Creation of Purchase orders is a fundamental skill of an organizations Purchasing group. There is no exact best format for a PO and method of transmission can vary but there are basic elements present in all Purchase Orders. Including key items will: optimize value of items ordered, minimizing transaction cost, reduce compliance risk and enable cost savings through spend analytics.

1. Purchase Order Creation
Basic Information Needed to
Optimize Total Value
Purchasing Order Creation is a Fundamental Purchasing Skill
Creation of Purchase orders is a fundamental skill of the
Purchasing group. There is no exact best format for a PO and
method of transmission can vary but there are 30 to 40 basic
elements needed to create Purchase Orders. Including these
key items will: optimize value of items ordered, minimize
transaction cost, reduce compliance risk and enable cost
savings through spend analytics.
Bill Kohnen Purchasing Fundamental Discussion July 2014

2. Summary
• Purchase orders are used by organizations to
buy goods and services.
• The exact format and means of transmission
are less important than the basic information
needed to maximize value.
• Value relates to the actual good/service as well
as the efficiency of the transaction,
compliance with policy and ability to leverage
knowledge gained from the transaction in the
future
Bill Kohnen Purchasing Fundamental Discussion July 2014

3. Purchase Order - What is it?
• A purchase order is a contract between the Buyer and Seller.
– Sometimes there is confusion whether a PO is a contract but it is. If
there is a separate master agreement, service agreement, Statement
of work, proposal etc. that can be incorporated into the PO by specific
reference.
• It gives the Seller reasonable assurance that the request from the
Buyer is legitimate
• Used effectively it clearly describes what is needed by the Buyer
• It contains all information for Buyer and Seller to conduct the
transaction from fulfillment to payment
• A purchase order provides a level of control, documentation, and
data history that can be used for audit and business analysis.
Bill Kohnen Purchasing Fundamental Discussion July 2014

4. Main Elements
There is no exact best format for a PO and method of
transmission can vary but there are basic elements
present in all Purchase Orders
1. General Information /Header Information
2. Internal Reference Information
– Not necessarily displayed on PO Document but part
of PO creation
3. Description of requirement(s)
4. Approval
5. Terms and Conditions
6. Logistics information
Bill Kohnen Purchasing Fundamental
Discussion July 2014

5. General / Header Information
• Organization Name
• Purchase Order Number
• Buyer Name
• Buyers Contact Information
• Billing Address
• Supplier Name
• Supplier Address
• Supplier Contact
Bill Kohnen Purchasing Fundamental Discussion July 2014

6. Internal Information
Data which has internal use for audit purpose, integration
with AP, and data analysis. In some cases maybe displayed on
PO
• Cost Center
• Account Number
• Commodity/Category Description
• Purchase request number
• Type of Spend: Capital, Expense, Operations, Project etc.
• Requestor
• Requestor Department
• Requestor Contact Information
Bill Kohnen Purchasing Fundamental Discussion July 2014

7. Description of Requirements
• Description
• Quantity
• Price
• Reference to applicable specifications
• Quality Requirements as Applicable
• Unit Price
• Total Price
• Tax Rate as applicable
• Reference to proposal and/or quotation
• Product Certifications/Test Results as Needed
Bill Kohnen Purchasing Fundamental
Discussion July 2014

8. Approval
• Name and Title of Buyer with Authorization to
place order on behalf of company
• Signature (actual, electronic, or by other
established practice)
• Acceptance requirements for payments (as
applicable)
Bill Kohnen Purchasing Fundamental Discussion July 2014

9. Terms and Conditions
• Boiler plate standard PO terms
• Other unique terms as applicable
• Payment Terms
• Method of payment
Bill Kohnen Purchasing Fundamental Discussion July 2014

10. Logistics
• Ship to Address
• Shipping terms
• Shipping Method
• Packaging Requirements
• Reporting needs/Updates
Bill Kohnen Purchasing Fundamental
Discussion July 2014

11. Summary
• Format and way to send purchase orders are less
important than including key information in the PO
creation process.
• List of key items is not meant to be 100% definitive for
all industry but to identify core items applicable to
most purchase orders
• Including key elements will result in optimizing value of
the goods/service with less operational friction while
meeting compliance needs and enabling further
savings from spend analytics
Bill Kohnen Purchasing Fundamental
Discussion July 2014

12. Next Steps
• Identify Specific Key Items for your Organization
• Focus on those items diligently and discard the rest
• Establish policy and process around PO creation
• Optimize and Leverage technology to support process
This might mean putting in place a relatively low cost cloud
based software as a service solution for an organization using
a manual process or an organization using a legacy enterprise
ERP system.
Bill Kohnen Purchasing Fundamental Discussion July 2014