Preparing The Purchase 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 overshipments 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.

Receiving And Inspection

Many manufacturers lack clear documentation of receipt of ship­ments. This can cause problems when the business has to prove that there was a shortage in shipment or that the shipment does not meet quality specifications, or when other problems exist.

Receiving Report

Upon receiving purchased goods or even services from a supplier, it is important that the shipment is checked to make sure that the correct quantity and quality was received. A receiving report should immediately be completed which indicates:

the date the material was received or service was performed

whether the delivery was on time

the quantity of material received and whether any discrepancies exist when compared with the packing slip

whether the quality of the material meets specifications

the names of the personnel who performed these checks

This receiving report can be of great help to the bookkeeper in maintaining accurate records, and when paying the bills.

Quantity Check

When a shipment arrives, it is a good idea for receiving personnel to check it against the packing slip to make sure that the quan­tities are correct.

The thoroughness of the quantity check depends upon how many packages are involved, and how important the contents of the package are. If there are many packages, and there are many items in each package to count, complete counts would be a very time consuming process. In such cases, it may be better to use sam­pling to establish the quantity received.

Total weight or physical dimensions can be used for fairy accurate estimates of quantities in a shipment. When the material is packed in boxes, suppliers can be asked to write the quantity on the cutside of each box so that in a shipment of several or many boxes, a few can be picked for a detailed check. If they turn out to be accurate, then there is considerable assurance that the shipment is complete.

A bulk count may be necessary when unit price is high. The receiving report should show how the count was made, i.e., by full count, by weighing and calculating the quantity, or by spot checks of packages.

Quality Inspection

It is important, upon receiving a shipment, to make sure that the material meets quality specifications. If it is of great impor­tance that no defects in quality exist, you will probably want to run a quality check on each item of the entire shipment.

If, in your manufacturing process, you are able to detect defec­tive materials, and it is clear that the problem lies with the supplier, then the incoming quality check can be limited to assuring that there is no massive quality problem which would disrupt your production.

In some cases, however, defective material could pass through manufacturing operations unnoticed, or a problem in production could be the fault of your people. In such situations, it is wise to conduct a quality check of materials, upon receiving the shipment.

However, since checking items against design specifications can be quite time consuming and expensive, it is rarely necessary to run a quality check on all items received.

Instead, spot checks on quality can be made on a small repre­sentative portion of the shipment. The reasoning behind spot checks is that if some of the material is defective, then you should have a fairly good chance of finding some defects if you sample items at random. Thus, you might pick some material from different places in the shipment. In the case of several pack­ages, you might select a few pieces from the top of one package, from the bottom of another one, from the sides of a third one, etc., and run quality checks on this material instead of on the whole shipment.

Some conditions for using spot checks, or sampling, are as follows:

Complete accuracy in locating all defects with a shipment cannot be required. No sampling method can find all defec­tive material.

It should be possible to obtain a representative sampling of materials from the shipment.

An accurate method for judging the quality of the material must exist. A quality inspector must be able to reliably judge what is acceptable, and what is defective.

 

 

Everyone Requirements To be familiar with the Decision Making Process. We all rely on information, and techniques or tools, to
help us in our everyday lives.

When we head out To consume, the restaurant is the instrument which provides us with the information required to choose what to
purchase and how much to spend.

Operating a Business also needs making decisions using techniques and information - how much stock to preserve, what price to sell
it in, what credit agreements to provide, how many people to hire.

Decision Making Procedure in business is the systematic procedure for identifying and solving issues, of asking questions and
finding answers. Decisions are made under conditions of uncertainty. The future isn't understood and occasionally even the last is
suspect. This manual opens the door for business owners and managers to find out about the selection of techniques which may be
used to improve your decision making process in a world of uncertainty, change, and uncontrollable circumstances.

A General Approach to Decision Making Procedure. Whether a scientist, an executive of a significant corporation, or a small
business owner you can gain from boosting your decision making abilities. The general solution to systematically solving problems
is the same. The following 7 step approach to better management decision making can be utilized to study nearly all problems faced
by a business.

State the problem. A problem first must exist and be realized. What is the issue and why is it a issue. What is perfect and how do
current operations vary from that ideal. Describe why the symptoms (what is going wrong) and also the causes (why is it likely
wrong). Try to define all terms, theories, variables, and relationships. Quantify the problem to the extent possible. In case the
issue, not accurately and fast fulfilling customer orders, attempt to determine just how many orders were incorrectly filled and
the length of time it took to fill them.

Define the Objectives. What are the objectives of the study. Which goals are the most crucial. Objectives are said by an action
verb like to decrease, to increase, or to enhance. Returning to the customer order problem, the significant goals is: 1) to raise
the proportion of orders filled correctly, and 2) to decrease the time necessary to order and process. A sub-objective could
comprise to simplify and streamline the order fulfilling process.

Develop a Diagnostic Framework. Next establish a diagnostic frame, that is, decide what approaches will be utilized, what types of
information are needed, and how and where the information is to be found. Is there likely to be a customer questionnaire, a review
of company records, time and movement tests, or something else. What are the assumptions (facts supposed to be right ) of the
study. What would be the standards used to judge the study. What time, budget, or other limitations are there. What kind of
qualitative or other special techniques will be used to examine the information. (Some of that will be covered shortly). To put it
differently, the diagnostic frame establishes the scope and methods of the whole study.

Collect and Analyze the Data. The next step is to collect the data (by following the methods established in Step 3. Raw data is
then tabulated and coordinated to facilitate analysis. Tables, graphs, charts, indexes and matrices are a number of the
conventional ways to arrange raw data. Analysis is your critical prerequisite of sound business decision making. What does the
data reveal. What facts, patterns, and trends could be seen in the information. Many of the qualitative methods covered below can
be used during the step to determine facts, patterns, and trends in data. Of course, computers have been used widely during this
measure.

Generate Alternative Solutions. After the analysis was completed, some specific decisions about the nature of the issue and its
resolution must have been achieved. The next step is to create alternative solutions to the issue and rank them in order of their
net benefits. But how are choices best generated. Again, there are some well established techniques such as the Nominal Group
Method, the Delphi Method and Brainstorming, amongst others. In these methods that a group is included, all people who have
reviewed the information and analysis. The method will be to have an informed group indicating many different possible solutions.

Grow an Action Plan and Implement. Select the ideal answer to this issue but be certain to understand clearly why it is best,
which is, how it accomplishes the goals created in Step 2 better than its options. Then create a productive method (Action Plan)
to implement the solution. At this stage an important organizational thought arises - that is going to be accountable for seeing
the implementation through and what power does he possess. The chosen manager ought to be accountable for seeing that all of
deadlines, tasks, and reports are performed, met, and written. Details are all important in this step: schedules, reports,
activities, and communication will be the key elements of any action plan. There are lots of techniques available to decision
makers implementing an action plan. The PERT method is a method of laying out an whole period such as an action program. PERT is
going to be covered shortly.

Evaluate, Acquire Feedback and Monitor. Following the Action Plan has been implemented to Solve a issue, management has to
evaluate its own effectiveness. Assessment Standards must be determined, feedback channels developed, and monitoring performed.
This Step ought to be performed following 3 to 5 weeks and at 6 weeks. The target is to answer the bottom line question. Has the
issue been solved?

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