What to Consider When Writing a Purchase Order

by | Oct 4, 1994 | Articles

Originally Published in 1994

Most companies have no format for purchasing stone. Considerations must be given by all companies to establish proper purchasing technics and order forms if they are to be successful and control the suppliers. All businesses require proper communication skills. A company which gives proper thought and details to order procedures and forms is well on its way to avoid long term problems. Problems occur in ordering when details are not given and the supplier is left to guess at what the client demands. These assumptions usually end up costing the supplier time, money, and “miss fabricated” goods with no outlet to resolve the problems easily. It is always better to see the needs of the suppliers and in turn fulfill your (the purchaser’s) demands in writing. Thus a proper purchase order is required.

 

In this article are blank formats for a typical purchase order and terms and conditions of a purchase order. You can use this as a guideline to establishing your own ordering formats and procedures. Each company will have its own needs or demands. Perhaps your company will require bar codes, markings on the packages unique to your firm, disclaimers printed on the boxes, private labels for your company, computer codes, piece and mark numbers. These are all things to be considered and possibly added to the purchase order.

Before ordering it must be understood that certain prerequisites have been met: -You have a selected a reputable supplier whom you trust to ship or fabricate your goods. -You have negotiated the price and terms of payment. -You have an understanding as to the selection of the goods being ordered and the range of color acceptable to your company or architect. Given that all these prerequisites have been met you are now wanting to issue the supplier a purchase order. We will for sake the of having a complex order assume that this order is an imported one. However, you can adjust this format for any order even it is a local one from a distributor or fabricator. The basic concepts still apply regardless.

A purchase order should always contain in the beginning the buyers: Company Name, address, phone, and fax number, the buyers name. Many times the supplier may have some of this information or it may change each time you order. Perhaps the buyer will vary within the company depending on the order. Smaller firms may only have one buyer in which case the name can be preprinted on your purchase order. Any time you can preprint established guidelines, do so. It saves from having to fill in the form repetitiously. In fact, if you have a computer, many times you can have forms made thus making it easier to fill out and correct.

The next part of the form is to have the same information on the supplier. It is most important to keep these records clear and allow other employees to follow up your purchase order easily if required. You will be amazed at how many times suppliers are called and the buyer or person requesting information does not know who the buyer had talked to at the suppliers office. Make it easy for all parties to know who are the parties in each firm. This also allows a more legal binding engagement in case of problems, should any occur.

Note on your purchase order the number of pages that will comprise it. This is also a legal point. All purchase orders should have an order number which you should require on all documents between the two firms whenever their is any discussion or correspondence. Further, this purchase order number should appear on all documents and even packages when shipped. Keeping a reference and an order folder will help everyone keep organized. Try also to keep your file in date sequence. It is easy to have so many papers in the file and in turn get lost.

Once this heading portion of your purchase order is done we move to the body of the order to fill in the blanks. If you have a freight forwarder than specify with whom you want your supplier to use when shipping your cargo. If you do not have one, negotiate with one. This can cost of save you money. It is easy to find freight forwarders but also very necessary. Just like suppliers, select a freight forwarder for price and quality of service. Not all are reputable nor charge the same prices. Specify to the supplier which port you want the goods shipped.

Inform the supplier with the date of the order, and the date which you want the goods shipped by, as well as how you want the goods shipped, and the terms of payment. You will be amazed at how many suppliers change the terms of payment after receiving the order thinking that the terms are different than what the buyer understood.

In the main body of the order you should note the item number or piece number; the quantity; the currency you are buying in; the unit of measurement; the description of the item, including labor items on the stone if required (such as polished edges, quirk miters, etc.); unit price; and total value. When ordering labor items remember to specify the dimensions and finish where applicable. At the bottom of the main body you should give totals of pieces and prices extended out. Also in the body if room allows give special instructions.

Special instructions can be: -How you want the paper work sent, or how many forms you want e.g.. 3 original copies of the packing list, invoice, bills of lading etc. In some cases you will require Certificate Form ” A”, which will allow your firm to bring some goods into the country duty free. -Call 24 hours in advance of shipping, or notify by fax when goods are ready, or advise the freight forwarder one week before to arrange shipment and schedule and vessel. -What type of container do you want the supplier to use, open top of closed, 20 foot or 40 footer? -Packing instructions, and or packing labels applied to each case. -Perhaps you want to inform him of your broker’s name and address.

Always remember that all orders and changes must be done in writing. Many times verbal comments or changes are made and they are not in writing and later on this becomes a problem. Try to get into the habit of putting important matters in writing and always use the reference order number in all correspondence.

Attached to every purchase order should be the bread and butter of the order. It is the Terms and Conditions of the order. The numbering of your pages must allow sequentially for this and for it to become a legal document. The terms and conditions are basically broken down into 11 areas. You can again amend this to suit your needs.

Terms and Conditions: Following are brief explanations and you should study the example format of the terms and conditions to see more details. Determine what may apply to your company.

1. Production: Advise your supplier what you expect him to make and follow. It is important that the supplier know the color, or finish etc. You could also state the date of the samples or submit a sample as part of the written order and mark it with the order reference number as a control sample and note it under special instructions. Never assume what is a honed finish or a polished finish. Not all suppliers have the same machinery or does every stone polish the same as others.

2. Prices: If the order is based on unit prices or lump-sum it must be spelled out clearly. Many times suppliers will add for items you had not counted on paying for or thought it was part of the original order. Be clear and avoid problems. If you are buying in a foreign currency than you must pay in that currency and arrange in advance with your bank to do so. Some buyers will not want to take the risk on the exchange rate while others will. Most suppliers if forced will sell you in whatever currency you specify. However, once done, you must pay in that currency agreed upon. Do not allow the supplier to raise prices on you once you have an agreed upon written and signed order.

3. Payment: Make an agreement as to how the supplier will be paid and stay within those terms. One of the best instruments for paying is Letter of Credits, even though most buyers and banks do not understand it and find it a problem. However, it is truly the best mode of payment which protects you and the supplier and in most cases puts added pressure on the supplier to perform with in the time frame of the L.C. How to deal with letter of credits and make them work in your behalf will have to be another article.

4. Packing: Always tell your supplier how you expect to receive your goods packed. Packing is one of the most important parts of having goods arrive in good order. You also want to note on the packing what marks you want on the crates or bundles. Make the supplier he is responsible for poor packing. If you ever filed a claim for damages and had the insurance company reply “Sorry, improper packing or bracing, we are not responsible!” You will than know the importance of this problem.

5. Inspection: If possible, always inspect goods during production or higher someone to inspect it for you. In some cases, you may be able to force the supplier to allow inspection on arrival of goods. However, this is usually wrong and who wants to find problems with goods after they arrive? Always hold the supplier responsible for the quality of the goods regardless of inspection or not.

6. Delivery: Impress upon the supplier the importance of meeting ship dates. Here you could add a cancellation clause as well. Thus allowing your company to cancel the order without penalty to your company, if the supplier does not perform. This also allows you an area to penalize the supplier should he be late with a shipment. (Note: that in some cases you must foresee delays in shipping due to international holidays or vacations. In Italy the month of August is very difficult to get goods shipped; as in Spain it runs from about July 18th to August 15th each year.)

7. Changes: Allow for changes or add ON’s or deletions to the order. Things always change. You may find you want to order extras. Tie in the price of these items to the order unit prices. If you do not do this you may find the supplier loves the opportunity to take advantage and charge you higher prices for these add ON’s. Many companies whether suppliers or contractors make their profit from change orders.

8. Defect and Warranties: Tell the supplier what will happen to problems with the shipment should any occur. Get him to agree to this point before finalizing the order. It is important to have these points clear in advance as all policies of suppliers are different.

9. Force Majeure: This is a polite way of saying that than either company, supplier or buyer, has a change of heart or problem not in their control, they will work mutually to resolve it. This problem could be quarry conditions have changed, or a snow storm hit the factory, or their is a strike. Be prepared to have communications and look at alternatives of what both parties can do to fulfill the contract of the order.

10. Termination: What if you want to cancel the order? What if the supplier can not perform? What should you do? This area allows for an agreement between both parties to understand what will happen. It should be clear what are the liabilities and responsibilities of both parties.

11. Quality Control: This is one of the most important parts missed by buyers in their purchase orders. You must somehow communicate with the supplier what standards of quality and control you expect. I have found by stating M.I.A. it at least makes the supplier do some homework. Not all standards are set in the M.I.A. but many are. If you have your own standards than attach them to the order. Also stipulate now to the supplier how you will arbitrate disputes or settle problems with the company.

Finally: Make sure the purchase order is signed and dated by both the supplier and the buyer or it is not a binding legal agreement. Note that all these remarks are suggestions or guidelines to questions the supplier in your negotiation of the purchase order. Not all are necessary nor will all be acceptable by every supplier. In some cases, you may want to add or amend the terms and conditions to suit the needs of the order or satisfy both parties.

Note, however, you are the buyer. Before giving the order, let the supplier know what you expect and make him work for your order. Once you have given an order to the supplier, it becomes more difficult to negotiate any terms or conditions as the supplier knows you are committed to proceed. By setting standards for your company and the supplier, you will improve the quality of the market. Bad suppliers will not like signing a purchase order with so many clauses and details. The Japanese have a more complicated order form.

Other considerations you should think about when ordering is: -Who is handling the insurance on the shipment? -Is this an opportunity to request free samples for promotion or other stones to see what the supplier can do for you in the future? -Some customers take this opportunity to order some wine, drill bits, saw blades, or something personally needed? -Do you want the slabs packed such that one polished face slab is exposed on each bundle?

You do not need to be a lawyer to have proper ordering procedures. It would not hurt to talk with a lawyer about such things. It is most important to have some procedure and organization. It is up to all of us to set standards and abide by them. I hope that this will help you find some direction for your firm.

The purpose of this guideline is to help buyers improve their skills and organize the purchases being made. This article is not meant to be 100% complete or required by all firms. In fact, I personally am interested in any suggestions that would improve this format. If you have any, let me know. We are all looking to better our ordering skills.