Working with suppliers requires a clear understanding of purchase orders to improve your procurement process and supplier relationships.

Knowing the four main types of purchase orders can help you handle transactions more efficiently and match the right order to the right situation.

This guide will break it all down for you.

Let’s get started!

What are purchase orders?

A purchase order (PO) is a formal document issued by a buyer to a supplier outlining the transaction details, including products, quantities, and agreed-upon prices.

Once accepted, it serves as a binding agreement, ensuring clarity and accountability for both parties.

Using purchase orders (POs) offers several benefits:

• Streamlines procurement processes.
• Reduces miscommunication.
• Provides a clear audit trail.

On the other hand, skipping POs can lead to:

• Increased errors.
• Potential disputes.
• Inefficiencies in managing supplier relationships.

How does a purchase order work?

Here’s an explanation of the 10 steps for how a purchase order works:

1️⃣Create a purchase order for the selected supplier: The buyer drafts a purchase order specifying the items, quantities, prices, and terms based on the agreement with the selected supplier.

2️⃣Approve the PO: Before approval, the purchasing or finance team reviews the purchase order internally to ensure it complies with company policies and is accurate.

3️⃣Send the PO to the supplier: Once approved, the purchase order is sent via email or procurement software, officially requesting the goods or services.

4️⃣The supplier confirms acceptance of the received PO: The supplier reviews the details of the purchase order and confirms its ability to fulfill it. The supplier's acceptance makes the PO legally binding.

5️⃣A customer receives ordered goods: The supplier ships the goods or delivers the services, and the buyer inspects the delivery to confirm it matches the purchase order in terms of quantity and quality.

6️⃣Supplier invoices customers for products delivered: The supplier generates and sends an invoice to the buyer, referencing the purchase order to facilitate tracking and verification.

7️⃣The customer completes a three-way document match: The buyer compares the purchase order, goods receipt, and supplier invoice to ensure all details align before approving the invoice.

8️⃣Customer approves the invoice: Once the 3-way match is verified, the buyer authorizes the invoice for payment, ensuring everything is accurate and accounted for.

9️⃣Customer pays the approved supplier invoice: The payment is processed according to the agreed-upon terms, completing the financial transaction with the supplier.

🔟Close the PO: After payment is made and all verifications are complete, the purchase order is marked as closed in the system, finalizing the process.

Purchase order key components

Usually, these are the key purchase order components:

• Purchase order number: Unique identifier for tracking the PO.
• Purchase order date: The date the PO is created or issued.
• Supplier name & billing address: Details of the supplier receiving the order.
• Buyer name & shipping address: Information about the purchasing organization and delivery location.
• Additional contact information: Phone numbers or emails for communication.
• Delivery date: Expected date for goods or services to be delivered.
• Shipping method: Mode of transportation, e.g., ground or air freight.
• Shipping terms: Conditions for freight, risk, and payment responsibility.
• Item name: Title or label for the requested product or service.
• Item description and technical info: Detailed specifications of the item.
• Item quantity: Number of units being ordered.

Purchase order main types

There are 4 main types of purchase orders:

1. Standard purchase order
2. Planned purchase order
3. Blanket purchase order
4. Contract purchase order

Let’s explore them in greater detail.

1. Standard Purchase Orders (SPO)

A standard purchase order is a one-time order issued for specific goods or services with clearly defined quantities, delivery dates, and payment terms.

It helps businesses, procurement teams, and individuals by providing a structured and detailed framework to ensure smooth transactions for unique or one-time purchases.

When to use a standard purchase order?

You can use standard purchase orders in situations like:

• A single purchase of specific goods with clearly defined quantities and delivery dates.
• Procuring specialized items or equipment that are not regularly ordered.
• Ensuring clarity and accountability for high-value purchases with detailed terms.

SPOs are ideal for purchases where all details are clear upfront, making them a widely used type of purchase order.

SPO's key components are:

• Purchase order number
• Supplier and buyer details
• Warehouse information and optional landed costs
• Item description and specifications
• Quantity and unit price
• Delivery schedule
• Payment terms

Example

2. Planned Purchase Orders (PPO)

A planned purchase order outlines anticipated needs for goods or services over a period, with pre-agreed details but no confirmed delivery dates.

It helps businesses and supply chain teams prepare for future demand while maintaining flexibility in scheduling.

When to use a planned purchase order?

You can use planned purchase orders in various situations like:

• When planning long-term - it can help you get better supplier deals, which you need effective inventory forecasting and planning to do so.
• Anticipating future needs for specific goods or services without fixed delivery dates.
• Managing ongoing projects that require periodic supply replenishment over time.
• Securing better pricing or terms for bulk purchases planned in advance.

PPOs are perfect when your requirements are predictable, but the timing is flexible, helping you plan procurement efficiently.

PPO's key components are:

• Predefined item details
• Estimated quantities
• Tentative delivery schedules
• supplier and buyer information
• Payment terms

Example

3. Blanket Purchase Orders (BPO)

A blanket purchase order is an agreement for recurring purchases over a set period, covering a maximum quantity or spending limit.

It helps businesses and procurement teams streamline repetitive purchases by reducing administrative effort.

When to use a blanket purchase order?

You can use blanket purchase orders in various situations like:

• Regularly purchasing the same items from a supplier over a set period.
• Managing recurring orders for consumables or raw materials with minimal administrative effort.
• Establishing a spending limit for a supplier to handle multiple smaller orders.

BPOs simplify repetitive purchasing, saving time and ensuring consistency in procurement processes.

BPO's key components are:

• Maximum quantity or spending limit
• Validity period
• supplier and buyer details
• General item descriptions
• Agreed pricing

Example

4. Contract Purchase Orders (CPO)

A contract purchase order is a formal agreement between a buyer and a supplier, establishing the terms of the relationship without specifying particular items or quantities.

It helps businesses and suppliers establish a foundation for future transactions by defining clear terms.

When to use a contract purchase order?

You can use contract purchase orders in various situations like:

• Establishing a long-term supplier relationship for ongoing needs.
• Setting clear terms for services or goods to be ordered in the future.
• Avoiding the need to renegotiate terms for every individual order.

CPOs are a strategic choice for managing supplier relationships with a clear framework for future transactions.

CPO's key components are:

• Terms and conditions of the relationship
• Validity period
• supplier and buyer details
• Scope of agreement

Example

Purchase order benefits

Using purchase orders offers several advantages that enhance both financial management and operational efficiency:

• Control spending: Helps track and manage expenditures by setting clear budgets and approval processes.
• Streamline procurement: Simplifies purchasing workflows by standardizing order creation and approval.
• Legal protection: Acts as a binding contract that safeguards buyer and supplier interests.
• Record keeping: Provides a documented trail for auditing, reporting, and resolving disputes.
• Supplier relationship: Enhances trust and collaboration by ensuring clear communication and timely payments.
• Efficiency: Reduces errors and saves time by automating and organizing procurement activities.

Conclusion

After learning about the four types of purchase orders – Standard, Planned, Blanket, and Contract – you can better understand how each fits specific business needs.

Every purchase order type offers unique advantages, from streamlining procurement processes to improving supplier relationships and ensuring legal protection.

Using them effectively lets you control spending, boost efficiency, and maintain organized records, strengthening your purchasing strategy.

Purchase order tools play a crucial role in simplifying and streamlining the procurement process, making it easier to manage spending and ensure smooth operations.

Fabrikatör stands out as one of these powerful tools, offering a trusted solution for optimizing your purchase order process.

How can Fabrikatör help you automate purchase orders?

Fabrikatör is a powerful inventory management platform tailored to streamline Shopify users' supply chain operations.

Our purchase order feature is an advanced tool designed to streamline the procurement process, enabling you to create, share, and track purchase orders effortlessly while gaining insights into future inventory levels and costs.

Here are the steps of how Fabrikatör helps you automate your purchase orders: 

1️⃣Log in and access the purchase order feature: Navigate to the purchase order section in Fabrikatör’s dashboard to begin managing your POs.

2️⃣Select or add a supplier: To keep your supplier list up to date, choose an existing supplier or create a new profile.

3️⃣Plan purchases with replenishment: Use Fabrikatör’s replenishment feature to determine ideal quantities and restocking times.

4️⃣Generate a purchase order: Quickly create a PO by selecting products, quantities, and shipping options with just a few clicks.

5️⃣Add additional details: Include supplier SKUs, shipping methods, costs, and addresses to finalize the PO.

6️⃣Share the purchase order: Email the PO to the supplier or download it for manual sharing.

7️⃣Track incoming inventory: Monitor shipments and future inventory levels to avoid stockouts.

8️⃣Receive inventory: Confirm receipt of inventory automatically or by using Fabrikatör’s barcode scanning feature.

9️⃣Update purchase order status: Archive or close completed orders and maintain accurate records for future reference.

🔟Utilize analytics and reporting: Leverage data insights on costs, trends, and supplier performance to make informed procurement decisions.

These features not only simplify and automate the procurement process but also help you save time, reduce errors, and make data-driven decisions to optimize your inventory management and supplier relationships.

You can also check out this article for a Free Purchase Order Template tailored for eCommerce needs.

Other Fabrikatör features you can benefit from

Some additional benefits Fabrikatör provides you with:

• AI-driven forecasting: Use advanced AI algorithms to predict demand, considering past sales, seasonal trends, and promotional events for precise planning.

• Optimized freight planning: Compare air and sea freight options to balance costs and delivery speed, improving supply chain efficiency.
• E-commerce platform integrations: Integrate seamlessly with Shopify and Shopify Plus to optimize inventory management across your sales channels.
• Financial and operational tools integrations: Connect with QuickBooks, Xero, and ShipHero to streamline financial processes and logistics.
• Analytics and custom workflow integrations: Enhance insights and communication with Klaviyo for tailored workflows.
• Advanced analytics: Access over 100 metrics to monitor inventory, sales, and supply chain performance, enabling data-driven decisions.

• Backorder automation: Customers can order out-of-stock items while they’re in transit, recovering lost sales and maintaining satisfaction.

• Inventory synchronization: Automatically update stock levels across all integrated sales channels to prevent overselling or stockouts.
• User-friendly dashboard: Access all key metrics, analytics, and tools in one intuitive interface, ensuring efficiency and clarity.

Do you want to discover how streamlined purchase order management can elevate your business operations?

Try Fabrikatör or get a demo, and revolutionize your purchasing process with advanced analytics, automated workflows, and smarter procurement decisions.