Purchase Orders by Outline Agreement: Understanding the Basics
If you`re managing a business and are responsible for purchasing goods and services, you must have come across the term `purchase orders by outline agreement` or POs by OA. In simple terms, it means a purchase order created against an outline agreement.
An outline agreement is a contractual document between a buyer and a vendor that outlines the terms and conditions for procuring goods or services over a specified period. It acts as a long-term supply agreement for repetitive purchases, providing the buyer with a consistent supplier base and allowing the vendor to secure stable business operations.
Types of Outline Agreements
There are three types of outline agreements that a buyer can establish with a vendor:
1) A Quantity Agreement: This outlines the quantity of goods or services to be procured by the buyer during the specified period.
2) A Value Agreement: This outlines the total value of goods or services to be procured by the buyer during the specified period.
3) A Contract Release Order (CRO): This outlines the quantity of goods or services to be procured by the buyer over a specified period, with delivery schedules specified for each release period.
Understanding Purchase Orders by Outline Agreement
POs by OA are created against the terms outlined in the outline agreement. It provides a structured approach to managing procurement by allowing the buyer to procure goods or services quickly. It also helps in tracking the delivery schedules and managing the payment terms.
When creating a purchase order, the buyer specifies the quantity of goods or services required for each delivery period. The price of the goods or services is usually pre-negotiated in the outline agreement and is incorporated into the purchase order.
Benefits of Purchase Orders by Outline Agreement
1) POs by OA allow for greater flexibility in procurement planning, ensuring that the buyer has a steady supply of goods or services over a specified period.
2) It helps in reducing lead times and streamlining the procurement process.
3) It ensures that vendors have a consistent flow of business operations, which is particularly beneficial for small businesses.
4) POs by OA provide better control over inventory levels and allow for better cash flow management.
In conclusion, POs by OA are an essential tool for managing procurement for businesses. It provides a structured approach to managing procurement, ensuring that there is a steady supply of goods and services over a specified period. By understanding the basics of POs by OA, businesses can streamline their procurement process and enjoy the benefits of greater flexibility, reduced lead times, and better inventory control.