[Blog] Purchase Order Life Cycle

In good old days, the purchase orders process was sluggish, to order a product the organization had to type or print the PO. It had to be routed internally between departments for approval. After the PO approval, it had to be mailed or faxed or emailed to the vendors. This old-fashioned paper method could take weeks to complete. Today PO process has been digitized, it takes very minimal time to order and complete the PO life cycle, without any human errors.

A purchase order or PO is a requisition form sent from a purchaser to the vendor, providing the information about the details of the order, including quantity, types of product, agreed-upon price, etc. Much like your "Cart" on e-commerce sites, it is a list of products or items that you wanted to buy.

Purchase Order Lifecycle:

Purchase Requisitions:

The first step of the purchase order life cycle is creating a purchase request. When a requirement arises in an organization. The particular need is raised as a service ticket and send for approval. The procurement team checks and approves the ticket when the requested asset or service or item is out of stock. After the approval, the technician raises a purchase request. Once the Purchase Request is approved, Purchase Orders will be created.

Purchase Order (PO) :

A purchase order is the official confirmation of an order. Technician generates the PO, which generally includes the name of the company, details of product or services, quantity, shipping address, billing address, purchase order id, vendor, and payment information. Once the PO is generated, it automatically triggers notifications to approvers as per the workflow configured for the PO.

Purchase Approval:

Purchase order approval is the flow of actions required from various, approvers like line managers or department heads (generally they own the authority to approve or reject a PO). Approvers check the budget and verify's the documentation. A review is done to ensure that the order is complete, and the only time the order gets rejected when the order data is not complete/not valid.

Ordered and Received:

The approved purchased orders are sent to vendors. A purchase can be transmitted to the vendor or supplier in many ways, you can mail the vendor or trigger notification emails manually/automatically from the PO tool. The vendor confirms the order with an acknowledgment mail and ships the product or items to the buyer. The vendor can dispatch the items either completely or partially, providing a receipt in both cases. The invoice is either included with the product are sent separately by the vendor.

Usually, an order receipt will be supplied by the vendor during delivery and prove that the goods have been delivered to the buyer. Once the products are delivered to the buyer, it is inspected for completeness and integrity by the procurement team, in case of shortages and broken goods, it will be noted in PO tool and will notify the vendor.

Invoice and Payments:

An invoice is a document sent to a buyer that specifies the amount and cost of products or services that have been provided by a vendor. It also indicates what must be paid by the buyer according to the payment terms of the seller. Payment terms usually specify the period of time that a buyer has to send payment to the seller for the goods and/or services that they have purchased.

Invoices can also serve as legal records if they contain the names of the seller and client, description, and price of goods or services. The invoice can be attached as a document in the procurement tool.

Closure:

The final/last stage of the purchase order, add all the necessary details of PO, invoice document, and payments for future references. Then you can move the status of the PO as "closed".

Summary:

The purchase order process is an important one for businesses, it matters especially at the enterprise level. In the purchase life cycle, there are so many moving parts and so many decision-makers involved, even a single mistake can paralyze an organization. Adhering to a purchase order process helps protect an organization from negative impacts. It also improves relationships with vendors and helps organizations negotiate for better prices on goods and services.

Perhaps you might want to re-evaluate the way your business creates and organizes its purchase orders, You've found the right tool ServiceDesk Plus PO tool.

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