Purchases orders (or POs for short) are an essential part of any supply chain. In this article, we break down what a PO is, how it works, and answer other frequently asked questions. ‍ What is a purchase order? ‍ A purchase order (PO) is a legally binding document created by a buyer and sent to a seller. It’s a list of what you want to buy that lays out product SKUs, quantities, payment terms, and delivery details. It is both a form of insurance and a legal commitment by the buyer to the seller that they’ll purchase the goods or services for the agreed amount. Similarly, it’s a form of insurance for the buyer that the seller will invoice them for the agreed upon amount in any case where there might be a discrepancy. How does a purchase order work? ‍ Purchase orders are typically used by organizations purchasing in bulk. For example, if you run a warehouse, you may need to purchase several types of corrugated boxes in different quantities from your supplier. To buy them using a purchase order, the flow of events goes like this: Create a purchase order. You create a purchase order specifying exactly what you need from the supplier (see “What should a purchase order include?”). Supplier accepts the purchase order and ships goods. If your supplier has your items in stock, they’ll accept the purchase order and deliver the goods according to the delivery terms you’ve laid out. Supplier sends a bill or invoice. The supplier will then send a bill or invoice for the items according to the purchase terms laid out in the PO. Payment processed. You pay for the items and the sale is processed by your supplier. What are different types of purchase orders? Standing purchase order : buyer can purchase agreed upon SKUs repeatedly using the same PO number. Blanket purchase order : buyer schedules multiple deliveries at a set price under the same PO, typically at a discount given in exchange for larger order volume. What should a purchase order include? ‍ Purchase order details vary depending on your organization and the type of item being purchased, but it typically includes: Issue date Product SKUs, quantities, and unit prices Delivery date PO number Shipping and billing address Company name and contact information Payment terms ‍ What is the difference between a purchase order and an invoice? Purchase orders and invoices are often confused since they are both legally binding documents exchanged between buyers and sellers. However, they aren’t the same. Purchase Orders are issued by buyers to place orders and created before delivery. Issued by buyer before purchase Specifies goods requested and proposed payment terms Invoices are issued by sellers and created after delivery. Issued by seller after delivery Specifies final payment amount and due date What is the difference between a purchase order and a purchase requisition? ‍ Purchase orders and purchase requisitions are often confused, but they aren’t the same. Purchase orders are legally binding documents created by a buyer and issued to a seller after receiving approval to place an order. Purchase requisitions are internal documents created before receiving approval and placing an order.

Purchase requisitions (or PRs for short) are an essential part of any supply chain. In this article, we break down what a PR is, how it works, and answer other frequently asked questions. ‍ What is a purchase requisition (PR)? ‍ A purchase requisition or purchase request (PR) is a form of approval required before making a purchase. It’s an internal document created by purchasers and sent to the department or individual that controls your organization’s finances. Purchase requisitions are often used to enforce spend controls – such as budget holder approvals or spend limits. Approvals can even differ based on the amount being spent or type of item being purchased. ‍ How Does a Purchase Requisition Work? ‍ Purchase requisitions are often required for purchases about a certain dollar amount. For example, let’s say you’re looking to purchase a forklift that costs over $30,000. If your organization requires a purchase requisition before placing your order, the flow of events could look like this: Create a purchase requisition. You create a purchase requisition specifying exactly what you want to purchase, including information like quantity, price, vendor name, and your location or department. Purchase requisition submitted for approval. Your purchase requisition is then sent to the department or individual that controls your organization’s finances for approval Approval received and order placed. If approved, you can go ahead and place your order. Otherwise, the purchase can’t be made. What should a purchase requisition include? ‍ Purchase requisition details vary depending on your organization and the type of item being purchased, but it typically includes: Issue date Product SKUs, quantities, and unit prices Vendor name(s) Purchase location or department Delivery date ‍ What is the difference between a purchase requisition and a purchase order? ‍ Purchase requisitions and purchase orders are often confused, but they aren’t the same. Purchase requisitions are internal documents created before receiving approval and placing an order. Purchase orders are legally binding documents created by a buyer and issued to a seller after receiving approval to place an order.

Maintenance, Repair, and Operations (MRO) supplies play a critical role in making sure businesses around the world run smoothly and safely, but most people have never heard of them before. So, what are they and why do they even matter? ‍ What does MRO mean? ‍ MRO is literally defined as “maintenance, repair, and operations.” ‍ ‍ What are MRO supplies? ‍ MRO is a term commonly used in the procurement and operations world to describe all of the “Other” expenses involved in your supply chain. That means many different categories of supplies are often lumped into MRO, such as: Consumables (e.g., cleaning, warehouse, office supplies) Industrial Equipment (e.g., compressors, gauges, pumps) Upkeep Supplies (e.g., repair tools) Safety Equipment (e.g., gloves, goggles, hard hats) Furniture & Fixtures (e.g., desks, chairs, lights) Electronics (e.g., computers, printers) ‍ ‍ Why are MRO supplies important? ‍ If properly managed, the importance of MRO supplies will likely go unnoticed. They typically only make up about 5-10% of the total Cost of Goods Sold (COGS). So at a glance, they don’t seem that important from a cost-lowering perspective. However, from a business-operation perspective, running out of MRO supplies could bring your entire operation to a halt. They also play a critical role in safety. Whether it’s about ensuring equipment works as expected or protecting your team with proper PPE, you’ll need to make sure that you have the right MRO supplies stocked or else you could be putting your team at risk of injury. Whether you’re a distribution center that needs corrugated boxes on-hand to fulfill orders or a manufacturing facility that needs a certain tool to keep your equipment running, if these supplies aren’t there when you need them, the consequences can be massive. ‍ What are best practices for managing MRO supplies? ‍ There are a few key ways to stay on top of MRO supply management: ‍ Hire a procurement or purchasing person ‍ If you have the resources, hiring for a procurement or purchasing role will make your life a lot easier and ensure the practices below are all being worked on. This person will need to be or become knowledgeable in a variety of products to ensure they’re achieving best value for money. ‍ Manage supplier relationships ‍ You’ll want to identify the items that pose the greatest risk in your supply chain. What items will lead to major consequences if you don’t have them on-hand when needed? Determine what these products are and focus on fostering relationships with the suppliers providing them. Implementing key performance indicators for your suppliers and conducting regular performance reviews will also help make sure you’re working with the best suppliers for the job. ‍ Set spend controls ‍ Enforcing spend controls for MRO supplies will help prevent any rogue purchasing behavior. It’s helpful to set these spend controls based on spend amount, product categories, and purchasers. ‍ Track key performance metrics ‍ Tracking key performance metrics internally like downtime costs, inventory levels, and lead times will arm you with the information you need to make sure you’re never out of your most critical supplies. ‍ Proactively manage inventory ‍ Implementing scan guns for consumables isn’t usually very efficient although it would theoretically help you get a real-time pulse of your inventory. In practice, it’s more reasonable to have someone on your team manually tracking inventory levels for consumables. Some companies have even opted to implement vending machines to automate spend tracking for smaller goods like gloves or markers, for example. ‍ Conclusion MRO management is ultimately about proactively preventing big problems that could bring your operation to a halt. It’s when MRO is overlooked that it goes from being a small portion of your COGS to a major expense and headache. Ultimately, implementing best practices today will save you a lot of time and money down the line.