This section itemizes the steps that a purchase order goes through from its inception to its retirement.  There are four purchase order types (normal, blanket and release).  The cycle will be presented for normal orders first.  The differences for blanket orders and releases will be explained.

Normal Orders

1. Order Initiation

The buyer, purchasing agent, department head or other such person decides what needs to be ordered; which vendor it should be ordered from; at what price; when it should be delivered and to which shipping destination; what the terms of sale are; who pays for freight and how the merchandise should be shipped; etc.  Purchase orders can be used to order services as well as merchandise, in which case there are fewer decisions to be made.

This information is written on a form so that it can be readily identified as a purchase order and so that it can be easily read and understood by those who need to approve it as well as by the data entry operator who will be entering the order into the computer.

2. Purchase Order Entry

Once the preliminary approvals have been received the order may be stored in the computer for later issue.  The data entry operator will probably be reading the information from a special purchase order entry form which contains all of the information that the Purchase Order Processing screen requests.

The order is entered in two steps.  First the general order in­formation such as the vendor number, the shipping destination and the terms are entered on the screen.  This data is called the order header since it is the same for all of the items on the order.  A unique order number is assigned at this time.

Then a different screen comes up upon which is entered the items that are being ordered.  These items are referred to as line items since each one is a separate line on the purchase order.  It is here that  the  item number, the  vendor's  item  number,  the  quantity ordered of the item, the date it should be received and so forth are entered.  

Thus, each purchase order has a single header with a variable number of line items.  When all of the line items have been entered, the order is on file. 

3. Purchase Order Statuses

When a purchase order is first entered it is generally assigned a status of unreleased.  This means that the order is on file but that it is not to be acted upon just yet.  It is still under consideration or awaiting approval or pending activation.  Unreleased orders may not be printed on purchase order forms.

When the order is ready to be sent to the vendor, its status is changed to released.  This means that the order is fully approved and ready to be activated.  Released orders may be printed on purchase order forms.

There are three other purchase order statuses.  They will be discussed later in the cycle at the points where they are utilized.

4. Print Purchase Orders

It is not much good having a purchase order on file if the vendor does not know about it.  You must print the purchase order on a special purchase order form and send this form to the vendor.  Once an order has been printed, its order status changes to printed and the date the order was printed is stored with the other header information.

An order should only be printed once to prevent the possibility of duplicate shipment.  If the order is somehow lost or damaged before it gets to the vendor, or if the vendor misplaces the orders, you may print a duplicate of the order.  Duplicate orders are identified as such so if you wish the vendor to ship against a duplicate order you will have to make this clear on the order copy that you send.

5. Vendor Acknowledgment

You may request an acknowledgment from the vendor.  There is space on the purchase order form to do so.  If you request an acknowledgment, the vendor understood your order and verify that the vendor intends to honor your prices, request dates, terms etc.  Acknowledgments can be thought of as the confirmation of the contract between you and the vendor.  Your purchase order is a commitment from you that you will pay for what you order.  The vendor's acknowledgment is a commitment from the vendor that he will ship and bill in accordance with the details on the acknowledgment.

You may wish to design your purchase order form with an extra carbon copy that the vendor can return as an acknowledgment.  The vendor can mark on this form the price changes and the changes to the requested receipt dates that are necessary in order for him to meet his commitment.

6. List Scheduled Receipts

Once a purchase order has been launched, it can be thought of as a list of scheduled receipts.  The requested receipt dates for each line item, modified per the vendor acknowledgment, indicate when you can reasonably expect the merchandise to arrive.

Scheduled receipts can be listed in order by their item number, by the number of the vendor from which they were ordered or by the number of the job for which they are intended.  Management personnel at various positions in the company may be interested in the likely receipt dates of specific items.  Late receiving are flagged as such so that they can be easily noticed.

7. Receipt of Shipment

When the shipment arrives at the receiving destination, someone there must verify that what was received was what the vendor claimed to have shipped, and is in acceptable condition.  If the order is delivered to the formal receiving dock, there will be receiving personnel on hand to do this.  They will count what was received and try to match the receiving up with a purchase order.

The receiving must be entered into the computer just as the purchase order was.  Depending upon how large the company is, this may be done by the same people who received the shipment or it may be done by data entry operators who are somewhat remote from the dock.  When it is done by the same people, they can enter the receiving data directly as the information comes available.  In the other case, the receiving personnel must prepare the inform­ation for data entry and make sure that the operator has enough data to log the receiving.

Essentially what happens is that the operator locates the purchase order and line item where the receiving was ordered.  The receiving is posted against the line item which means that the line item now shows a quantity received against it.  A receiving may embrace several purchase orders and line items but the key factor is that every portion of the receiving must be accounted for in this manner.  Receiving for which there is no purchase order are likely to be unauthorized purchases or accidental vendor shipments and must be handled accordingly.

Receivings are entered into the computer through the Receivings Processing application.  If batch receivings processing is being used, transactions must be posted after being entered.

8. Receipt of Invoice

The vendor's invoice arrives at accounts payable.  The accounts payable clerk must match the invoice up with purchase orders and line items just as the receiving clerk did, only here you are more concerned about whether the merchandise was received than you are about whether the merchandise was ordered.

The accounts payable clerk may automatically process the invoice for payment if it matches up with purchase orders and line items that show receiving for what the invoice bills and if the data is otherwise in agreement.  The clerk may also pay the invoice if the data does not precisely match.  This is a matter of discretion.

9. Closing the Purchase Order

The quantity billed is recorded for each line item just as the quantity received was.  Once the line item is fully received and fully billed or the line item is fully received and the Close PO's Not Fully Invoiced Flag in P/O Setup is Y, it can be considered  to  be  closed.  Once  all  of the line items on an order have been fully received and fully billed, the purchase order may be closed.

In order to close a purchase order you need merely change its status from printed to closed.  A closed purchase order can no longer have receiving posted against it or have invoices charged against it.  It is considered to be dormant and awaiting deletion.

10. Deleting Closed Purchase Orders

 Closed purchase orders may be deleted (removed from the file).  This is done through the Purge Closed Purchase Orders application in the Processing window.  As an order is deleted, certain statistical information is derived and then stored in various files in the Purchase Order package.  Other modules in the package make use of this information to evaluate vendor performance and present purchase order history data for review.