What Is a Purchase Order (PO)?
Purchase orders are more than messy paperwork and wasted time. When managed effectively, a purchase order can mean the difference between on time deliveries, messy supplier relations, delayed orders and all around ineffective supply chain management.
See why purchase orders matter, how to create them and how they can help bring visualization to your supply chain.
What is a purchase order?
A purchase order (PO) is an official document outlining expectations between the supplier and buyer. A purchase order communicates exactly what you’re buying, how you want it produced, and how you want it shipped and handled.
Effective purchase orders are absolutely needed when manufacturing abroad. Essentially, a purchase order is a contract that helps protect both the buyer and seller if there are problems with the payment or delivery. Most importantly though, a good purchase order helps save your business time and money.
What information does a purchase order include?
A purchase order generally includes the name of the company purchasing the goods, a date, a description and quantity of the goods, the price, a mailing address, payment information, invoice address, and a purchase order number.
Why do companies use purchase orders?
Smaller companies may disregard purchase orders as an unnecessary hassle when they already have a working relationship with a supplier. This is a bad move. As a company grows and demands become more specific, urgent and complex, communication challenges arise that quickly lead to incorrect and untraceable issues with orders.
Additionally, different components and SKUs lead to massive spreadsheets, messy supplier relationships and big headaches across your entire organization.
So let’s say you’re a brand needing to manufacture toothpaste for a special holiday campaign push. You sent out your POs months in advance so everything should be good to go ahead of the season.
Simple right? Not quite.
Manufacturing toothpaste requires a number of different components (one for the tube, another for the paste, another for the box, etc.). Each of these components require a different manufacturer to produce, meaning you need to track each one individually and maintain communication with each supplier before you even get to an assembled SKU.
If a purchase order for one component wasn’t sent or wasn’t confirmed by the supplier, you’re digging through a spreadsheet wondering where things went wrong months ago and you’re definitely not getting that toothpaste in time to hit the holiday rush.
All of a sudden, it’s December 23rd and you’ve been so deep in spreadsheets scrambling for this information. Drafting a successful purchase order template is critical to ensuring effective management of the supply chain and keep things running smoothly.