Purchase Order

A purchase order (PO) is a legally binding document created by a buyer and sent to a supplier to authorize a purchase. It details the specific items, quantities, prices, delivery dates, and payment terms for an order. When the supplier accepts the PO, it forms a contract between the two parties.

On the shop floor, the PO process begins when a need for materials is identified. This need can be triggered by a low inventory alert from an MRP system, a specific requirement from a new work order, or a planned stock replenishment. A purchasing manager or planner then creates a PO within their ERP or purchasing software. The PO is reviewed for accuracy, approved internally, and then sent to a vetted supplier.

The PO is critical for operational control and financial accuracy. It provides a clear record of all ordered goods, preventing duplicate orders and unauthorized purchases. For the receiving department, the PO is used to verify that incoming shipments are correct in quantity and item type. For accounts payable, the PO is matched against the supplier's invoice and the receiving report (a three-way match) before payment is issued, ensuring the company only pays for what it ordered and received.