What is Purchase Order Management?

Purchase order is a document that outlines the steps necessary to procure a product or service from a supplier. Businesses need purchase orders to ensure that the payment and receipt of goods are handled correctly — so that there is no waste of money.

Definition of Purchase Order Management

Purchase order management is an internal procurement process adopted by organizations to ensure that each and every purchase is necessary, justified and optimized for costs. Many organizations have well-established purchase order management policies to ensure that employees follow standard operating procedures before purchase orders are executed.

The purchase order management process is how businesses acquire goods and services. It includes the planning, coordination, and execution of purchase orders. The purchasing process begins with the identification of requirements. The purchasing staff then creates a purchase order (PO) specifying the required items and quantities. The PO is placed with suppliers or distributors who will provide the necessary goods or services. The PO may also be transmitted electronically.

Once all the necessary materials or services are received, the purchase order is verified and approved. It’s then tracked and accounted for during the procurement process. 

Steps Involved in the Purchasing Process

Identification of Requirements

Purchasing staff gathers information about what is required to meet customer needs.

Planning

Purchasing staff creates a purchase order based on customer needs.

Coordination

Purchasing staff coordinates the purchase order with other company departments and suppliers. 

Execution

Suppliers deliver the necessary materials/services to the company location or warehouse.

Verification and Approval

Purchasing staff verifies receipt of materials/services and approves the purchase order.

Tracking and Accounting

Purchasing staff tracks and accounts for all purchase orders in a system.