13 ways sustainable sourcing and procurement drive ESG efforts
The strategic sourcing process is a cycle, so it cannot be done once and forgotten about. A cycle approach to […]
Procurement 101
Reading time:
5 minute read
Written by
Logan Price
If you ever want to flip a coin about a certain topic, just consider purchasing from a Contract versus issuing a Purchase Order (PO). Wait, stop! Put the quarter down slowly and add it to your top-line growth, where it belongs. This feeling of indecision you're having, although warranted, won't help your organization procure with confidence. Good news, though - this feeling is entirely avoidable.
To justify your indecision about ordering from a Contract versus a PO, keep in mind that at first glance they do appear to be confused about their identities. Consider these examples. When accepted by a vendor every PO becomes a contract, but not every contract is a PO. Some (but not all!) people view POs as a kind of one-time contract. Purchase Orders may cross-reference the terms of a negotiated contract. It's a common misconception that the level of detail in a PO is less than that of a contract.
Any licensed medical professional would diagnose this as a variation of Dissociative Identity Disorder, Procurement Division. It's Tradogram's intention to put the 'cure' back in procurement, so here are the top 6 factors to consider when avoiding an identity crisis for contracts and Purchase Orders.
3. Terms and Conditions: As mentioned, there's a misconception about the level of detail in contracts and Purchase Orders. Specific negotiated terms and conditions are outlined in both, but a contract should be used when these Ts and Cs must include the scope of work, deliverables, performance standards, change management plans, etc.
"A contract is used when there are a complex set of terms associated with the acquisition that go above the standard boilerplate terms associated with PO's. This doesn't mean a PO should not be used, I suggest it should because the value of the PO is to book a commitment in the financial system, allow for a specific record of the spend to supplier and facilitate the matching process for payment". Joseph R. Postiglione Sr. (CMRP)
If these tips don't provide two separate "identities" for Contracts and Purchase Orders, don't despair - it's not always easy to detect subtleties of character. To make this situation painless, try not to view the coin flip as a choice between a Contract and a PO, but rather a decision between two approaches - a PO that becomes a one-time contract or a Contract that stipulates the parameters of a long term (significantly more complex) relationship with suppliers.
Still confused? We're happy to chat with you! To get more tips about managing Contracts and POs, Contact Us and ask us how Tradogram can help.
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