STRATEGIC SOURCING IN SUPPLY MANAGEMENT
CHAP 5: PURCHASE ORDER PREPARATION
DR. MANOJ V BHATIA
CHAP 5: PURCHASE ORDER PREPERATION
Meaning of Purchase Order
Elements of Purchase Order
Types of Purchase Order
Meaning of Public Tender
Terms used in Public Tender
Receipt and inspection
Receiving Process
PURCHASE ORDER
A Purchase Order (PO) is a commercial document issued by a buyer to a seller, specifying the details of
goods or services to be purchased
It serves as a contractual agreement between the buyer and the supplier, outlining quantities, prices,
delivery dates, and terms of the purchase
Purpose and Importance
Facilitates the formal communication of procurement requirements
Helps in tracking and controlling purchases
Acts as a legal document for both parties, preventing misunderstandings
Enables budget monitoring and financial planning
Essential for inventory management and supplier relationships
PURCHASE ORDER – ELEMENTS
PO number Shipping terms
Purchase order date Item name
Vendor name Item description and technical information
Billing address of Vendor Item quantity
Buyer name Item unit cost
Shipping address of Buyer Line total
Phone numbers and email addresses Taxes
Delivery date Total price
Shipping method Payment terms
PURCHASE ORDER – SAMPLE
PURCHASE ORDER – TYPES
1) Standard Purchase Order (PO):
The most common type of purchase order used in routine procurement
Specifies the quantity, price, and delivery schedule for goods or services
Issued for one-time purchases with specific details mentioned
2) Blanket Purchase Order (BPO):
Used for repeated purchases of goods or services from a supplier over a specific period
Covers multiple delivery dates and quantities within an agreed timeframe
Provides flexibility and streamlines repetitive ordering processes
3) Contract Purchase Order:
Establishes a long-term agreement between a buyer and a seller
Contains terms and conditions for multiple transactions over a specified period
Often used for ongoing services or products with a fixed pricing structure
PURCHASE ORDER – TYPES
4) Planned Purchase Order:
Forecasts future demands and intentions to purchase, often used in material planning
Specifies requirements without committing to an exact delivery schedule or quantity
5) Service Purchase Order:
Specifically used for the procurement of services rather than physical goods
Outlines the scope of work, service details, deliverables, and payment terms
6) Contract Release Order (CRO):
A supplementary document under an existing contract, releasing specific quantities or amounts within
the agreed contract terms
PUBLIC TENDER
Public tender, is often referred to as a public procurement or competitive bidding process
It is a formal procedure utilized by government agencies, organizations, or companies to acquire goods,
services, or construction projects from suppliers or contractors
This process is typically transparent, competitive, and open to interested parties who meet the specified
criteria
PUBLIC TENDER – TERMS
1) EMD (Earnest Money Deposit)
EMD is a security deposit submitted by bidders along with their tender documents to demonstrate their
seriousness and commitment to participating in the bidding process.
EMD is usually refunded to unsuccessful bidders or adjusted against performance security for the
successful bidder
2) RFP (Request for Proposal)
A document issued by an organization seeking bids from potential suppliers
It outlines the organization's requirements, specifications, evaluation criteria, terms, conditions, and
other relevant information necessary for bidders to submit their proposals
3) Tender Documents
Comprehensive documentation provided to interested bidders, including the RFP, terms of reference,
technical specifications, contract terms, submission guidelines, and any other information necessary to
prepare and submit a bid
PUBLIC TENDER – TERMS
4) Technical Bid and Financial Bid
In some tenders, especially those involving complex projects, bidders are required to submit separate
technical and financial bids
The technical bid includes details related to the technical aspects of the proposal, such as
methodology, qualifications, and capabilities. The financial bid contains the pricing and cost details
5) Performance Security or Performance Bond
A form of guarantee provided by the successful bidder upon contract award to ensure the satisfactory
execution of the contract
It protects the purchaser against any losses incurred due to the contractor's failure to perform
according to the agreed-upon terms
6) Evaluation Criteria
Set of factors or parameters used by the evaluation committee to assess and compare bids
Includes price, quality, experience, compliance with specs, delivery timelines, etc,
PUBLIC TENDER – TERMS
7) Restricted Tendering
It's a procurement process where the organization identifies and invites only a limited number of
suppliers to submit bids for a particular project or contract
This method is usually applied when the organization has a pre-determined list of suppliers with the
required skills, experience and qualifications to deliver the project successfully
8) Single-Source
Organization awards a contract to a specific supplier without going through a competitive bidding
process
Typically, organizations use this method when they need to procure a highly specialized item or when
only one supplier can meet their needs
PROCESS OF MATERIALS MANAGEMENT
RECEIPT & INSPECTION
Supplies offered are received in the store
The inspection policy should enunciate the sampling procedure for inspection and this procedure must
be followed
At the point of delivery check each item physically and count against supplier’s invoice
The lot thus picked up by a random sampling method should be subjected to physical and chemical
inspection
Thus any discrepancy, problem or error in a specific transaction, becomes evident during the receiving
operation
Carry out basic documents immediately i.e. day book or inward good register
RECEIVING PROCESS