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1.6 Purchase Order (PO) Management

A Purchase Order (PO) is not an administrative suggestion; it is a legally binding contract that defines the specific configuration, schedule, and quality standard for a transaction. If the PO is vague, the liability for failure sits with the buyer, not the supplier. A "perfect" PO eliminates ambiguity regarding what is being bought, when it must arrive, and how it must be verified.

The PO as a Contract: Required Fields

Every PO issued must contain a specific dataset to be considered valid. Missing data creates "escape points" for suppliers to deliver non-conforming material.

Identification & Revision Control

  • PO Number: Unique identifier.
  • Revision: Must increment with any change (e.g., Rev A -> Rev B).
  • Date: Issue date triggers the validity window of the quote.

Line Item Definition

  • MPN (Manufacturer Part Number): The exact alphanumeric string (e.g., STM32F405RGT6). Do not rely on internal Part Numbers alone.
  • Description: Brief technical text (e.g., "MCU 32-bit ARM Cortex-M4").
  • Quantity: Explicit unit count.
  • Unit Price: Agreed contract price (referenced to Quote #).

Commercial & Logistics

  • Incoterms: Standardized delivery term (e.g., "FCA Hong Kong").
  • Payment Terms: Net 30 / Net 60.
  • Ship-To: Exact warehouse address and attention party.
  • Promise Date: The "Dock Date" required by planning.

Quality Clauses (The Fine Print)

  • Traceability: "Vendor warrants goods are new, original, and traceable to OCM."
  • Date Code: "Date Codes must be within 24 months of receipt unless waiver approved."
  • Substitutions: "No functional equivalents or substitutions allowed without prior written approval."

Approval Thresholds

Risk scales with value and complexity. Implement a tiered approval matrix to prevent unauthorized liability.

Value Threshold ($)

Risk Category

Approver Required

< $5,000

Low (Class C)

Buyer

$5k – $50k

Med (Production)

Sr. Buyer / Commodity Mgr

$50k – $250k

High (Strategic)

Supply Chain Director

> $250k

Critical (CapEx)

VP Operations / CFO

Any Value

NCNR / Custom

+ Engineering Manager

The ACK Discipline (Acknowledgement)

Sending a PO is only half the transaction. The contract is not valid until the supplier confirms acceptance.

The "24/48" Rule:

  • Action: Supplier must ACK receipt within 24 hours.
  • Action: Supplier must Confirm Schedule (Commit Date) within 48 hours.

Valid vs. Invalid ACK:

  • Valid: "We accept PO #123. Line 1 confirmed for delivery 2023-10-15."
  • Invalid: "Received thanks." (This confirms receipt of email, not acceptance of terms).
  • Conflict: If Supplier ACK Date ≠ PO Need Date, this is a Rejection. It triggers immediate negotiation. You must either update the ERP with the new date or expedite.

Pro-Tip: If a supplier fails to ACK within 48 hours, assume the order is lost. Do not wait for the due date to find out.

Change Control & Substitutions

Changes happen. Uncontrolled changes cause line-down events.

Scenario 1: Supplier Requests Date Push

  • Protocol: Calculate impact on production build.
    • If Line Down Risk: Escalate to Global Supply Manager for allocation fighting.
    • If Safe: Update ERP "Commit Date" field. Do not overwrite original "Need Date" (you need to track the variance for vendor scoring).

Scenario 2: Supplier Offers Substitution

  • Protocol: STOP.
    • A buyer cannot approve technical subs.
    • Route request to Engineering via Deviation Request form.
    • If approved, Revise PO to new MPN. Never receive Part B against a PO for Part A.

Scenario 3: Partial Shipments

  • Protocol: Allowed only if defined on the PO ("Partials Allowed").
    • Constraint: Final balance must be delivered before the invoice is paid in full (depending on terms).

PO Quality Audit Checklist

Before hitting "Send," scan the PO for these common failure modes.

Check

Failure Mode

Fix

UoM Check

Ordering "100" meaning "100 Reels" vs "100 units"

Verify Unit of Measure

Price Check

Variance from Quote or Standard Cost

Re-validate Quote

Rev Control

Sending Rev A PDF when system is at Rev B

Sync PDF to System

Spec Check

Missing specific color/finish on custom parts

Add Note/Drawing Ref

Address

Shipping to HQ instead of Factory

Verify Ship-To Code

Final Checklist

Control Point

Requirement

Critical Threshold

Contract Completeness

All mandatory fields populated

100%

ACK Status

Confirmed Commit Date in ERP

< 48 Hours from Issue

Revision Match

PO Rev matches BOM Rev

Critical

NCNR Flag

Signed agreement attached

If Terms = NCNR

Date Code Limit

< 24 Months specified

Printed on PO

Approval Chain

Sign-off limits respected

Automated Workflow

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