Purchase Order

Beginner

By Jad Ashi on 28 مارس 2023

A Purchase Order is a binding contract with your Supplier that you promise to buy a set of items under given conditions.

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1. Prerequisites

Before creating and using a Purchase Order, it is advised that you create the following first:

Supplier
Item

2. How to create a Purchase Order

A Purchase Order can be automatically created from a Material Request or Supplier Quotation.

Go to the Purchase Order list, click on New.
Select the Supplier, required by date.
In the items table, select the item by code, you can change the required by date for each item.
Set the quantity and the price will be fetched automatically if set in the Item master.
Set taxes.
Save and Submit.

2.1 Setting Warehouses

Set Target Warehouse: Optionally, you can set the default target Warehouse where the purchased Items will be delivered. This will be fetched into the Item table rows.

2.2 Fetching Items from Open Material Requests

Items can be fetched into the Purchase Order automatically from open Material Request For this to work, the following steps need to be done:

Select a Supplier in the Purchase Order.
Set default Supplier in the Item form under Item Defaults.
A Material Request needs to be present of type 'Purchase'.
Click on the Get Items from open Material Requests button below the Supplier name. Now a dialog will appear with Material Requests containing Items for which the default Supplier is the same as the one selected in the Purchase Order. On selecting the Material Requests and clicking on Get Items, the Items will be fetched from the Material Requests.

3. Features

3.1 Address and Contact

Select Supplier Address: The Supplier's billing address.
Select Shipping Address: The Supplier's shipping address from which they'll be sending the items.
Address, Shipping Address, Contact, Contact Email will be fetched if saved in the Supplier master.

3.2 Currency and Price List

You can set the currency in which the purchase order is to be stored. If you set a Pricing List, then the item prices will be fetched from that list. Ticking on Ignore Pricing Rule will ignore the Pricing Rules set in Accounts > Pricing Rule.

3.3 Subcontracting or 'Supply Raw Materials'

Setting 'Supply Raw Materials' option is useful for subcontracting where you provide the raw materials for manufacturing an item.

3.4 The Items table

Scan Barcode: You can add Items in the Items table by scanning their barcodes if you have a barcode scanner.

Quantity and Rate: When you select the Item code, it's name, description, and UOM will be fetched. The 'UOM Conversion Factor' is set to 1 by default, you can change it depending on the UOM received from the seller, more in the next section.

'Price List Rate' will be fetched if a Standard Buying rate is set. 'Last Purchase Rate' shows the rate of the item from your last Purchase Order. Rate is fetched if set in the item master. You can attach an Item Tax Template to apply a specific tax rate to the item.

Item weights will be fetched if set in the Item master else enter manually.

Warehouse: The warehouse where the items will be delivered, will be auto-filled if 'Set Target Warehouse' was set in the Purchase Order. Via Blanket Order, a Blanket Order can be linked. A 'Project' can be linked to track progress. A 'BOM' or Bill of Materials can also be linked to track progress.

'Qty as per Stock UOM' will show the current stock as per the UOM set in the Item master. 'Received Qty' will be updated when the items are billed.

Accounting Details

A “Required By” date on each Item: If you are expecting part delivery, your Supplier will know how much quantity to deliver at which date. This will help you from preventing over-supply. It will also help you to track how well your Supplier is doing on timeliness.

Allow Zero Valuation Rate: Ticking on 'Allow Zero Valuation Rate' will allow submitting the Purchase Receipt even if the Valuation Rate of the Item is 0. This can be a sample item or due to a mutual understanding with your Supplier.

3.6 Raw Materials Supplied

This section appears when 'Supply Raw Materials' supplied is set to 'Yes'. This section shows a table with the Items to be supplied to the Supplier for the subcontracting process.

Set Reserve Warehouse: When Subcontracting, the raw materials can be reserved in a separate Warehouse. On selecting the Reserved Warehouse here, it'll be fetched into Item rows of the Raw Materials Supplied table.

Supplied Items Table

Required Quantity: The count of Items required to complete the subcontracting as specified in the BOM.
Supplied Quantity: This will be updated when you create Stock Entries to transfer materials to Supplier Warehouse from the Reserve Warehouse using the Transfer button.

3.7 Purchase UOM and Stock UOM Conversion

You can change your UOM as per your stock requirements in the Purchase Order.

For example, If you have bought your raw material in large quantities with UOM - boxes, and wish to stock them in UOM - Nos; you can do so while making your Purchase Order.

Store UOM as Nos in the Item master. Note that the UOM in the Item master is the stock UOM.
In the Purchase Order mention UOM as Box. (Since material arrives in Boxes)
In the Warehouse and Reference section, the UOM will be pulled in as Nos.
Mention the UOM conversion factor. For example, (1); If one box has 1 kilo.
Notice that the stock quantity will be updated accordingly.

Shipping Rule

A Shipping Rule helps set the cost of shipping an Item. The cost will usually increase with the distance of shipping.

For example, you buy Items worth X and sell them for 1.3X. So your Customer pays 1.3 times the tax you pay your Supplier. Since you have already paid tax to your Supplier for X, what you owe your government is only the tax on 0.3X.

This is very easy to track in ERPNext since each tax head is also an Account. Ideally you must create two Accounts for each type of VAT you pay and collect, “Purchase VAT-X” (asset) and “Sales VAT-X” (liability), or something to that effect.

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