Placing a Purchase Order (PO) – Cheat Sheet.

1. Identify the Need for Purchase

• What to Do: Determine the products or services required, their specifications, quantities, and when they are needed.
• Consider: Inventory levels, stock outages, production schedules, or customer demands.
• Tip: Involve relevant departments (e.g., inventory, production, finance) in identifying requirements.

2. Select a Supplier

• What to Do: Choose a reliable supplier based on factors like price, quality, delivery time, and supplier reputation.
• Consider:
  • Past performance and reliability
  • Supplier capacity to meet delivery timelines
  • Terms and conditions (payment terms, warranty, returns policy)
• Tip: Have a preferred vendor list, or use procurement software to compare supplier options.

3. Negotiate Terms and Conditions

• What to Do: Agree on terms with the supplier before placing the order.
• Key Elements to Negotiate:
  • Price per unit
  • Payment terms (e.g., Net 30, Net 60)
  • Shipping and delivery terms (Incoterms like FOB, CIF)
  • Lead time and delivery schedules
  • Return and refund policies
• Tip: Keep in mind any discounts or incentives for bulk orders or long-term agreements.

4. Prepare the Purchase Order (PO)

• What to Do: Draft the PO with the following details:
  1. PO Number: A unique identifier for tracking the order.
  2. Supplier Information: Name, address, and contact details of the supplier.
  3. Buyer Information: Your company’s name, address, and contact details.
  4. Product/Service Description: Clear descriptions of the items or services being ordered.
  5. Quantity: Exact number of units required.
  6. Unit Price: Price per unit of the items or services.
  7. Total Price: Total amount due (unit price × quantity).
  8. Delivery Terms: Delivery method (e.g., FOB, CIF) and the expected delivery date.
  9. Payment Terms: How and when payment will be made (e.g., on delivery, Net 30).
  10. Shipping Address: Where the goods should be delivered.
  11. Special Instructions: Any specific instructions for the order (e.g., packaging, delivery schedule).
  12. Tax Information: Applicable sales tax or VAT, if relevant.
• Tip: Use PO templates or procurement software to streamline this process.

5. Review and Approve the Purchase Order

• What to Do: Internal review to confirm all details are accurate before sending to the supplier.
• Consider:
  • Accuracy of the product details, quantity, and price.
  • Compliance with budget and approval processes (if necessary).
  • Alignment with agreed-upon terms.
• Tip: Have an approval workflow in place (e.g., department manager or finance team).

6. Send the Purchase Order to the Supplier

• What to Do: Deliver the finalized PO to the supplier, typically via email, procurement portal, or fax.
• Consider:
  • Ensure the supplier acknowledges receipt of the PO.
  • Confirm the supplier’s capacity to fulfill the order based on the agreed timeline.
• Tip: Request a confirmation or acknowledgment from the supplier to ensure no misunderstandings.

7. Track the Order

• What to Do: Monitor the status of the order after the PO is placed.
• Consider: Delivery tracking, stock availability, and production timelines.
• Tip: Use an order management system or procurement software to track and manage purchase orders in real-time.

8. Receive and Inspect Goods/Services

• What to Do: When the goods arrive, inspect them to ensure they meet the quality and quantity outlined in the PO.
• Consider:
  • Correctness of items (e.g., right product, quantity, and quality).
  • Packaging and condition of goods.
  • Compliance with agreed delivery terms.
• Tip: Use a goods receipt note (GRN) to document the condition and quantity of received goods.

9. Match and Reconcile the PO with Invoice

• What to Do: Upon receiving the invoice from the supplier, match it with the original PO and the goods receipt note (3-way match).
• Consider:
  • Does the invoice match the PO in terms of quantity, price, and payment terms?
  • Ensure there are no discrepancies.
• Tip: If discrepancies arise, contact the supplier immediately to resolve them.

10. Approve and Process Payment

• What to Do: Once everything matches, approve the invoice for payment based on the agreed payment terms.
• Consider:
  • Adherence to payment terms (e.g., Net 30, early payment discounts).
  • Availability of funds in the budget.
• Tip: Utilize an automated payment system to ensure timely payments and maintain supplier relationships.

Additional Considerations:

• Supplier Performance Evaluation: After receiving the goods and processing payment, evaluate the supplier’s performance on criteria like delivery timeliness, quality, and customer service.

  • Tip: Create a feedback loop with your suppliers to continuously improve the purchasing process.

• Record Keeping and Documentation: Keep copies of all related documents (POs, invoices, receipts) for auditing and compliance purposes.

  • Tip: Use a digital procurement system to store and manage documents for easier access and tracking.

• Procurement Software: Consider using procurement or Enterprise Resource Planning (ERP) software to streamline the PO process, track orders, and automate approvals.