Do you want to run a successful restaurant business? A common restaurant owner will likely deal with placing and receiving many orders each year. To ensure that everything goes smoothly with your purchase orders, you need to have a solid procurement process.
Understanding purchase orders and procurement can be tough. However, it’s an essential part of getting started as an entrepreneur.
A solid procurement process will help you control each restaurant management system. This way, you will have enough ingredients and supplies on hand until your next delivery.
Purchase Orders: What Is a Purchase Order?
Purchase orders (POs) refer to documents that buyers sent to vendors listing items, quantities, and the details of the products or services they wish to purchase. Purchase orders become legally binding once they have been signed by both the buyer and seller.
Each purchase order allows businesses to stay on top of inventory tracking and ordering. The PO number helps organize each order and invoice. This is similar to a SKU number and UPC code.
Similar to a wholesale purchase agreement, the purchase order protects both parties once signed. This is ideal in case there are shipping problems or missing items in the order.
Why Purchase Orders Are Important for Your Business
It’s common for some businesses to avoid using purchase orders because of the extra paperwork. This is also popular amongst businesses that have stable working relationships with their suppliers.
Small businesses with minimal employees tend to have a simpler ordering approach. As businesses grow, more people tend to get involved in the purchasing and ordering process.
This makes each process more complex, urgent, and specific. Purchase orders make it easy to organize and understand each order, despite the extra hands involved in each process.
Automating the Purchase Order Process
Technology is constantly changing and evolving. This includes many restaurant technologies such as hospitality software, mobile payments, warehouse management software, and other restaurant technology trends.
Businesses may use paper purchase order processes, which can accumulate many documents. These are a lot to keep track of, especially when your business deals with multiple purchase orders.
Relying on paper purchase ordering systems increases the risk of losing or damaging records. It also makes the process of duplicating documents difficult. Automating the process using purchase order software simplifies this.
Digitizing the purchase order process allows businesses to track these important documents through a centralized system. It also informs individuals when they need to take action on certain documents. Such individuals include the inventory control manager, warehousing manager, and restaurant manager.
Purchase Order Vs Invoice Definition
A purchase order is a legally binding document that identifies the products or services buyers want to purchase from sellers. Purchase orders identify the details of the order including the desired product quantities, payment terms, prices, and pipeline inventory delivery dates.
An invoice is an official payment request document that sellers send to the buyer once the purchase order is fulfilled. It includes information about the products or services the buyer requested.
A standard invoice includes the following information:
- Invoice number
- Discounts or credits applied to the order
- Seller information
- Payment date or schedule
- Total amount due
It’s possible for businesses to follow certain invoice management practices in order to keep track of their documents. This is crucial for invoice processing and financial audits. Check out “What is an invoice” to better understand the difference.
What Is a PO Number?
A PO number is a unique number that businesses assign to purchase orders, and it’s also used in invoices. PO numbers are also referred to as reference codes. It’s possible to create reference codes manually or with automatic software. This includes marketing automation software.
PO numbers help with order tracking during the procurement process. Many eCommerce accounting departments use PO numbers to assist with record-keeping. They’re also used for inventory management and accounts payable and receivable operations.
Locating important accounting records is simple with a PO number. That’s why businesses tend to rely on them to improve and ensure operational efficiency.
Purchase Order Template - 5 Things to Include
It’s possible to create a purchase order manually or using specific purchase order software. During this process, it’s important to know the kind of information that your purchase order should include.
Many businesses choose to use a purchase order template that includes their company letterhead, buyer details, and company branding.
A common purchase order looks like this:
PO number: 0001
Buyer: Company Name
Delivery address: (includes delivery address, buyer phone number, and email).
Supplier: (includes name, address, phone number, and email).
These are five things to include in a purchase order template:
The purchase order header should include company details. This includes the business name and address. The order number and order date should also be added to this section.
2. Vendor Information
Each purchase order should specifically state the proper recipient. Be sure to also include the name of the seller, your contact information, and the seller’s company address.
3. Shipping Information
In order to receive the order, you need to include the proper address. This is also the section to specify the shipping method you wish to use as well as any desired delivery dates you have in mind.
4. Order Details
All details regarding the products or services being ordered should be in this section. The purchase order template may include line items with a SKU number or UPC code, unit quantity, item name, and price per unit.
Within the summary, be sure to include the subtotal for the products or services you’re ordering, any applicable discounts, tax, and shipping costs.
Purchase Order Tracking Meaning
Purchase order tracking is the process of monitoring orders in real-time. Managing the purchase order cycle starts once the purchase order is created.
It allows businesses to locate inefficiencies within their procedures. This way, they can address them and improve them to create a more efficient process.
Tracking purchase orders makes it possible to ensure buyers are receiving the goods in the proper quantities and qualities. This is important for maintaining inventory levels, otherwise known as par level inventory.
What Is Procurement?
Procurement refers to various activities related to the process of acquiring goods and services. The purpose of procurement processes is to get competitively priced goods and services that provide the most value.
Some businesses have procurement processes that consist of multiple stages. These may include gathering business requirements, sourcing vendors and suppliers, tracking the goods and services, and updating payment terms.
It’s also possible for businesses to have a procurement process that consists of fewer activities and stages. Such stages include issuing purchase orders and making payments for said orders.
3 Common Stages of Procurement
Each business will have its own procurement process. Most processes will be simplified to the following stages:
- Sourcing stage. This stage consists of the initial steps most businesses take in order to identify their needs. Businesses create purchase requests and evaluate the suppliers. After the initial sourcing, businesses begin to create strong relationships with their suppliers. This is essential for the supplier relationship management process.
- Purchasing stage. It’s common for this stage to involve payment term negotiations, the process of creating orders, and receiving and inspecting goods and services.
- Payment stage. The payment stage involves obtaining invoices for purchase orders. Once a business receives its order, it should verify it and the invoice's accuracy. Be sure to familiarize yourself with the invoice definition and the invoice management process.
What Is Procurement Management?
Procurement management refers to the process of managing procedures that businesses follow to acquire goods and services. Such goods and services may include wholesale products such as dairy, dairy eggs, meat products, fresh produce, raw materials inventory, and finished goods.
Businesses follow specific procedures during the procurement process. These include evaluating suppliers, creating purchase orders, and approving invoices. To effectively do this, it’s important to understand, “What is an invoice?” and popular invoice management solutions.
To ensure a proper procurement management process, it’s important to keep a few principles in mind. These include the three P’s of procurement management.
The three P’s of procurement management include:
- People. This refers to the individuals responsible for each stage of the procurement process. Each individual has specific tasks that include creating purchase order contracts, invoice management, and invoice approval.
- Process. A business process will include steps for employees to perform in order to complete each task. Detailed processes allow businesses to ensure that employees are delivering consistent results.
- Paperwork. Procurement processes require documentation and paperwork. For example, when creating and approving purchase orders.
Proper procurement management allows businesses to control their spending and improve overall operational efficiency.
Procurement vs Purchasing Definition
The procurement definition refers to acquiring goods and services that are essential to business operations. If you’re in the restaurant industry, that includes restaurant operations.
The purchasing process is part of the procurement cycle, and it involves buying products or services from suppliers. It is also known as the transactional part of procurement.
Purchasing is a short-term process compared to procurement. It involves ordering, creating purchase orders, receiving orders, and making payments.
Common payment types include recurring payments, B2B payments, eCheck, and online payment processing. These payments are made once the buyer receives the invoice.
Procurement, on the other hand, is a long-term process. It oftentimes involves sourcing vendors, negotiating and closing contracts, as well as record keeping.
In most businesses, procurement focuses on building strong and mutually beneficial relationships between buyers and suppliers. Procurement processes value the entire transaction whereas purchasing processes value the price of the goods and services.
Procurement vs Sourcing Definition
Procurement and sourcing are two terms that are closely related to one another. This is why many people tend to use them interchangeably. However, they are quite different and refer to different parts of the procurement process.
Procurement refers to the process of acquiring goods and services whereas sourcing refers to the process of finding ideal vendors to supply goods and services. Sourcing is a subset of procurement and a process that occurs before purchasing.
Common sourcing functions include:
- Choosing to outsource or rely on in-house performance
- Acquiring raw materials inventory
- Selecting suppliers
- Product designs
- Negotiating contracts–this process involves requesting quotes, proposals, and bids from suppliers
- Procurement processes
- Understanding the cost of goods sold (COGS)
- Manufacturing inventory collaborations
- Inventory control and inventory turnover
- Financial impact evaluation
- Offshoring or re-shoring
- Product quality evaluation
The main difference between procurement and sourcing is that procurement prioritizes purchasing whereas sourcing prioritizes suppliers. Sourcing teams have a goal to understand how to obtain goods and services at the best possible price. This process involves paying attention to delivery times, supplier locations, product quality, and item quantity.
Procurement processes are much longer than sourcing processes. It begins with sourcing and moves forward to payment. It ends with supplier relationship management.
A popular type of sourcing is strategic sourcing. This is a process that involves developing supply channels with great value, not just a low purchase price.
While the process sounds simple, it is broad and requires skill. It’s common for people to seek out specific certification and degree programs to understand the specifics of strategic sourcing.
The process of strategic sourcing helps minimize risk and costs while increasing purchase value. Company needs are always taken into consideration in order to have better organization.
Strategic sourcing also plays a big role in company growth and development. It allows businesses to negotiate the best price for the goods and services along with their quality. This influences net income and profit margin.
Six benefits of strategic sourcing are:
- More negotiating power
- Stronger supply chain risk management
- Better understanding of the market
- Increased supply chain sustainability
- Better quality raw materials
- Long-term cost savings