The purchase order can be used for a variety of procurement purposes. Materials can be procured externally for direct consumption or for stock. It is also possible to procure services externally. Furthermore, the special procurement types “Subcontracting”; “third party” (involving triangular business deals and direct-to-customer shipments) and “consignment” are possible.

What is a Purchase Order

A purchase order is a legal document asking the vendor to supply material or services with agreed conditions. PO can be controlled with header level release procedure. Item category and account assignment is important in Purchase order and Purchase Requisition.

Purchase orders can be used to cover the enterprise’s requirements using external sources (i.e. a vendor supplies material or performs a service). A purchase order can also be used to procure a material that is needed in one of the enterprise’s physical 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 services) are logged, enabling effective and efficient monitoring of the whole procurement process.

Purchase orders can be used for once-only procurement transactions. If, for example, it is wished to procure a certain material from a particular vendor only once, a purchase order is created. However, if the enterprise is 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.

In the interests of optimized purchasing, the purchase order quantity can be rounded in the course of purchase order processing to allow full advantage to be taken of negotiated conditions or for the optimal utilization of existing transport capacities.

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

In this case, it is not necessary to specify the individual materials or expend any effort with respect to goods receiving activities. In addition, employing an automatic process can also help reduce the amount of work involved in invoice verification to a minimum.

Contents in Purchase Order

Understanding Blanked Purchase Order

With certain procurement transactions, the costs of procurement are disproportionately high in relation to the value of the material or service involved. This is frequently the case of office supplies (such as pencils and notepads) and services of relatively minor importance (such as small repairs, cleaning work, and courier service), for example. In such cases, it makes sense to streamline the procurement process. Procurement costs – which in the case of standard procurement processes can be quite high – are significantly reduced if a so-called blanket purchase order is created instead of a standard PO. Such a single long-term purchase order can be used to procure a variety of materials or services whose modest value does not justify the high processing cost of issuing a series of individual POs.

The main advantage of using blanket POs is thus the associated reduction in order processing costs. Transaction costs are lower with blanket POs because:

• The blanket PO is valid for a longer period.
• There is no goods receipt or service entry.
• It is not necessary to create PO items for individual procurement transactions.

Understand more about blanket purchase orders in this PDF Guide on Blanket Purchase Order.

Assuming that you have raw materials that have been in the store for periods of time. A few months later, some were found to be defective. So you need to return the raw materials to your vendor, but it does not relate to a PO.

Vendor Returns Without Reference to Purchase Order

You can use Returns Purchase Order, transaction code ME21N and at item level tick the column returns and also process non-assigned purchase requisitions.

MIGO_GR – GR for Returns Purchase Order. Movement type 161 will be to deduct the stock and 162 for reversal. During goods receipt for the return of order, do not change the type of movement of 101 to 161, the system will automatically assign the movement type 161 when the postings are done. However, before saving, verifying if there is a checkmark in the column on the return to ensure it is a return to order.

• Create a new Purchase Order Number range to differentiate. Use Transaction OMH6 to define number ranges.
• Create a new Purchase Order Type to differentiate e.g ZRET. Use the transaction OMEC to Define Document Type.
• Change the PO layout using the Transaction OMFE and configure the MEDRUCK script to check if the Purchase order type is ‘ZRET’ then “Return Purchase Order” else ‘Purchase Order’.

How to process different types of Purchase Orders

• Create Purchase Order
• Create Request for Quotation
• Create Purchase Order with Reference to RFQ
• Change Purchase Order
• Approve Purchase Order
• Display Purchase Order – Number Unknown
• Display Purchase Order
• Display RFQ
• Faxing A Purchase Order
• General Analyses
• List of Changes of Purchase Orders
• Purchasing Documents per Account Assignment
• Release (Approve) Purchasing Documents
• Transmit Purchase Order to Vendor
• Re-Transmit Purchase Order to Vendor

Adopt Standard Setting for Message Determination facility

The Message Determination Facility is by default active and message determination schema is supplied for all purchasing documents including POs, PRs, RFQs etc.

All of the desired message types must be maintained. Choose Master data –> Messages –> Purchasing document –> Create or Change from the Purchasing menu. Add the message type and pick the key combination. The key combination decides the condition table where the condition record is stored. Enter all needed items. Next screen, create the individual condition records. Using the menu options Goto –> Means of Communication, enter the proper peripheral, or output for each message record. Save.