If you are starting out as a small business owner, or hoping to climb the ladder and run your own warehouse one day, you need to know the ins and outs of warehouse management. And warehouse management includes understanding purchase orders and how to use them to grow your business.
As we uncover the ins and outs of purchase orders in this ultimate guide, you’ll likely see some of these related terms:
Simply put, a purchase order (PO) is a legally binding document created by a buyer and presented to a seller. The PO is a list of what the buyer wants to purchase, and it includes the order details, such as:
A purchase order is legally binding because when the buyer submits an order, they are committing to purchase goods or services for an agreed-upon amount. This document protects and insures the vendor against non-payment because the order gets filled before the buyer receives a bill.
Purchase orders are typically used by businesses that order large quantities of goods from a warehouse. To understand how the process works, we’ll set up an example:
In this purchase order example, a craft supplies store needs to buy many different types of paintbrushes from a supplier. In order to get the paint brushes they need, they would follow this process:
When a buyer and vendor have established a relationship, they can set up special kinds of purchase orders if they want: a standing purchase order or a blanket purchase order.
Creating a purchase order is pretty simple once you find a template you like. You can either use online software or create a simple document in a word processor like Microsoft Word or Google Docs. Every purchase order needs to include the following details:
At the bottom of a purchase order, place the total order amount (of products), the total price, and an authorized signature.
Many people notice that purchase orders and invoices look very similar. Which brings us to…
Purchase orders and invoices are two essential documents in the procurement process that keep things moving and operating as they should. Since they both deal with commerce-related communications and finances, many people get them confused, but they have some fundamental differences.
Let’s start with the similarities between purchase orders and invoices because there are a few! Some similarities are:
Even though there are numerous similarities between purchase orders and invoices, there are even more differences.
Ultimately, a purchase order outlines the list of items a buyer would like to purchase. On the other hand, an invoice is an official payment request that outlines the amount of money the buyer owes the vendor.
Some key differences include:
The old-school paper-based purchase order system has worked for many years. However, as the rest of the world adopts technology and automated processes, warehouses need to keep up. If you’re still using a paper-based system at your warehouse, you’re more-than-likely creating too many documents, causing things to be inefficient.
Good record keeping is an essential aspect of procurement, but paper records can easily be damaged or lost. Plus, creating duplicate documents costs your company time and money. Filing systems take up a lot of space in your office, and it takes a lot of labor to keep a paper-based record system running smoothly.
All that time and money could be better allocated elsewhere so that your team has more time to work on other important things that keep your warehouse running smoothly.
Automating your purchase order process and warehouse inventory is the modern solution to an old-school problem. With a technology-based process, all your important documents, SKU numbers, and assets are in one place. And with technology, that “one place” is a lot smaller than rows and rows of filing cabinets!
At Extensiv, we’re proud to offer Extensiv Warehouse Manager: our cloud-based inventory management software. Extensiv Warehouse Manager helps you streamline processes, track your inventory, and maintain accuracy while growing your business. You’ll never lose track of your SKUs because they are stored in the cloud for easy access.
From purchase orders and invoices to SKU numbers and inventory tracking, running a warehouse is no simple feat. Just like how purchase orders help keep your business organized, so does important technology like a warehouse management system.
If you’re ready to increase your warehouse’s productivity and revenue, (and we know you are), contact us today! You can try out a free demo, learn about different integrations, and create a fully customized solution for your warehouse.