Purchase Order

What is a Purchase Order?

A Purchase Order (PO) is the first legally bounded document between a supplier and a buyer. It is basically an official confirmation of an order. Purchase Order is required to establish a control mechanism for the purchasing of products and services from an external supplier. It is used when a buyer wants to purchase goods or services. If the Purchase Order is generated to procure services, it is called as Contract Purchase Order (CPO). It also outlines the promised delivery date and terms of payment process.

The Purchase Order is also very significant for inventory management and payment tracking. Purchase Order provides a clear and explicit way of communication between the buyers and the sellers on the purchase. The Procurement Team raises a Purchase Order based on the Purchase Request raised by a Requester.

A typical Purchase Order generally includes the name of the buyer, date, expected date, the description and quantity of the goods or services, price, address, information about payment, invoice address, and a unique code.


Figure: Purchase Order Flow Diagram

The Procurement raises Purchase Order and a PO/CPO code is generated.  The PO/CPO code goes through an approval process. This ensures that the PO/CPO is validated and verified by a set of users (Approvers). If the PO/CPO gets approved by the Approvers, it basically reaches to the Vendor/Supplier. Based on the mentioned details, seller (Supplier/Vendor) provides the requested goods or services to the buyer.

Benefits

• Sets clear expectations: It defines the exact needs of the buyer to the vendors. At the time of delivery, it helps both the parties to verify that the delivered goods or services match the expectations.

• Helps managing orders: It helps directly to the inventory management system and provides a mechanism to keep documentation of every incoming and pending deliveries.
• Helps to track: The PO/CPO codes are basically generated to identify and track the orders in a centralized platform. At any point of opportunity, it becomes easy for the Procurement Team to track a PO/CPO.
• Helps in budgeting: Every businesses gets benefitted for having clear records of monetary utilization.
• Binds legally: It legally binds the buyer and the seller into an agreement that the mentioned amount of goods or services is agreed to be delivered by the Vendor/Supplier within the mentioned time span.
• Supports in Audit trails: The practice of recording and tracking play a key role for the Procurement Team and the Organization to satisfy the check points of the Auditors.

How to Raise Purchase Orders (POs)?

You can raise a Purchase Order on the GENERATE PURCHASE ORDER page (Path: SUMMIT Login > Procurement > User > Manage Request > Generate Purchase Request). For more information, see Raising Purchase Order.