Apr
29
The Purchase Order Process – Stage 2 after the Purchase Order
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The purchasing process is perhaps typified by the activity of raising a purchase order – the document that tells the supplier I want this item and I want it delivered at this time. In the wrong hands, purchasing processes can be complicated and bureaucratic with intricate exchanges of information and authorization requirements. Getting to the point of raising an order and getting signed of can in some extreme examples feel like you’ve run a marathon! But as most buyers will tell you, once the purchase order has been released that is not the end of the story. What happens after the order being dispatched is as crucial, in many ways to getting the order raised in the first place.
Order Acknowledgements
An order acknowledgement is a document that is raised by the seller upon receipt of your purchase order – it signifies acceptance of your order (maybe with caveats if documented). If you had any specific commercial requirements check acknowledgements carefully as it is common practice for companies to issue acknowledgements subject to their own terms and conditions rather than the buyers!
Order acknowledgements mean
• You have a contract in place
• The supplier has my order
Its commonplace for buyers to be responsible for chasing order acknowledgements from their suppliers.
Order Amendments
Remembering that the purchase order, when acknowledged/accepted represents a formal contract between the buyer and seller, changes should not be taken lightly – however – amendments are a common example of what can occur following the purchase order being raised. Examples include:
• The buyer requires a greater quantity of parts
• The Buyer requires different parts
• The buyer requires commercial changes
Where it is decided that a new order will not be raised – amendments to an existing outstanding order will take place (but will require additional order acknowledgements from the supplier).
Expediting
One of the most common tasks is in chasing parts due delivery. Complex, mission critical parts may require a close level of planning and communications between the buyer and seller to ensure that items remain on program. In severe cases – day plans may be instigated tracking each step of the manufacturing and logistics process to ensure that the part is meeting its lead time – highlighting an early stage where parts may not be delivered to schedule.
Rescheduling
In some cases where business needs necessitate order schedules may be amended – this may be pushing requirement out to a later delivery date – or conversely – bringing the item forward. This will typically be administered in close consultation with the supplier to ensure that the revised schedule can be achieved.
Summary
Various tasks should be undertaken following issuance of the purchase order. Many of these tasks are carried out by the same buyer that raised the order – with some tasks crucial to ensure problem free continuity of supply.
Mar
17
A business process is something that takes a set of inputs, carries out a transformation or processing of those inputs and in turn produces an output.
The purchasing process is no different – it consists of a series of activities, linked by information that drives the acquisition of materials or services.
This process is defined by a number of key stages
Define Requirement / Requisition process
This stage endeavours to answer the question of what do we need to procure. The process will vary depending on the organization and can consist of a number of methods from completing a paper requisition form (I want an new office chair), through to an email to the buying team or in many cases an electronic signal from the ERP system that the minimum stock holding has been reached.
This stage of the process endeavours to find out –
- What do we need
- How much do we need
- Why do we need it
- Which cost centre will pay for it
This stage almost always requires some form of approval in order to proceed to the next stage.
Sourcing / Request for Quotations / pricing
Once a need has been identified the purchasing team need to identify where to buy it from. This may be from an established supplier with an existing agreed price or from a brand new supplier from whom they need to agree price and lead time. This stage may be carried out via a competition with multiple suppliers to drive the required result (best price/terms)
Negotiation
Once an initial price / lead time has been received – the procurement team may choose to negotiate with the supplier(s). This may target
- Price reduction
- Lead time improvement
- Acceptable commercial terms
Order Placement
Once negotiations have taken place and an acceptable position has been reached a Purchase Order is usually raised – this represents agreement with the supplier for the provision of goods in exchange for suitable recompense (the price). The order will usually state
• the part being purchased
• The quantity being purchased
• The agreed price
• Terms and conditions
• Delivery address
Receipt of Goods
The goods receipt process will usually process the delivery of the materials purchased. The receipts process usually checks as a minimum that:
The goods are in a satisfactory condition
That are what was ordered.
Pay Supplier
Once the terms of the order has been met the supplier is paid. This will typically be as a result of the Supplier sending a purchase invoice to the buying organization. At this stage the bought ledger team will carry out a three way match between the invoice the order and the goods receipt – this process checks that:
• The invoice relates to the purchase order
• That goods have been receipted