The document outlines the process and components of purchase order creation and management, emphasizing the importance of a legally binding purchase order as part of procurement. It discusses the roles of various departments involved, required details within a purchase order, and modern electronic and automated processing methods. Additionally, it highlights the benefits of effective order processing, including improved accuracy, customer satisfaction, and operational efficiency for businesses.

1. Purchase Order
Pooja Gupta Singla

2.  After the requisition has been approved, the
purchasing department places order. For routine
purchases, the order is usually sent through
established sources of supply; in other cases, the
purchasing department may ask for bids or send out
requests for quotations before placing order. A
purchase order is a written request to a supplier
for specific goods at an agreed price. The request
also stipulates terms of delivery and terms of
payment. The purchase order authorizes the supplier
to deliver goods and submit a bill. To provide
control over issuance the purchase order, they are
serially numbered.
Introduction

3. The original order is sent to the supplier (to place order).
Copies of the purchase order usually go to the :
1. Accounting department ( to be used in checking the
supplier’s invoice when a voucher is being prepared
for payment, and for future recording in purchase
journal and the general subsidiary ledgers)
2. Receiving department (to alert them to expect a
delivery),and
3. Credit/finance department (for eventual payment
within the discount period)
A copy is retained by the purchasing department to
maintain a file of all purchase orders issued.
Cont.

4. The authority for the Purchase Department to make
purchases is the purchase requisition. No material
shall be purchased without a duly authorized
purchase requisition.
 On receipt of the purchase requisition the Purchase
Department will find the right source of supply and
the price. After the selection of the supplier, the
purchase order is prepared.
 The purchase order is a legal document or contract
for purchasing goods by one party from another at a
certain price. A specimen of a purchase Order is
shown in Form 14.
Introduction

5.  Name and address of the company placing the order.
 Purchase order number
 Name and address of the supplier
 Order date; delivery date requested, delivery and
payment terms.
 Quantity of items ordered
 Catalogue number
 Description, unit and total price
 All types of costs like shipping, handling etc
 Total cost
 Authorized signature
Contents in Purchase Order

6.  Supplier’s name and address:- These should be clear
and complete to avoid postal errors.
 Consignee’s name and address:- Full name and
address of the consignee ,especially when the
purchaser is not the consignee, should be given.
 Terms and conditions:- A set of terms and conditions is
shown in Form 14. It is usual to print the terms and
conditions on the back of the order but a not to this
effect must be made on the face of the order above
the signature by remarks such as “this order is placed
subject to the terms and conditions printed on the
reverse.”
Form 14

7.  Description:- The description should be clear and
should specify the quality of the material required
such as standard specification, brand name, drawing
number, manufacturer, or suppliers’ reference number
etc.
 Quantity:- The quantity stated should be precise and
should leave no room for ambiguity. It should also
tally with the pricing unit such as, each, pair, tones etc.
if the terms such as drums, bags etc., are used, the
quantity per drum, bag etc., should be stated in
bracket.
 Quotation reference and date: The reference number
and date of supplier’s quotation will be shown in these
columns. Where repeat order is placed, previous order
reference will be given.

8.  Price terms: These include unit price, pricing unit discount
if any and whether sales tax is payable or not. In very
exceptional cases, open orders worded “ at lowest rates”
may be placed. The estimated cost, however, may be
shown on the purchase and Account copies for accounting
and statistical purposes. (The invoices in such cases will be
certified by the purchase department)
 Total value:- In certain firms the total value is not shown
on the purchase order apparently to save the time of
calculation. However, mentioning the total value has an
advantage that it induces the various persons connected
with the scrutiny of the order particularly the person
signing it to give a second thought as to whether the
order quantity should be cut down, whether delivery can
be staggered, whether the order is being placed on a
reliable party, whether comparative quotations are
satisfactory, etc.

9.  Delivery date:-When a material are required by a time
limit, a definite delivery date should be given on the
purchase order. Term such as " Immediate" and
"urgent" are not only vague but make it legally
difficult to cancel an order on account of delay in
delivery. For special purchases, the delivery date
should, as far as possible coincide with the date by
which the materials are required by the intendor. For
recoupment purchases, the delivery date will be
indicated on the recoupment purchase requisition by
Stock Control. Where, however, the suppliers have
given a different time limit for delivery, the delivery
date should be altered accordingly when placing the
order unless this can be improved upon by
negotiation. In the case of bulk orders, the quantity
required at various intervals should be indicated.

10.  Packing: If packing is free or extra, this must
be stated in the order. Normally, the suppliers
have their own standard packing. Where
special packing is required, necessary
instruction must be incorporated in the order.
 Case markings: If the packing case should
bear any special marks, these should be
clearly shown.
 Shipping instructions : These will include
mode of dispatch i.e., whether by
steamer,air,goods train, passenger train, road
transport or parcel post and the destination,
i.e., name of port, railway station or the post
office to which the goods are to be sent.

11.  Freight: Whether goods should be sent freight
paid or freight to pay.
 Inspection: Very often, orders are placed
subject to inspection of materials by the
buyer's organization before or after delivery.
The order should contain a note to this effect
such as "goods are to be inspected by our staff
before delivery" or "goods will be subject to
inspection and rejection at our works". A
rubber stamp may be used for this purpose.

12.  Insurance: Whether insurance will be
arranged by the supplier or buyer and in the
later case, to whom the shipping details such
as name of steamer or railway receipt number,
number of cases, value etc., should be
communicated for fulfilling insurance
formalities.
 Invoice instruction: This should include
number of copies of invoices to be sent, to
whom to be submitted, whether purchase
order copy should be attached or not.
 Mode of payment: Whether the invoice should
be sent through the bank or should be
submitted to the accounts department.

13.  Order Creation: Allows users to create purchase orders by
specifying details such as items or services needed, quantities,
prices, delivery dates, and supplier information.
 Supplier Management: Enables users to maintain a database of
suppliers, including contact information, payment terms, lead
times, and performance metrics. Some systems may also include
supplier evaluation and rating features.
 Approval Workflow: Supports customizable approval workflows for
purchase orders, allowing designated users to review and approve
orders based on predefined rules and thresholds. This helps ensure
compliance with purchasing policies and budgetary constraints.
 Integration: Integrates with other business systems such as
inventory management, accounting, and ERP systems to facilitate
seamless data exchange and process automation.
Features of Purchase order processing

14.  Electronic Data Interchange (EDI): Supports EDI standards for
electronic exchange of purchase order data with trading partners,
enabling automated order processing and reducing manual data
entry.
 Document Management: Provides document management
capabilities for storing, organizing, and retrieving purchase orders,
invoices, contracts, and other related documents electronically.
 Real-Time Tracking: Offers real-time tracking and monitoring of
purchase orders throughout the procurement lifecycle, from creation
to delivery and invoicing. This helps stakeholders stay informed
about the status of orders and anticipate potential delays or issues.
 Inventory Integration: Integrates with inventory management
systems to track inventory levels, reconcile purchase orders with
stock levels, and generate reorder alerts when inventory falls below
predefined thresholds.
 Reporting and Analytics: Provides reporting and analytics tools for
generating insights into purchasing trends, supplier performance,
spending patterns, and other key metrics. This supports data-driven
decision-making and continuous improvement in procurement
processes.

15.  Streamlined Ordering Process: Purchase order processing
helps streamline the ordering process by providing a
standardized format for requesting goods or services. This
reduces the likelihood of errors and miscommunications.
 Improved Accuracy: Using purchase orders ensures that
both parties have a clear understanding of the items,
quantities, prices, and delivery dates agreed upon. This
reduces the risk of mistakes in orders and invoicing.
 Better Inventory Management: Purchase orders provide
valuable data for inventory management. By tracking
orders through the purchase order process, businesses can
optimize stock levels, reduce excess inventory, and avoid
stockouts.
Benefits of Purchase order processing

16.  Manual Purchase Order Processing: This is the traditional method where
purchase orders are created, reviewed, and approved manually using
paper-based forms or electronic documents like spreadsheets or word
processors. While it's straightforward, it's also prone to errors and delays.
 Electronic Purchase Order Processing: In this method, purchase orders
are created and managed using electronic systems or software. This could
include dedicated procurement software, enterprise resource planning
(ERP) systems, or specialized e-procurement platforms. Electronic
purchase order processing typically offers more efficiency, accuracy, and
integration with other business processes.
 Automated Purchase Order Processing: Automation involves using
software and algorithms to handle repetitive tasks involved in purchase
order processing, such as data entry, approval routing, and notifications.
Automation can significantly reduce processing times, improve accuracy,
and free up staff for more strategic tasks.
 EDI (Electronic Data Interchange): EDI involves the automated exchange
of purchase order data between trading partners' computer systems in a
standardized electronic format. This streamlines the purchasing process,
reduces manual data entry errors, and accelerates order fulfillment.
Typesof Purchase order processing

17.  Customer Satisfaction: Efficient order processing ensures that
customers receive their orders accurately, promptly, and in good
condition. By providing a seamless ordering experience, businesses
can enhance customer satisfaction, loyalty, and retention.
 Timely Fulfillment: Order processing facilitates the timely fulfillment of
customer orders, meeting delivery deadlines and expectations. Prompt
order processing helps businesses avoid delays, backorders, and
stockouts, thereby improving customer service levels.
 Inventory Management: Order processing is closely linked to inventory
management. By accurately tracking inventory levels and processing
orders in real-time, businesses can optimize stock levels, reduce
carrying costs, and minimize the risk of overstocking or stockouts.
Importance of order
processing

18.  Revenue Generation: Order processing directly impacts revenue generation by
enabling businesses to convert customer orders into sales. Streamlined order
processing workflows help businesses capture sales opportunities, maximize
order value, and drive revenue growth.
 Operational Efficiency: Efficient order processing streamlines internal
operations, reduces manual errors, and minimizes administrative overhead.
Automation and integration of order processing systems improve operational
efficiency, allowing businesses to handle higher order volumes with fewer
resources. Cost Control: Effective order processing helps businesses control
costs associated with order fulfillment, inventory management, and customer
service. By optimizing workflows, reducing order processing times, and
minimizing errors, businesses can lower operational expenses and improve
profitability.
 Data Insights: Order processing generates valuable data that can be analyzed to
gain insights into customer behavior, sales trends, and operational performance.
By leveraging this data, businesses can make informed decisions, identify
opportunities for growth, and address challenges proactively.
 Compliance and Accuracy: Order processing ensures compliance with regulatory
requirements and industry standards related to order fulfillment, invoicing, and
customer communication. Accurate order processing helps businesses maintain
legal and financial compliance and build trust with customers and stakeholders.

19.  Competitive Advantage: A well-executed order processing
system can provide a competitive advantage by differentiating
businesses based on service quality, reliability, and
responsiveness. Positive customer experiences resulting from
efficient order processing can help businesses stand out in the
market and attract new customers.
 Brand Reputation: Smooth and reliable order processing
contributes to a positive brand reputation. Customers associate
brands with their ordering experiences, and businesses that
consistently deliver on their promises and exceed expectations
build a strong reputation for reliability and trustworthiness.
 In summary, order processing is essential for driving customer
satisfaction, operational efficiency, revenue growth, and
competitive advantage. Businesses that prioritize order
processing and invest in robust systems and processes can
better meet customer needs, optimize resources, and achieve
long-term success.
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