BizMove General Management

Purchase Order: Preparing The Purchasing Order

BizMove business management guides

 

Preparing The Purchasing Order

The purchase order specifies an agreement between the seller and the buyer.

The objective of a purchase order is to communicate within your own firm and communicate to the supplier the quantity, quality, and type of materials or services being ordered, as well as the prices agreed upon, the method of packaging and shipment, credit terms, and any conditions or specifications which must be met.

A purchase order should contain at least the following information where it applies:

  • buyer's name, address and signature
  • supplier's name and address
  • date
  • shipping address
  • shipping instructions
  • customer identification number
  • model number
  • verbal description of item(s) being purchased
  • quality specifications
  • quantity
  • dates required
  • packaging instructions
  • unit price discount
  • net amount
  • terms of payment when extended
  • standard conditions such as maximum over-shipments which will be accepted, liability during transit, method of dispute settlement, Underwriter Laboratories and other safety standards, etc.

In addition, many firms print a series of standard terms and conditions on the back of each purchase order. These are, of course, different for different firms. Their purpose is to provide a measure of legal protection in the event of disputes with the seller on matters concerning some or all of the following:

  • Definitions
  • Price
  • Delivery provisions
  • Warranty and specifications of the materials
  • Packing
  • Title
  • Insurance
  • Patent infringement
  • Labor
  • Taxes
  • Compliance with law
  • Subcontracting or assignment
  • Modifications of terms and conditions
  • Contract termination
  • Invoicing and payment procedures, including discounts if they apply
  • Legal effect and proceedings

Motivating Suppliers to Meet Their Obligations

In general, manufacturers who want to motivate their suppliers to give them outstanding service and who expect to have reliable vendors must, of course, follow the golden rule and treat good vendors the same way as they want to be treated by their customers. This means that, as buyer, you should not:

  • regularly request quotations from a vendor who rarely, if ever, receives an order.
  • always push the vendor for the lowest price available anywhere
  • constantly expect the vendor to accept emergency conditions which often are the result of poor planning
  • blame the vendor for mistakes which could have occurred in your own shop
  • always force the vendors to do rework or repairs on quality problems when the quality problem is not serious
  • strictly insist on tight delivery dates with all purchases
  • delay in placing orders and then ask that they be given great urgency, etc.

Good relations require an understanding of the vendor's needs and willingness to solve problems in a constructive, positive way.

The purchase order should be a multiple copy form so that the purchase may be effectively communicated to all relevant personnel within your firm. Typically, copies of the purchase order are distributed to purchasing files, and to warehouse or receiving personnel who must check the shipment against the purchase order.

In addition, scheduling/inventory control and possibly quality control people may receive copies.

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