Types of Purchase Orders and Their Examples

You’re here because you’ve read up about purchase orders, but are a bit unsure about the differences between various types of purchase orders. I’m sure an example or two would go a long way to explain the differences.

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Let’s review what role purchase orders play and why they’re important. While this happens, visit us for all your purchase order templates over at the Ramp accountant directory (where we have other templates and documents available as well).

What are purchase orders?

Purchase orders are legally binding agreements between you and a supplier that outline the terms of a transaction, including the items or services being purchased, the quantity, the price, and the delivery details.

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Purchase orders are important because they provide a clear and documented record of the agreed-upon terms, which can be referenced in the event of any discrepancies or disputes. This is particularly important for auditing purposes, as it helps you maintain financial transparency and accountability.

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In addition, purchase orders can help you make decisions for future orders. By analyzing historical purchase order data, you can identify patterns, trends, and areas for optimization, allowing you to manage your budget.

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Next let’s dive into the types of purchase orders and their examples.

Standard purchase orders (SPO)

A Standard Purchase Order (SPO) outlines the agreed-upon terms and conditions for a one-time procurement of goods or services from a supplier. 

When to use an SPO

You can use standard purchase orders in various situations like:

• A one-off purchase of a specific quantity of a particular item or service.

• Regular purchases from approved vendors for frequently needed items, based on pre-negotiated prices and terms.

• To outline your purchase requirements and request quotes from multiple vendors before finalizing the purchase.

SPOs are the most common type of purchase orders you’ll encounter. So make sure it contains all the essential details.

Key components of an SPO

A standard purchase order should contain the following details:

• Your contact details as well as the supplier’s, including company names, addresses, and phone numbers.

• A unique PO number for tracking purposes.

• The date of issue of the purchase order.

• Clear and detailed description of each product or service being purchased. This may include model numbers, part numbers, or any other relevant specifications.

• Exact number of units of each item being ordered.

• The agreed-upon price per unit of each item, and the total cost for each item (quantity multiplied by unit price).

• Expected delivery date and location for the goods or services.

• Details on how and when you will pay the seller.

• Any additional terms governing the purchase, such as warranties, return policies, or late-payment penalties.

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Using an SPO will make your procurement process more efficient and help you maintain a consistent supply of necessary goods or services.

Let’s look at an example of an SPO to further clarify how and when to use it.

Example of an SPO

Here’s what a standard purchase order may look like:

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Planned purchase orders (PPO)

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A planned purchase order (PPO) outlines an agreement between you and a supplier for a future purchase of goods or services. It is similar to an SPO except for one key detail–a PPO offers flexible delivery details. This allows for situations where the exact delivery schedule might be uncertain at the time of creating the PPO.

When to use a PPO

A PPO is ideal for scenarios where you’re uncertain about the exact delivery, but the overall has been pre-approved. Here are some common use cases:

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• For regular, recurring purchases (e.g., office supplies), a PPO establishes the overall agreement with the vendor, allowing for purchasing in smaller batches with confirmed delivery details as needed.

• If your business experiences seasonal fluctuations, you can use PPOs to secure agreements with suppliers beforehand, finalizing delivery specifics closer to the peak season.

• If you have a multi-phase construction project, you can use a PPO to outline the materials needed for each phase, with a phase-wise confirmation of delivery schedules.

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When issuing a PPO, ensure that it contains all the necessary information.

Key components of a PPO

A PPO should contain all the details required for an SPO. In addition, it should also have:

• The total projected cost for the entire purchase (quantity multiplied by unit price).

• A timeframe outlining the expected window for delivery, though specific dates might not be confirmed yet.

Let’s look at an example of a PPO to understand this better.

Example of a PPO

Here’s an example of a planned purchase order:

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Blanket purchase orders (BPO)

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A blanket purchase order (BPO), also known as a standing purchase order, is a contract between you and a supplier for recurring purchases of goods or services at predetermined prices.

When to use a BPO

If you foresee a consistent need for specific goods or services from a trusted supplier, a BPO can ease a lot of burden in the procurement process.

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Here are some common situations to use a BPO in:

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• For frequently used office supplies like printer cartridges, pens, or paper, a BPO can streamline the process by establishing pre-approved pricing and ordering procedures.

• If you often require a steady supply of cleaning supplies, spare parts, or other MRO (Maintenance, Repair, and Operations) supplies, you can use a BPO.

• Software subscriptions, internet access, or other ongoing services can be managed through a BPO.

• For predictable utility costs like electricity or water, you can use a BPO can lock in rates for a defined period.

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Since BPOs are a long-term agreement, you have to ensure that you include all the important details.

Key components of a BPO

Since a BPO is a long-term form of an SPO, you should include all the details you’d include in a BPO. In addition, a BPO should also include:

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• A general description of the types of products or services covered by the BPO. You may choose to skip specific details like quantities or part numbers for each order.

• An overall spending limit for the entire blanket purchase order period.

• If the price per unit remains constant, you can include it. Otherwise, you can use a pricing mechanism (e.g., supplier's published price list).

• You can outline a general frequency of deliveries (e.g., weekly, monthly) or establish a process for requesting specific deliveries within the BPO timeframe.

• Include any additional terms governing the purchase, such as minimum order quantities, order cut-off times, or return policies.

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Hopefully, an example of a BPO will make things easier to understand.

Example of a BPO

When issuing a blanket purchase order, it may look like this:

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Contract purchase orders (CPO)

A contract purchase order (CPO) differs from the other types of purchase orders as it acts as a foundational agreement outlining the terms and conditions for future purchases, without specifying the exact products or services yet.

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A CPO can benefit you by streamlining the procurement process, cost savings through volume discounts, and enhanced planning and budgeting. However, it also means that locking into terms for a set period might restrict negotiation opportunities if market prices fluctuate significantly. You might also find it difficult to switch to a different vendor during the contract period.

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This begs the question of what situation requires the use of a CPO.

When to use a CPO

If you have preferred vendors that you use for frequently needed goods or services, CPOs are ideal for establishing long-term partnerships with them.

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Here are some common use cases for a CPO:

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• You can use a CPO to lock in terms with a supplier for ongoing office supplies, with individual purchase orders created for specific needs throughout the year.

• MRO supplies and services: If you have a reliable MRO (Maintenance, Repair, and Operations) supplier, you can use a BPO for recurring needs for maintenance, repairs, or specific replacement parts.

• If you have consistent printing needs, a CPO sets the terms for future printing projects.

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Considering a CPO is light on details, there is certain key information that you must include.

Key components of a CPO

Here are the details you should include in a contract purchase order:

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• Similar to other purchase orders, you must include contact details for both parties, a unique PO number, and order date.

• Make sure to include the timeframe (e.g., one year, two years) for which the CPO is valid.

• Clearly define how and when the buyer will pay the seller for future purchases made under this CPO. This could include standard terms like net 30 or specific payment schedules for larger projects.

• Outline how prices for future purchases will be determined. It might reference fixed prices, established discounts, or a formula based on the supplier's published price list.

• You may choose to include general delivery procedures or preferred delivery methods. Specific delivery details for each purchase can be finalized in subsequent orders.

• If applicable, you may specify minimum order quantities per order placed under the CPO.

• Outline the required approval procedures for future purchases made under the agreement.

• Include a termination clause, which would define the conditions under which either party can terminate the CPO before the end of the contract period.

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Since a CPO varies from other types of purchase orders in a few ways, an example is called for.

Example of a CPO

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As you can see, there are different types of purchase orders, which are used in different situations. So you can imagine how cumbersome and taxing it might be to keep track of the various purchase orders you might issue for a large scale project.

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That’s where automation can come to your aid in simplifying the procurement process.

Automating purchase order processes

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By leveraging technology, you can automate the requisition, approval, and fulfillment of various types of purchase orders, leading to increased efficiency and cost savings.

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Some benefits of automating purchase order processes include:

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• Eliminating the need for manual data entry, reducing the risk of errors and freeing up employees to focus on more strategic tasks.

• Real-time visibility into the status of purchase orders, allowing for better tracking and management of the procurement process.

• Enforcing established policies and approval workflows, ensuring that all purchase orders adhere to organizational guidelines.

• Processing purchase orders faster, which can speed up your procurement cycle and allow you to respond to market demands more effectively.

• Generating valuable data that can be analyzed to identify optimization opportunities and drive continuous improvement.

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To unlock the benefits of automation, drive greater efficiency, cost savings, and better decision-making, consider using Ramp’s procurement solution. It automates the entire procure-to-pay process, eliminates approval bottlenecks, and prevents out-of-policy spending. You can also get a consolidated view of every request and purchase order in the dashboard, code purchase order line items, and match invoices to purchase orders for added control.

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Check out Ramp’s procurement solution today.

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