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The pros and cons of purchase orders.

In recent years, many businesses have discontinued their use of purchase orders. This has happened as businesses look to save the time needed to prepare them, and as they turn to purchasing alternatives. But as beneficial as eliminating purchase orders can be, the cost of not using them may far exceed the value of the time saved.

Historically, purchase orders replaced customized formal, written contracts prepared by an attorney. Although still used, formal contracts are time-consuming to prepare, read and analyze. A well-designed purchase order is really a standardized form of a written contract. It makes ordering easier and quicker.

The decline in purchase-order use can be attributed to several new business practices. For example, procurement cards, issued to employees with purchasing responsibilities, are credit cards, coded to limit suppliers used and amount spent. Their best use is for small-volume, low-cost items.

Another reason is the use of the the Internet for ordering, especially for organizations that have negotiated favorable written agreements with suppliers. Larger companies can use Internet-accessible supplier catalogs that are designed for the particular bUying organization.

The law regarding business transactions was established by the Uniform Commercial Code (UCC), first issued in 1942. All U.S. states except Louisiana have adopted the UCC provisions. Briefly, the UCC states that transactions between businesses involving goods (tangible products) of $500 or more must be in writing to be enforceable. It is the purchase order that has been designed specifically for this purpose. The form includes the terms and conditions that protect and are favorable to the buying organization. And blank spaces are used to insert what the professional buyer can negotiate.

Despite the time limitations imposed by the fast pace of doing business today, it is still important to issue purchase orders. Foremost, as the UCC relegates, it's the law to document. Purchase orders are a ready-made, suitable means for documenting, tracking, and securing transactions. Failure to document transactions may expose the organization to penalties and added costs.

New computer-based technologies make it easy to save time using purchase orders. In addition to stock forms and blanket orders, for example, computer programs facilitate purchase-order preparation. These systems also store data of the purchasing statistics, including pricing and buying trends. Reports can be generated to give the buyer information necessary to negotiate with suppliers.

So before you give up on purchase orders, remember how important they are, and that new technology makes them easier to use.

Harry E. Hough, Ph.D., CPP, CPPM is president of the American Purchasing Society, Aurora, IL. Contact him at the Society's Web site:
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Title Annotation:Opinion
Author:Hough, Harry E.
Publication:Industrial Maintenance & Plant Operation
Date:Feb 1, 2006
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