Purchase Order – Everything a Procurement Professional Should Know

The purchase order is one of the most important items in any procurement process. The purchase order is a document that provides in detail the supplies or materials you need to purchase. It is also an important document that helps in controlling business purchases. Anything that slows down your purchase order is guaranteed to bring your company or organization to a halt, especially if the materials you need are needed for the continuous operation of the company.

For this article, we are going to talk about the purchase order. We’ll dissect what it is, the workflow that is needed to create a purchase order, and the future of purchase orders.

After reading this article, you should be an expert in handling purchase orders and you know what to do if you’re expected to create one.

The Purchase Order – What is It?

The purchase order is a request or form detailing a company or organization’s intention to buy or procure products or services. The order can be in the form of a written request or through a digital form submitted to a supplier. The purchase order is written in great detail and should follow a process that is defined by the company’s procurement team. This is important because, as mentioned earlier, any delays in the purchasing order are disastrous for a company.

If your company depends on the daily procurement of materials or services, any delay will cause interruptions with the daily operations of your company or organization. For example, a printing company that is unable to buy printing materials because there are delays with the purchase order will have its operations hampered until the supplies are bought immediately.

One important question to answer is: why don’t we just buy the supplies outright? Why the need for a formal request for buying these supplies, if they’re so important?

This is a question that doesn’t appeal to procurement teams though. For a company that watches its daily (or monthly) expenditures, the purchase order is strictly needed so that the company does not blow its budget through procurement overspending.

Editor's note:

Hi there! My name is Marijn Overvest, I'm the founder of Procurement Tactics.
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Examples of Purchase Order

Since we’re talking about purchase orders, it’s only fitting to place examples of purchase orders in this article as well.

If one looks through Google or through any other search engines online, you’ll see tons of purchase orders. In fact, it is so easy to simply copy-paste the entire document and then create modifications of your own. The only important part to not leave out are the product descriptions, the names of the supplier and the company getting the purchase, and important information, such as dates and prices.

But since this is the section for purchase order examples, here are some examples that you can copy and modify

The elements included in this purchase order example are as follows:

  • PO number
  • Purchase order date
  • Vendor name and billing address
  • Buyer name and shipping address
  • Additional contact information, such as phone numbers and email addresses
  • Delivery date
  • Shipping method
  • Shipping terms
  • Item name
  • The item description and technical information
  • Item quantity
  • Item unit cost
  • Line total
  • Taxes
  • Total price
  • Payment terms

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 goods or services 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 they determine 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 RFQ or Requests for Quotation
  • 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 Gamechanger Course and learn everything there is to know about each of these purchase order workflows.

Going Online with Purchase Orders

Nowadays, one of the biggest innovations with purchase orders has something to do with using procurement systems. These programs are able to digitally standardize the purchase order workflow of every procurement system. A procurement team will greatly benefit from these online programs because they allow the team to shift the focus of every team member towards the important parts of the workflow rather than work long hours of the day on tasks that can be easily done by an online tool or program.

For the procurement manager, a procurement system is as important as the money that is needed to procure the materials needed for the business. Without a working procurement management system, the company would probably waste a lot of money on buying supplies that are not just of inferior quality but must be expensive as well.

The procurement system is also responsible for maintaining the inventory system of the company. These days, it is a program designed and bought specifically to help the company in how it spends its budget for procurement as well as managing the supplies that were bought.

Some of the other processes that a procurement system takes care of automatically are as follows:

  • Generating purchase orders
  • Sending purchase requisitions
  • Approving delivered services/goods
  • Selecting/managing vendors
  • Reviewing invoices

Most procurement systems have automated programming that allows them to do market research, sourcing tasks, and other data-relevant work that is important for the success of the procurement process. 

As such, it is now the job of the procurement manager or analyst to make sure that the company gets a good federal procurement data system that can really help with automating the procurement process while following important company standards. 

How to Choose the Right Procurement System

For procurement teams that need a good online procurement system, there are several points that one has to consider.

  • Customization – Most procurement systems are designed to handle multiple functions in case the organization needs to do other procurement processes too, such as sourcing, product and market research, and others. Companies of all sizes and types should get a procurement system where they are able to customize the program to how they see fit.
  • Workflow approval – The approval for the workflows in the procurement system should be quick and easy. The automation feature of an e-procurement system does just that. What takes months or weeks for a procurement manager to follow up can now be achieved in a few days.
  • Three-way matching – Good working procurement systems should have three-way matching functions in their programs. This particular matching system eliminates fraud by cross-checking invoices, goods receipts, and purchase orders. All of these are checked before payment is issued to the vendors.
  • Cloud hosting – Nowadays, procurement systems are now run on cloud hosting. It offers endless possibilities and data security as well. Self-hosting your procurement software is asking for trouble since the process is already outdated and has many flaws.
  • Vendor management – Procurement systems can now check and assist vendors with regard to the procurement process. Keep an eye out for procurement systems that offer vendor management as these programs can help you in assessing vendor performance, managing contacts, and onboarding vetted suppliers.
  • Spend Reporting – After the whole procurement process, there is always the checking of how much did your procurement go in terms of company spending. A program that can track your company’s spend footprint is a good find, so make sure to get a system that offers this particular feature.
  • Integrations – Integrations are important because procurement is not just about one process, but is made up of many processes. A procurement software that includes integrations to many other procurement processes is another great find, so go ahead and get that program if it does offer integrations!

FAQs

What is a purchase order?

A purchase order is an official document that authorizes a company or organization to purchase supplies or services.

Why is a purchase order important?

A purchase order is important because it helps control an organization’s budget for purchasing supplies or services.

Who creates the purchase order?

The procurement manager is in charge of creating purchase orders.

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