What is a Purchase Order

What are Purchase Orders in SimpleManufacturing™?

A Purchase Order is a formal agreement between a buyer and a supplier of goods or services.  It is vital for tracking inventory and costs and clarifying the procurement process. 

Purpose of a Purchase Order?

Purchase Order details define the good or service procured, amount or quantity purchased, price, delivery expectations, terms and conditions of the purchase, and any other important information so that both the buyer and supplier understand the requirements. Not only does the use of Purchase Orders facilitate tracking inventory and costs, but it also fosters good communication and stronger relationships with suppliers.

How are Purchase Orders Created?

There are several methods for creating Purchase Orders within SimpleManufacturing™. The first method is the creation of Purchase Orders based on the purchasing demand output of running the Material Requirements Planning (MRP) process. They can also be created by copying previous Purchase Orders or initiating one from scratch.

What Information is included in Purchase Orders?

Header or Buyers’ Information: Contains buyers’ company details, including their company name, address, contact number, purchase order number, and purchase order date.

Supplier or Vendor Information: Contains the vendor or supplier name, address, and contact information.

Purchase Order Line-Item Details: Contains unique line-item number, the vendor’s Item or Part Number or description of what is being purchased, the quantity with a unit of measure of how many are being purchased, the unit cost or price of the item, and the total cost or price.

Purchase Order Summary: Contains subtotal of purchased goods or services, taxable amount, discounts, shipping costs, handling fees, and total cost or price of the purchase order.

What are the Unique Demands of Manufacturing Businesses?

Purchase Orders Initiated by Manufacturing Businesses are unique in several ways:

Scheduled Deliveries 

It is common for most manufacturing businesses to schedule the deliveries of goods, material items, or services over a period.  A typical example would be for a total purchase of 1000 units, with delivery of 500 units this month and the other 500 units next month. Therefore, it is critical that the purchase order software has this option and that delivery schedules are identified within the purchase order delivered to the supplier or vendor.

Differentiation Between Manufacturers’ Part Numbers and Vendor or Supplier Part Numbers

Many manufacturing businesses and machine shops manufacture products based on customer drawings, bill of materials, and product specifications. In many cases, the pass-down of information on the material used refers to a manufacturer part number.  If not a sole-source material, many vendors and suppliers distribute the same manufacturer part number item, and each vendor or supplier has their own established part numbers. Therefore, having the manufacturer’s part number AND the vendor’s part number on each purchase order line item is extremely important.  This ensures the vendor or supplier verifies that the product shipped matches the required manufacturer’s part number, form fit, and function and establishes what manufacturer’s part number is procured from the buyer’s perspective.

Purchased Quantity and Unit of Measure Versus Inventory Quantity and Unit of Measure

Many manufacturing businesses and machine shops procure inventory goods. Suppliers and vendors may sell goods at a specific quantity and unit of measurement that is different from the quantity and unit of measurement of manufacturing or machine shop inventory goods. 

Some examples follow:

• A supplier sells one package, containing 10 bolts for $10.00 each, and manufacturing businesses and machine shops inventory 10 bolts with a unit cost of $1.00 each bolt.
• A supplier sells one, 55-gallon drum of adhesive for $100.00 each drum, and manufacturing businesses and machine shops inventory 7,040 ounces with a unit cost of $0.0142 each ounce, or 55 gallons with a unit cost of $1.81 each gallon.
• A supplier sells one 1-inch diameter x 12-foot long aluminum round, 6061-T6511 mill finish for $101.97 each, and a manufacturing business and machine shop inventory of 144 inches with a unit cost of $0.0.708 each inch.

Identifying the purchased quantity and unit of measure is critical for supplier or vendor recognition and defining the quantity and unit of measure of how the manufacturer or machine shop inventories the goods when received.

Taxable Items 

The goods or services purchased are expected to be tax-exempt from a sales tax when those goods or services are used for the goods or services produced by the manufacturing business. Ideally, it is best for the Buyer of the goods or services to identify whether or not the goods or services they are procuring are taxable. The taxable status of each line item should be recognized.  When the item is not taxable, the supplier or vendor should have a copy of the buyer’s tax-exempt certificate.

Specifications

In many cases, items purchased must meet a specific standard or level of quality. Adding specifications or standards to the line-item information is critical. Adding this information further defines the item purchased and the buyer’s expectations. 

Quality Clauses

It is becoming common practice to include special requirements, or quality clauses, into line-item information.   

Typical Clauses:

• A Certificate of Conformance / Compliance is required for all products delivered,
• Serialization required,
• First Article Inspection required,
• No Partial Receipts,
• Early deliveries are accepted within 10 days of the Promise Date.

Files / Drawings

Outsourcing goods and services is expected when they do not align with the core competencies of the manufacturing business. 

Examples of Outsourcing Goods or Services might be:

• Machined Goods,
• Cable or Wiring Assemblies,
• PCB Assemblies,
• Painting, Conformal Coating, Anodizing, Etc.,
• Heat Treating, Brazing, Welding, Etc.,

Linking Electronic Files like drawings, emails, specifications, and bills of materials to either a specific line item of a purchase order or the entire purchase as a general requirement is an effective method of passing down the purchased goods or services requirements to the supplier or vendor.

An example of a Purchase Order prepared using SimpleManufacturing™ is shown below.

• Manufacturer and Vendor Part Number Differentiated
• Delivery Schedules
• Unlimited Number of Files Linked to Line Item
• Unlimited number of Quality Clauses linked to Line Item OR Applicable to Entire Purchase Order

• Purchase Order Inventory Receipt Quantity

• Purchase Order Line Item Specification Requirement

Choosing SimpleManufacturing™ as your next ERP / MRP Business Software Solution

The ERP Software you choose now will determine your company’s success. Please pay particular attention to its scalability, current features, and ability to be modified to meet your future business needs. Our flexible approach, focusing on efficiency and seamless integration with your current processes, with the expectation of change, provides a long-lasting solution.