this distinction is essential for accurate financial management and maintaining good supplier relationships.

With the rise of digital procurement systems, managing purchase orders online has become more efficient than ever. Automation allows for real-time tracking, faster approvals, and improved communication with vendors. Overall, leveraging online purchase orders enhances transparency, accuracy, and strategic decision-making in supply management.