Purchase Orders

Purpose

The purchase order can be used in various procurement processes. You can procure both materials (for direct consumption or for stock) and external services. Furthermore, the special procurement types "subcontracting", "third-party" (involving triangular business deals and direct-to-customer shipments) and "consignment" are possible.

You can use purchase orders to cover your requirements from external sources (i.e. a vendor supplies a material or performs a service). You can also use a purchase order to procure a material that is needed in one of your plants from an internal source, i.e. from another plant. Such transactions involve longer-distance stock transfers. The activities following on from purchase orders (such as the receipt of goods and invoices) are logged, enabling you to monitor the procurement process.

You can use purchase orders for once-only procurement transactions. If, for example, you wish to procure a material from a vendor just once in a while, you create a purchase order. If you are thinking of entering into a longer-term supply relationship with this vendor, it is advisable to set up a so-called outline agreement, since this usually results in more favorable conditions of purchase.

Because not all materials or services to be procured justify the effort involved in individual monitoring, you can also create a purchase order with an extended, predefined validity period and a value limit. (You may wish to do this when procuring office supplies, for example.) This type of purchase order is similar in nature to the "contract".

In this case, you need not specify the individual materials or expend any effort with respect to goods receiving activities. You can also reduce the amount of work involved in invoice verification to a minimum by employing automatic processes.

Further Information:

MM External Services Management

MM Vendor Evaluation

MM Special Stocks and Special Forms of Procurement in Materials Management (for information on special types of ordering, such as consignment, subcontracting, or inter-company stock transfers).

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