A purchase order is a legally binding document between a vendor and a customer that determines the goods, services and any other items the buyer agrees to acquire at a certain price point. Another useful feature of the purchase order is that it outlines the delivery date and payment terms for the customer.
Different purchase order forms are applied for various sizes and types of purchases. A number of diverse formats can be used to convey purchase orders to the supplier, depending on the circumstances and the nature of the requirement. Each method has its own specific requirements, as you can see from the following: standard purchase orders, blanket purchase orders, contracts, procurement cards, system-generated orders, etc. Let’s consider the most common purchase order formats in more detail.
5 Basic Types of Purchase Orders
1. Standard Purchase Orders
The standard purchase order is the most commonly used form of procurement document. As a contractual document, standard purchase order contains all of the information outlined in the requirements section, along with the organization’s standard terms and conditions. Purchase orders are numbered for unique identification and audit control. In paper format POs usually contain a number of copies for distribution to the supplier, the Accounting Department, the original requestor, and the files. Purchase orders can be transmitted by any common form of mail, by fax, or by a variety of other electronic processes, including e-mail.
Nowadays, the majority of purchase orders are no longer paper-based, but rather transmitted electronically over the Internet. It is common for electronic POs to be used to buy items of any type online. There are many diverse terms for electronic POs, including E-Procurement, E-Purchasing, E-Purchase Requisition, etc.
2. Blanket Purchase Orders
The blanket purchase order covers a procurement commitment to a supplier for specific products or services at an agreed-upon price for a set period of time or for a limited quantity or spending amount. Commonly used to eliminate many smaller orders so as to minimize the amount of paperwork processed, the blanket purchase order, once placed by the Procurement Department, can be used by other groups within the organization to set releases as frequently as needed and when needed.
A contract generally covers services or other complex purchases that require special legal language or terms and conditions beyond the scope of a typical purchase order. A contract is also applied when requirements extend over periods of time longer than a year or when automatic renewal may be required to ensure continuing operations.
Under the broader heading of contracts, we can include a number of similar documents used in the normal course of business, such as memorandum of understanding and the letter of intent. Many organizations also have specialized agreements used for particular purposes, such as agreement for consignment or a master supply agreement.
4. Procurement Cards
Issued to specific users within the organization, whose duties require making frequent small purchases, the procurement card (P-card) or credit card can effectively reduce the clutter of low-value requisitions and purchases processed by the Procurement Department that can interfere with efficient supply management. Applied mainly for occasional purchases associated with nonproduction or maintenance repair, procurement card purchases can be controlled through limits placed by the organization for specific products, services or even through limits on the industry type or individual supplier.
The procurement card also reduces the time it takes to place an order as well as the cycle time for payment to the supplier. This significantly eliminates common costs associated with the buying and payment of purchase orders.
5. System-Generated Orders
There is a variety of orders generated internally through various planning and scheduling systems, such as manufacturing resource planning or other automated inventory replenishment systems. For the most part, using these systems issue documentation electronically as agreed upon with the supplier in advance. Externally managed inventory through a formal SMI program is a relative of system-generated orders, insofar as replenishment signals are controlled by the supplier based on a negotiated level of inventory or the receipt of incoming orders.
We recommend you to use different types of purchase orders, depending on what you wish to acquire and its cost. By doing so, you will eventually determine which purchase order form best suits your needs.