• Pankaj Jain 19/12/2018 12:28PM

    In Category Management

    Are there any guidelines on when to use Purchase order and when to go with contract route.

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  • Answers (3)

  • Rodrigo Fernández Castiñeiras

    20/12/2018 02:35AM

    Hi Pankaj, throughout my career I´ve used both. Currently we only use POs for fixed assets/Investments. Everything else is backed up by a contract/proposal and then invoices approved by cost center owner/s via a clear authorization matrix. The purpose of this approach is to reduce the administrative burden of PO issuing and control via an ERP (even worse if you do not have a strong ERP and rely on a manual solution). A piece of advice: be aware of the Finance/Accounting rules of yout company in case POs are mandatory or not.. Hope this helps!

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  • Katalin Brennan

    03/01/2019 03:45PM

    Hi Pankaj! I'm no expert but have worked with both in my career. Contracts make sense when you want to lock prices and/or service level which gives you predictability and some control. Just don't forget, contracts are best when you 'partner' with your vendor... no contract is strong enough to withstand bad relationships. PO route is more flexible but you don't have much leverage beyond your 'uber' negotiation skills. At the end of the day, it is all about having a select number of strategic supplier with contracts and vetted non-strategic vendors with great quality/delivery records for POs.

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  • Thierry Fausten

    20/01/2019 11:02AM

    Hi Pankaj, In addition to the points outlined by Katalin and Rodrigo, having a contract does not prevent you from having a PO. The contract outlines the terms and conditions of business. The PO is usually linked to accounting records: issuing a PO informs your finance department of the commitment made, and the need for cash flow to be available at a given date to pay the supplier. In all countries I worked, you reconcile invoice against POs, not contracts. As well, from a spend analysis point of view, POs are usually easier to track than contracts.

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