What is Purchase Order (PO)?

A purchase order (PO) is a legally binding commercial document issued by a buyer to a supplier, formally authorizing the purchase of specified products or materials at agreed-upon quantities, prices, and delivery terms. Purchase orders are the foundation of procurement in both retail and manufacturing, serving as the official record of what was ordered, when it was ordered, what it should cost, and when it should arrive. In an order management context, purchase orders represent the inbound side of the inventory equation—they are how businesses replenish the stock that customer orders deplete.

Why It Matters

Without a disciplined purchase order process, procurement becomes a collection of informal agreements, email threads, and verbal commitments that are difficult to track, audit, or enforce. POs create accountability on both sides of the buyer-supplier relationship. The buyer commits to purchasing a specific quantity at a specific price, and the supplier commits to delivering that quantity by a specific date. When disputes arise over short shipments, pricing discrepancies, or late deliveries, the PO is the reference document that resolves them.

For growing e-commerce and retail businesses, purchase order management directly impacts inventory health. POs inform demand planning by tracking what inventory is on order and when it will arrive. They feed into available-to-promise calculations, allowing businesses to sell against incoming stock. They provide the data needed for landed cost calculations, cash flow forecasting, and supplier performance evaluation. Businesses that manage POs rigorously experience fewer stockouts, more accurate financial projections, and stronger supplier relationships than those that rely on ad hoc purchasing.

How It Works

The purchase order process follows a structured workflow from requisition through receipt:

• Requisition: The need for new inventory is identified—triggered by reorder point alerts, demand forecasts, safety stock depletion, or manual analysis. A purchase requisition specifying the products, quantities, and urgency is created and routed for approval.
• PO Creation: Once approved, the requisition is converted into a formal purchase order. The PO includes supplier details, line items with SKUs and quantities, unit prices, payment terms, shipping instructions, expected delivery dates, and any special conditions or notes.
• Supplier Transmission: The PO is sent to the supplier via email, EDI, or a supplier portal. The supplier acknowledges receipt and confirms the delivery timeline. Any discrepancies in pricing or availability are negotiated before the PO is finalized.
• Order Tracking: While the PO is open, the buying team monitors its status—confirmed, in production, shipped, partially received, or fully received. Tracking inbound POs is essential for managing inventory forecasts and customer-facing availability promises.
• Receiving and Reconciliation: When goods arrive at the warehouse, the receiving team checks the shipment against the PO—verifying quantities, inspecting quality, and documenting any discrepancies (short shipments, damaged goods, or incorrect items). Discrepancies generate exception records for resolution with the supplier.
• Three-Way Matching: The PO, receiving report, and supplier invoice are matched to ensure consistency before payment is approved. This three-way match prevents overpayment, duplicate payment, and payment for undelivered goods.

How Nventory Helps

Nventory’s purchase order management module streamlines procurement from requisition through receiving. Reorder point alerts and demand-based recommendations help you create POs at the right time for the right quantities. POs are created directly within the platform with full line-item detail, supplier information, and expected delivery dates. As inbound shipments arrive, warehouse teams receive against the PO within Nventory, automatically updating inventory counts and flagging discrepancies. Open PO data feeds into your available-to-promise calculations, enabling you to confidently sell against incoming stock. With complete PO history and supplier performance metrics, Nventory gives your procurement team the visibility and control they need to keep inventory flowing and costs predictable.