How’s the Purchase Order Flow Works?

How’s the Purchase Order Flow Works?

How’s the Purchase Order Flow Works?

Efficiently purchasing goods and services from suppliers is essential to the success of many companies. Let’s explore the purchasing process flow in this video.

There are two major tasks that the purchasing component handles. First, it determines the possible external suppliers for required materials. Second, it actually buys the materials and services from these identified suppliers. Let’s look at the typical process flow for accomplishing these tasks.

The first step is to determine the requirements.
What do we need? How much of it, and when do we need it by?

These key factors need to be determined. Materials requirements can be determined by individuals in the departments with a need, or by materials planning and control. These requirements are communicated internally to the purchasing group via purchase requisitions. Next, the purchasing group determines with supplier is the best option to purchase from. This is called source determination. Potential suppliers are identified based on past orders and existing purchasing agreements. Then, requests for quotation are sent to suppliers. Suppliers answer these requests for quotations and outline the conditions of a potential order. The supplier with the best offer is chosen. Once the supplier is selected, the order processing step begins. For one time orders, we create a purchase order. A purchase order is the formal request for goods or services from a supplier by a specific date for an agreed upon price. For longer term agreements, we create contracts, which are agreements between a company and a supplier for material at an agreed upon price for the entire term of the contract. Similarly, we can create scheduling agreements. Scheduling agreements have all of the same qualities as a contract, but they also include pre defined delivery dates. Reports can be run at any point in the purchasing process to provide realtime insights into any of these purchasing documents. An effective purchasing process ensures companies have the right materials at the right time