Automating Purchase Order Management

The term "purchase order" has many business meanings. In this article, we discuss purchase orders relevant to supply chain operations. In other words, purchase orders between retailers and suppliers.

What is a purchase order?

A purchase order or PO is a contract issued from a buyer to a seller for specific goods. The purpose of a PO contract is to finalize purchase details before beginning the processes of manufacturing and shipping new goods.

Purchase orders are hugely important to retailers and vendors. Retailers use them to keep records of transactions and vendors use them as a basis for manufacturing and shipping new products. 

Getting a purchase order filled out is the final step of the supplier-to-retailer sales process. After the order has been accepted by the retailer, the supply chain fulfillment process begins.

Table of Contents

Home > Blog > What is a Purchase Order?

1. What do POs mean in business?
2. Purchase order example
3. Are purchase orders legally binding?
4. How to automate PO worksheets
5. Key takeaways
6. Purchase order FAQs

What POs mean in business

Purchase orders function differently depending on the business using them. We’ll look at a few examples. 

Retail POs

A retailer uses purchase orders to buy bulk products for its store. The team members who deal with purchase orders include:

• Category Managers
• Associate Buyers
• Assistant Buyers

The job of category managers is to request specifically formatted purchase order documents from vendors or suppliers. Buyers tell vendors which products they want to purchase and the desired quantities. Then, the buyer sends the vendor a specifically formatted PO form to fill out. 

The vendor fills out the form and sends it to the retail buyer. Once received, the buyer takes the document and loads it into an ERP. 

Vendor and Supplier POs

Suppliers will receive a purchase order document from the buyer after a goods negotiation has been finalized. The team members who deal with purchase orders include:

• Salespeople
• VP of Sales
• National Sales Manager

It’s the job of the sales team to fill out the PO form sent by the buyer. These purchase order documents usually require salespeople to manually enter a large quantity of product data and images. Entering this information correctly can be very time-consuming and can take away from the sales process. 

Filling out POs with Surefront

• Product data is accurate and error-free
• POs are created in seconds instead of hours
• Salespeople have more time to focus on making sales

Additional parties that use POs

Manufacturers and shippers also use purchase orders. Manufacturers use the PO to determine which products they’ll create. Shippers use POs to track and fulfill bulk shipping orders. POs are utilized across the entire supply chain. 

Purchase order example

Let’s take a look at a purchase order in detail.

What is a PO number?

PO numbers are important for both record-keeping and tracking purchase orders throughout their supply chain journey. Here’s an example of one:

The PO number will be printed on shipping crates. It’s sort of like a tracking number, but instead of representing a single package, it represents a large quantity of goods. When a retailer gets a shipment of packages to its warehouse, it’ll compare the PO number on the shipping boxes with the purchase order form. 

The PO number is essentially the identity of the order. After it’s finalized, it’ll become a reference that anybody in the supply chain can use. If a vendor notices that a shipment is stalled, she can call the shipping company. The shipper will ask for the PO number so they can look up the order.

What else is printed on the PO form?

Other common items on the PO form include:

• Total cost of the PO
• Total retail MSRP
• Total volume 
• Freight terms
• And specific line items

The line items contain specific information for each item being shipped. This information often includes:

• SKUs
• Description
• UPC numbers
• Quantity
• Cost
• Retail price

You can see exactly what a purchase order looks like in the example below:

Each of these fields plays a role in identifying and valuing the goods being bought and sold. Additionally, there’s information specific to shippers. 

One important thing to remember is that every retailer has a version of the PO form. No two are alike. This can be a pain for vendors who have to fill out specifically formatted purchase order forms for hundreds of retailers.

Is a purchase order legally binding?

Purchase orders are not legally binding. It’s completely within the rights of a retail buyer to cancel a particular purchase order contract—even if the vendor has already begun fulfillment. The vendor will have to bear the financial burden of cancellation. 

One of our sister companies has experienced last-minute cancellations. For context, the company is a wholesaler that designs and ships retail home goods to major clients. Here’s what happened:

• One of our clients made a fairly large purchase order
• As fulfillment of the order began, the pandemic rose to prominence
• The client decided it wasn’t in their immediate best interest to receive the items they had agreed to purchase
• They canceled on us

The financial aftermath of this cancellation was significant. The items had already been manufactured and were on a shipping crate headed to North America. We had to divert the shipping container and eat the cost of the items. There was no recourse we could pursue from the buyer for this loss. We also wanted to maintain goodwill with the client, so we simply accepted the cost.

Dealing with canceled orders using Surefront

Luckily for our business, we had fully implemented Surefront. This gave us a lot of transparency into our upstream suppliers. We knew exactly where our products were in the supply chain process, so cancellation was quick and easy.

Discover more about vendor management with Surefront.

Automating PO worksheets on Surefront

Surefront makes it easy for vendors to generate perfectly formatted PO contracts. It’s a simple two-step process:

1. Select products from your catalog

2. Export a custom PO template with chosen products

Your sales team won’t have to waste time manually inserting data and product images into Excel. Surefront helps you create new purchase order forms quickly so salespeople can get back to landing new deals.

For buyers, the process is even simpler. All they have to do is select the products they want to purchase and the desired quantities. The PO worksheet lives on Surefront, so both parties can collaborate in real time to finalize the document.

Innovative design makes automated POs possible

So how does Surefront make the process so easy? It all stems from Surefront’s intuitive design. Surefront combines product information management (PIM) with wholesale customer relationship management (CRM). Surefront’s PIM is a single source of truth for all your product data. 

So, when you want to create a new PO worksheet, you simply select products from your PIM and the software maps the data into a custom template. That way, you set up the template once and then you can easily generate PO forms for life.

Key takeaways

Here’s everything you need to know about purchase orders:

• A purchase order (PO) is a contractual document issued by a buyer to a seller specifying goods to be purchased before manufacturing and shipping processes commence.
• POs are crucial for retailers and vendors, serving as records for transactions and as bases for manufacturing and shipping new products.
• Purchase order management varies across businesses. For retailers, category managers and buyers handle POs, while sales teams manage them for vendors.
• Surefront automates purchase order management, ensuring accurate data entry, faster processing, and more time for sales activities.
• POs contain essential information such as PO numbers, total costs, line items, and specific terms, aiding in tracking and identifying goods in the supply chain.
• Purchase orders are not legally binding, allowing buyers to cancel contracts, which can have significant financial implications for vendors.
• Surefront facilitates vendor management and automates PO worksheet generation, streamlining the process and reducing manual data entry.

Click here for more information about how Surefront automatically generates PO worksheets.

Purchase order FAQs

How are purchase orders used in procurement?

POs in procurement function similarly to an order number on Amazon. This is because procurement typically involves acquiring goods and services like office supplies, janitorial services, and postal shipments

So, when you submit a PO for office pens, the subsequent process is simply shipping products from a warehouse to your business. POs finalized between retailers and suppliers, on the other hand, set off a complex series of supply chain events.

What’s the difference between a purchase order and an invoice?

A purchase order (PO) is a document issued by a buyer to a seller, outlining the details of goods or services to be purchased. It requests products and sets sale terms before the transaction occurs. An invoice, on the other hand, is a document issued by the seller to the buyer after the goods or services have been delivered or rendered.

The main difference between a purchase order and an invoice is the timing and purpose. A PO precedes the transaction and serves as a request for products. An invoice follows the transaction and serves as a request for payment.

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