Purchase Orders: small details are important

Purchase order is a basic component of the retail order flow yet flawless communication between you and your manufacturers is essential to reduce errors and be able to properly reconcile costs with your sales data.
The format used to raise PO’s should be carefully reviewed; you could save a lot of steps in re-confirming the details of your order each time to the supplier. Let us look at two different aspects of PO’s below.

What details to input into a PO?
While raising a PO the most important thing to keep in mind is that the supplier should not get confused with what product has been requested - because if you mess up – wrong product will be shipped and you end up paying the costs…

  • PO number – All PO’s should have a unique PO #, this could be a combination of letters and numbers and could be used later to track your orders, it also acts as a comparison between the original order against what was shipped.
  • Sku number - Every item/product will have unique sku # and it should be mentioned in the PO. This will ensure that the vendor rightly knows what item we are referring to, entering the right sku will ensure the correct size and color is shipped as all sku’s are unique.
  • QTY – Enter the right qty against the sku #, this is very important and can avoid confusion in multi piece shipments.
  • Wholesale cost – It is very important to mention the wholesale cost in the PO, this is the agreed cost between both parties and could serve as a document when there is a wrong invoice..
  • Shipping cost – It would be necessary to mention the shipping cost If the vendor is shipping the item through his carrier a/c, this is not required If the vendor is using your carrier a/c.
  • PO date – Many buyers fail to mention the date the PO was generated; this will help us find out the delay in shipping if any.
  • Shipping address – The complete ship to address should be mentioned along with the phone number, email address and the contact name. If the shipment is going to a warehouse then we need to mention the hours of operation.

Purchase Order as a document represents the buyer’s intent to purchase specific quantities of product at specified prices. In the event of non-payment, the seller can use the PO as a legal document in a court of law to demonstrate the buyer’s intent and to facilitate collection efforts.

Best method to send a PO to the shipper

There are several ways to send a PO to the shipper, the idea is to try and reduce manual intervention as much as possible.

  • Email – We could email a PO to the manufacturer, this could be time consuming if there are several PO’s sent on a daily basis.
  • e-Fax – This is not a very popular method to issue a PO, there are good chances that the fax did not get delivered.
  • EDI - An inter-company, application-to-application communication of data in standard format for business transactions, Electronic Data Interchange (EDI) is a set of standards for structuring information that is to be electronically exchanged between and within businesses, organizations, government entities and other groups.

EDI can be formally defined as 'the transfer of structured data, by agreed message standards, from one computer system to another without human intervention’; building a simple system to issue PO’s via electronic documents will speed up reconciliation.

Having unique PO numbers is THE KEY you will use reconciling your shipping costs, cogs and other fulfillment costs with sales orders. Make sure your vendors are mentioning the PO number on each invoice and shipment document.

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