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What is a Purchase Order and What are the Benefits of Digitalizing It?

    A purchase order can be defined as a buyer's formal intimation of their intent to purchase goods or services from a supplier. Learn more about purchase orders and why you should digitize them in this blog post.
What is a Purchase Order and What are the Benefits of Digitalizing It?

Spot Procurement (Spot Buying)

Purchase orders (or POs) are formal intimations to suppliers of your intent to purchase a specific quantity of goods at a specific price. Typically, the product price and quantity mentioned in the purchase order has been pre-agreed or pre-negotiated with the supplier.

Purchase orders are binding documents, committing the buyer to purchase the goods from the supplier. Once a purchase order is submitted to a supplier, the supplier can choose to accept or reject the purchase order and the terms and conditions mentioned in it.

Once a supplier accepts a purchase order from a buyer, the supplier is obligated to supply the goods at the price, terms and conditions laid out in the purchase order. The buyer is obligated to take delivery of these goods when dispatched by the supplier. Purchase orders can be cancelled by buyers, but this should be done well in advance of dispatch to avoid incurring any claims from the supplier.

A purchase order usually includes the following information:

  • Date a purchase order is generated
  • Items to be purchased (including specifics of brand, model numbers etc.)
  • Supplier
  • Quantity purchased
  • Unit price
  • Tax
  • Total price
  • Delivery date and location
  • Payment terms (when the invoice will be paid, any credit options etc.)

The benefits of digitalizing purchase orders and integrating them into an e-procurement solution

In the Proqura system, purchase orders and all related documents are digitalized and the entire procurement process automated. This allows procurement officers to avoid having to deal with too many paper documents over the course of the purchasing cycle, including requisitions, purchase orders, approvals and invoices. It also allows better record keeping, which is essential for making procurement more efficient and cost saving (and free up paper filing systems and office space).

Automating purchase orders allows you to integrate them into a streamlined process where everything is documented.

In the Proqura system, Purchase Orders can be created at multiple points:

  • PO as part of an RFQ process: Most commonly, POs are created and awarded at the end of a competitive requisitioning process.
  • Re-ordering: Purchase orders can also be created an issued for recently requisitioned products where the price is unlikely to have changed—this is referred to as "Re-Ordering. POs issued as re-orders get tagged with the original requisition for documentation and tracking purposes.
  • Direct order: Where the price of an item is known or already negotiated between buyer and seller, users can issue purchase orders directly, independently of any requisition process. POs issued directly are orphan of any pre-existing requisition process.
  • PO issued under a strategic procurement contract: Users of the Strategic Procurement Module can negotiate long-term price and purchase contract with suppliers to pick up a pre-determined quantity of goods over a specified period of time. Subsequently, users can issue purchase orders against these contracts.

In this way, purchase orders are integrated into the overall system. The process for submitting a direct order is similar to that for a regular purchase order initiated from a requisition workflow. Once all the purchase order fields have been populated, you can proceed to finalizing the purchase order, sending it for internal approvals and submitting it to suppliers for processing, and the entire process is automated and in one place.

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