Procurement
• 6 min read
Understanding the Different Types of Purchase Orders
3rd April, 2024
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Most people think that purchase orders are used to pay for goods, but they are also actually used in several other ways, such as receiving payments from suppliers or other assets between individuals, companies, and subsidiaries.
Like many documents that have been created over the centuries, there are different types of purchase orders depending on their purpose. But regardless of type, they're all designed to help you deal with the day-to-day administrative tasks involved in running your organization.
Throughout the planning and process of procuring goods or services to run your business, you must have visibility into all the steps and activities. This means documenting what you're doing in detail so that everything is completed smoothly and legally.
To make it easier, create a system for documenting planned purchases to ensure buffers are in place when needed and minimize risk.
Purchasing goals and strategies are laid out daily. When a purchase request is made, the details are recorded and kept up-to-date in your database. Your organization's managers, IT personnel, finance teams, and accounting/billing departments will be better equipped to make informed decisions about your company's purchases if they are provided with clear and concise data.
Simplifying the purchase order procedure is one approach to achieving all goals. Using the right format and structure, you can ensure everyone knows what's being planned and leave room for future planning. In fact, this can reduce processing time and increase employee satisfaction by eliminating the need for lengthy reports or extra signatures on documents.
Let's take a look at what purchase orders are and the major types of purchase orders for businesses.
What are Purchase Orders?
A purchase order is a standardized form that buyers and suppliers use to communicate about their business relationships. It is an agreement between a customer and a vendor where one party provides the other with goods or services in return for payment.
A purchase order serves as a record for tracking and confirming the accurate and timely delivery of purchases, outlining the terms of an agreement, and providing the information needed for billing.
It is essential to have concrete proof of what the parties have agreed upon, and it helps keep up some semblance of a paper trail so you can prove what you've done and didn't do later on.
Usually, a purchasing order process begins after purchasing officials have evaluated the appropriate options and selected a supplier. It indicates the beginning of the purchasing phase of the procurement process, following any necessary sourcing efforts.
Now that you know companies use purchase orders to improve the various business structures, control, and spending - let's dive into the major types of purchase orders.
The Four Major Types of Purchase Orders
When you know exactly what you need from a selected supplier, a purchase order lets you request the specific supplies, services, and equipment you need. Purchase orders are created to meet company standards and preferences, but large-scale departments like purchasing or engineering often use them.
Depending on the timing and quantity of the purchase, you may create one of the four common types of purchase order:
Standard Purchase Orders (SPO)
Planned Purchase Orders (PPO)
Blanket Purchase Orders (BPO)
Contract Purchase Orders (CPO)
Now, explore these types of purchase orders in detail.
1. Standard Purchase Orders (SPO)
The Standard PO is the one that most purchasers have adopted over a period of time. It represents the intent to complete one transaction with a specific product type, quality of items, and quantity. The purchase order includes all the details needed to complete a transaction.
A Standard PO is a good option in your arsenal when you're just starting out or need more experience before attempting a custom PO. A well-crafted standard purchase order includes all the necessary information for completing a transaction. Standard POs are usually utilized for one-time purchases.
When purchasing software, it's always advisable to order the license for the number of users required for your organization. An excellent way to ensure that all the licenses are purchased is to have a large group of people go through the purchase process and manage it together. Also, buying these in bulk saves a lot of money and keeps your company running smoothly.
A standard purchase order should include the following details:
Terms and conditions of the order
A list of products to be purchased
The cost of each item
The delivery date and delivery location for each item
2. Planned Purchase Orders (PPO)
Planned purchase orders are more detailed than regular purchase orders. In addition to containing information on the expected delivery address, dates, and payment method, planned purchase orders also call for complete descriptions of the goods and services to be purchased and their costs along with payment terms.
The issues in these PPOs are often less urgent than those in SPOs— an example might be ordering departmental supplies. Planned purchase orders are the best option for purchases that are expected to happen semi-regularly. Example: Office supplies.
Based on previous purchases, the purchasing department calculates how much you'll need, establishes a sequence of orders, and releases them as needed (for example, when an administrator says they're down to the final few packets or boxes).
A planned purchase order should include the following essential components:
Terms and conditions of the order.
A list of products to be purchased.
The number of items.
The cost of each item.
A tentative, unconfirmed delivery date and delivery location for every item.
3. Blanket Purchase Orders (BPO)
A blanket purchase order is a type of purchase order that gives you complete visibility into the flow of goods and services. Blanket purchase orders are great for reducing redundancy in work and making the procurement process smoother.
A BPO is a purchase order specifying how many units of one product type to purchase in one transaction. Buyers can create a BPO to increase the efficiency of their purchase and save money on overhead costs. By using a blanket purchase order, they can maximize their efficiency while minimizing their waste, as they know how many items will be needed at any given time.
BPOs are a way for the buyer to ensure they stay within their SaaS budget. By specifying item quantity thresholds and item prices, you can make sure your supplier can handle getting the order out of stock and still fulfill the order before it's expected to run out.
The team may need to requisition communication tools to meet the expected headcount for each hiring sprint. An IT team can track the number of licenses they need to purchase and track their usage. This information can be further used in negotiations with vendors to obtain requested quantities at the lowest possible item prices.
A blanket purchase order should include the following essential components:
Terms and conditions of the purchase order.
A list of products to be purchased.
Discounts and milestones based on purchased item quantities
Confirmed information about each item's price
4. Contract Purchase Orders (CPO)
A contract purchase order is an agreement between the purchaser and vendor whereby the vendor agrees to supply specific products of a certain specification at a stated price. A CPO usually contains governing payment and delivery terms, which enable the two parties to enter into a commercial relationship.
There are a few distinct differences between contract purchase orders and standard purchase orders. A CPO is a more flexible form than an SPO and allows for more details. It sets up the rules for when the purchased order should be issued to which preferred vendor, who or what will pay for any additional costs, corrections that need to be made, etc. The CPO outlines all of these details so you have them ready when needed.
Purchase orders under contract include a general description of the order. They need more details on the precise delivery time, quantity, or item. This agreement is crucial if you work with a reseller who receives the product directly. These active purchase orders could be useful when dealing with a software reseller. They provide an overview of the essential transaction information but save the specifics for later when more data will be available.
A contract purchase order should include the following details:
A set of terms and conditions may be used as the basis for other purchase orders.
A CPO does not contain any list of items, their quantity, price or delivery date, and delivery location.
Once you have understood the various purchase order forms, it's time for you to improve your purchase order process and streamline your SaaS procurement. Here is where Zluri offers a SaaS buying service. Let's see how it simplifies SaaS buying.
How Zluri Helps in SaaS Buying?
SaaS purchasing is essential to running a business, but it can be mind-numbing and tedious to understand. That's why the above types of purchase orders - SPOs, PPOs, BPOs, and CPOs are used for different purposes and with different levels of attributes. By implementing a comprehensive purchasing system, you can streamline your supply chain, reduce costs, and improve profitability.
Zluri takes care of every aspect, from initial procurement to seamless renewals, all while getting you the best deals for your organization.
With Zluri's SaaS buying services, it goes beyond just cost savings; it excels at negotiating advantageous SaaS agreements on your behalf. Zluri streamlines the entire negotiation process, liberating your workforce's valuable time and ensuring prompt access to the essential SaaS applications you require, precisely when you need them.
At Zluri, our team of SaaS procurement experts has meticulously designed a straightforward SaaS purchasing process that engages your procurement team, finance department, and individual requesters. This strategic approach ensures transparency at every step of your SaaS acquisition journey, leaving no room for unexpected surprises.
Zluri harnesses the power of an AI-driven SaaS management platform, providing you with an in-depth understanding of your SaaS ecosystem. This invaluable insight not only equips you with a comprehensive view of your software landscape, but also grants you substantial negotiation leverage.
Moreover, Zluri possesses access to an extensive database of over 1 billion SaaS transactions. This wealth of data empowers our experts to discern fair pricing for various software types and regions, ensuring you get the best possible deals for your organization.
In addition, Zluri's expert team helps you efficiently analyze your requirements and make strategic decisions. This helps you with up to 2X savings by reducing the time and cost it takes to purchase the right SaaS product for your organization.
We are passionate about making your buying process efficient and painless. Our SaaS purchasing experts developed a standard process for SaaS buying at Zluri, meaning that we cut out the middle man, save your team time on negotiation, and ensure transparency throughout the SaaS buying process.
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