What is the Purchase Order?Purchase Order is a commercial document generated by a buyer company to record the purchase of goods or services from a seller company. The Purchase Order number is then utilized in entire Procure to Pay Cycle till the invoice creation. Check out >> Procure to Pay Cycle
Types of Purchase OrderThere are four types of Purchase Order, a buyer can generate in Oracle Purchasing
- Standard Purchase Order
- Planned Purchase Order
- Blanket Purchase Order
- Contract Purchase Order
Standard Purchase OrderA company creates a standard purchase order for items or services if it knows the details such as quantities, cost, delivery schedules and accounting distributions. It is usually created for a one-time purchase of products.
ExampleMagical Corp. took the decision to buy 5000 laptops from Universal Computers for a price of $400 per piece with an aim to be delivered in 30 days from the order date. So, Magical Corp. will raise standard purchase order in its Procurement system and will send it to Universal Computers for acceptance.
Planned Purchase OrderA planned purchase order is created when a buyer forms a long-term agreement with a single source supplier committing to buy products or services for a period of time on a negotiated price. The delivery schedules are tentative in this case. Other information such as good or services a buyer wants to buy; the number of quantities, estimated cost and charge accounts are known and mentioned in the planned purchase order. The order is based on a forecast made by a buyer which may vary sometimes.
ExampleMagical Corp. creates a long-term agreement with Universal Computers for next 3 years to buy 200 laptops every year. In this case, Magical Corp. generates planned purchase order instead of creating a standard purchase order every time.
Blanket Purchase AgreementBlanket Purchase Order is created by a company when it is aware of the goods or services to buy from the specific seller on a particular price for multiple delivery schedules over a period of time with no knowledge of required quantities. This agreement helps the buyer to take advantage of pre-determined pricing from the seller. For recurring purchase of expendable goods, the blanket purchase order is used. It is also known as a call-off order.
ExampleMagical Corp. predicts the need to buy approximately 5000 laptops from Universal Computers over a period of a year but wants multiple delivery schedules for variable quantities for a price of $350 per piece. In this case, both companies will negotiate the price of a single laptop for that duration and Magical Corp. raises blanket purchase agreement in the system.
Contract Purchase AgreementA buyer company creates contract purchase order when it agrees on particular terms and conditions with suppliers without any specification of goods or services for a period of time. Seller decides the price of goods or services on orders. This is a legal document that ensures protection to both sides so that each of them can stick to their promises. The penalty of breaking contract may result in legal actions.
ExampleMagical Corp. decides to buy several kinds of cables from Universal Computers for multiple times during a year but their requirement can’t be anticipated beforehand. In this case, seller Universal Computers chooses price per quantity on every order. So, Contract Purchase Order will be created by Magical Corp. mentioning the estimated list of different cables and duration. Hope you like this article and find it useful. We highly appreciate comments and feedback. You can also Subscribe here to stay updated on latest posts of Oraclemine.com.
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