Understanding Purchase Order
The idea of this blog is to explain purchase orders (POs) only. POs are legal documents that help buyers and sellers avoid misunderstandings and keep things clear and simple. We’ll look at the benefits of using POs, such as clear communication, better budget management, and accurate record-keeping. I will also delve into the concept of simple and complex PO, with a bit of example and case. It also highlights common mistakes—like wrong details or duplicate orders—and shows you how to avoid them, all in an easy-to-understand way. So, how can this blog help you? Well, I will guide you through the whole process! First, I would like to show you where PO stands from a bigger perspective, and from there on how things transpire. An overview of a simple PO to how to create it with industry stats & a case study. Likewise, a similar approach for a complex PO.
But! Before that, we have to know where in the context of a “bigger picture” and where the PO stands in this flow:
Identify the need: what requirement we have, identify and define the parameters
Select the supplier: Once identified, select the appreciated supplier, who suits your needs
Negotiate terms & conditions: you (the buyer) & supplier, arrive at a mutual understanding and make legally binding terms & conditions
Prepare PO: It is here, in this process, that we make a formal PO outline, with all the required details
Review and approve: before we send it to the supplier, here we check for any errors occurring, and after it is all checked. Then, it is sent to the higher authorities for approval
Send PO to the supplier: The PO is sent to the supplier
Track the order: once the PO is sent to the supplier and till, we receive the goods. We check and chase for no hindrance
Receive the goods: check the received goods
Check the invoice: reconcile the PO with g/r and invoice
Payment: once the goods are consumed, the payment is made to the supplier, according to the terms & conditions Now, here, as we can see from this process (a bigger picture), from no. 4 onwards, the PO process starts. And let's break down a simple PO outline, which will have the following details: A purchase order (PO) is a document that a buyer sends to a seller to request goods or services. Overview & Purpose: It clarifies what is being ordered, how much it costs, and the terms & conditions of the deal. Po no’s, supplier info, buyer info, description of goods/service, quantity, unit price, total price, delivery incoterms, payment terms, shipping packaging, tax info To access the PO, you can use Transaction code (T-code): ME21N Or if you want you can use the pathway Logistic 🡪 Material Management 🡪 Purchasing 🡪 Purchase Order 🡪 Create (ME21N)
Figure 1, The above illustration is about a PO, which has been circled and arrowed, and the breakdown has been illustrated.
How to create a simple PO in SAP GUI Log in to SAP: Log in to SAP GUI or FIORI, with your credentials
Access the Purchase Order Creation screen: Go into the command field screen and type in the T-code ME21N, which will take you to the Purchase Order, create screen
Select the purchase order type: Once in the PO, select the appropriate types of PO from the PO dropdown box. E.g.: Standard PO, special, etc.
Enter the vendor information: In the Vendor field, enter the vendor details or search for it through.
Input the purchase details: At the header line, please enter the following details: Purchase Organization: the purchasing code Purchase Group: specify the purchasing group related to this purchase Company Code: enter the company code
Add item details: In the item line, input the following details: Material no.’s: enter the material code for the item being ordered Quantity: mention the desired quantity Plant: enter the plant code where the goods will be delivered Delivery Date: when will you like the goods to be delivered
Additional information: All the additional information can be added, like suppliers and buyers address, incoterms, unit price of the material, payment terms and conditions, etc.
Review & Save the PO: Have a glance through and view that all the necessary fields have been filled and no errors and the PO can be saved
Send the PO for Approval: Once the PO has been approved and saved, it can be sent to the higher ups for the final seal of approval, which will further take on new steps.
Industry Statistic: SAP Transaction Usage Statistics 77% of the world’s transaction revenue goes through an SAP system This is $16 trillion of consumer purchases worldwide
Read more at: https://thrivemyway.com/sap-stats/
Case study: How SAP Revolutionized Supply Chain Management for a Global Company You can see how supply chain management was revolutionized by SAP for a global company. By implementing SAP’s advanced software solutions, the company was able to streamline their logistics processes and optimize inventory management. SAP’s supply chain management module provided the company with powerful tools to effectively manage their entire supply chain network. Through real-time tracking and monitoring of inventory levels, they were able to identify potential bottlenecks or shortages in the system and take proactive measures to address them. This resulted in improved customer satisfaction as orders were fulfilled promptly and accurately. The integration of SAP’s software also allowed for seamless coordination between different departments involved in the supply chain, such as procurement, production, warehousing, and transportation. This increased visibility across all stages of the process enabled better decision-making based on accurate data analysis. Furthermore, SAP’s solution enabled effective demand planning through forecasting capabilities. By analyzing historical data and market trends, the company could accurately predict future demand patterns and adjust their inventory levels accordingly. This prevented overstocking or stockouts situations that would negatively impact profitability. Referenced at: Analyzing Success: SAP Case Studies from Top Enterprises
Complex Purchase Order Reference site: Figure, The above, is referenced site from YouTube: https://youtu.be/pU7w3dg7d2s
How to create a Complex PO Key setups are PO: enable service procurement profile options Yes Define document style from Purchasing--Setup--purchasing--Document style Give retainage account in financial option either from PO or AP Define the required line type or use existed one Create PO from Buyer work center and create the invoice for the full PO amount. observe the accounting entries and release the retainage amount as a separate invoice line or invoice and observe the accounting entries.
Industry Statistics SAP Business One was designed for small to midsize companies rather than being a scaled-down version of larger SAP products It is certified on the AWS cloud More than 48,000 customers run SAP Business One globally Large enterprises can also use SAP Business One to support subsidiary operations or pilot projects in new markets SAP Business One has more than 500 industry-specific integrations iOS devices can make use of the SAP Business One app Read more at: https://thrivemyway.com/sap-stats/
Case study:
Enhancing Productivity and Efficiency With SAP: Case Studies from Various Industries By implementing SAP’s software solutions, businesses across various industries have been able to significantly enhance their productivity and efficiency. In the healthcare sector, SAP implementation has brought about transformative changes in operations and patient care. With real-time access to patient data, healthcare providers can streamline administrative tasks, improve billing processes, and reduce errors. Additionally, SAP’s integrated analytics tools enable hospitals to analyze large volumes of data for better decision-making and resource allocation. In the manufacturing industry, SAP has revolutionized production processes by providing end-to-end visibility and control over the entire supply chain. Through modules like SAP Production Planning and Control (PP/PC), companies can optimize production schedules, manage inventory efficiently, and minimize downtime. The integration of IoT devices with SAP systems enables real-time monitoring of equipment performance and predictive maintenance to prevent breakdowns. Moreover, by leveraging SAP’s advanced analytics capabilities such as machine learning algorithms and predictive modelling, manufacturers can identify patterns in production data that lead to improved quality control measures. Overall, through effective utilization of SAP software solutions tailored to specific industry needs, businesses have witnessed substantial improvements in productivity and efficiency. Whether it is the healthcare sector benefiting from streamlined processes or manufacturing industries optimizing operations for increased output quality – SAP continues to drive innovation across diverse sectors. Referenced from: https://www.sappinnacle.com/analyzing-success-sap-case-studies/
Conclusion:
In conclusion, in the process of writing this blog, researching and referencing. It has confirmed my belief that SAP is a revolutionary and state-of-the-art tool which has been designed for negligible error, transparency, trustworthiness and has built a formidable reputation that would make the competitor’s envy. It focuses and tailor-made requirements for the business needs; it streamlines all the business activities transaction. It helps create effective and efficient solutions for enterprise worldwide. And from a SAP perspective, understanding the nuances of simple and complex Purchase Orders is crucial for efficient procurement.
