Mostly Harmless, Part VI
Formally, a purchase order is a commercial document issued by a buyer to a seller that indicates the type, quantity, and agreed upon prices for one or more products or services that the buyer is offering to buy from the seller. Once the seller accepts the purchase order, it forms a (one-off) contract between the buyer and seller, who will deliver goods and services at the agreed upon prices, in the agreed upon timeframes, to the buyer who must then, upon receipt of the agreed upon goods, in the agreed upon condition, make payment to the seller for the agreed upon amount.
A purchase order is the result of an approved requisition, but the relationship is not necessarily one to one. One requisition can generate multiple purchase orders, and this will commonly happen when a purchase order contains requisitions for goods and services from multiple suppliers. And while normally there will be one purchase order per supplier, if the goods and/or services are coming from multiple locations, there might be multiple purchase orders per supplier. In addition, a purchase order might be associated with more than one requisition, as requisitions from multiple buyers for similar goods to a similar location may be bundled into a single Purchase Order to save delivery and processing costs. As a result, the e-Procurement system must be capable of handling the many-to-many relationship between requisitions and purchase orders (and suppliers).
In addition to all of the information tracked on the requisition, the purchase order must also track approval information, delivery information, payment terms, and any other specific information required by the supplier. It must support attachments and include any attachments, schedules, or statements of work that are specified as necessary in any contracts that are in effect.
Furthermore, since the delivery of goods and services will generally result in the production of goods receipts and invoices, the e-Procurement system must support the association of purchase orders with the corresponding goods receipts and invoices, which, like the purchase order and requisition relationship, can be many to many. If the order is large, or if some items are not immediately available, a supplier may ship the order in multiple shipments, which would result in multiple goods receipts and which may be accompanied by multiple invoices.
In addition to tracking all of the relevant information, the system must be capable of translating the purchase orders in the standard EDI and XML formats that are used by the primary suppliers and electronically delivering them to those suppliers who have networks, marketplaces, or another on-line presence capable of automatically receiving an electronic purchase order.
When evaluating the purchase order capability of an e-Procurement system, which should support tight integration with the invoicing module, one should keep in mind the associated challenges of purchase order management, keep an eye out for best practice support, and insure that the solution will deliver the intended benefits. These topics will be addressed in the next post.
Next Post: Purchase Orders, Part I