Smart inventory management hinges on the quality of your purchasing systems – the suppliers you use, your ordering schedule, the level of integration of your inventory management software with critical supply chain processes, and last but not least, the type of purchase orders utilized.
Effective purchasing entails buying the right quantity and quality of goods at the most advantageous price at the right time and from the best supplier. Getting these essential components right is the goal of every purchasing department.
A well organized purchasing system helps to achieve and maintain good supply relationships, improve cash flow, improve inventory management, and increase business performance in a way that positively impacts the bottom line.
Purchasing inventory
The primary task of any purchasing manager or buyer within a company is to source and compare different suppliers and establish which ones offer the best pricing and range of products or raw materials to meet purchasing needs. Once a supplier is selected and an offer has been requested and received, the role of the purchasing manager is to determine which inventory items need to be ordered in, when they will be needed, at what price, agree to the shipping terms, and so on. All of these decisions must be informed by real-time data on current inventory levels or the business risks filing purchase orders that will send their inventory out of alignment with the needs on the ground. This would result in ramped up operating costs, decreased efficiency and a down turn in profitability.What is a Purchase Order?
A purchase order is defined as a commercial document from a buyer to a seller stipulating the specifics regarding the price, quantity, type of goods and shipping terms of the goods requested. It is used primarily as a formal request for products and services from a third party supplier and is regarded as a contract in and of itself, regardless of the terms or lack thereof stated upon it. This means that when a purchase order is submitted to a supplier it legally binds the buyer to uphold their terms of the agreement and pay for what has been ordered. By utilizing a purchase order both buyer and seller are provided with a legal framework in which the terms of each transaction are made explicitly clear. It can therefore be used to arrive at a solution should things go wrong on one side or the other. A purchasing manager essentially has 4 options when determining which type of purchase order to use:- A Standard Purchase Order
- A Planned Purchase Order
- A Contract Purchase Order
- A Blanket Purchase Order