May 8, 2023
When it comes to procurement management, two terms often come up in decision-making: purchase order and scheduling agreement. These terms refer to distinct procurement documents that companies use to manage their purchases from external suppliers.
A purchase order, or PO, is a legal document that a buyer sends to a supplier to request goods or services. It sets out the details of the order, such as the type and quantity of items required, the delivery date, and the agreed price. A purchase order serves as a contract between the buyer and the supplier, ensuring that both parties are in agreement on the terms of the purchase.
A scheduling agreement, on the other hand, is a longer-term contract between a buyer and a supplier. Rather than placing individual purchase orders for each delivery, a scheduling agreement establishes a fixed delivery schedule over a period of time, typically several months or years. This allows the supplier to plan their production and inventory management more effectively, and may result in cost savings for both parties.
So, how do you know which procurement document to use for your purchases? Here are some key factors to consider:
Frequency of purchases – If you have ongoing and regular needs for a particular item, a scheduling agreement may make more sense. This way, you can negotiate better pricing and avoid having to issue multiple purchase orders.
Lead times – If you need items quickly and without the ability to plan ahead, a purchase order may be the better choice. This allows you to get the goods or services you need on a short-term basis.
Price negotiation – Both purchase orders and scheduling agreements can be used to negotiate pricing. However, scheduling agreements are typically better suited for longer-term price negotiation, since suppliers may be willing to offer discounts for the increased volume and stability of the business relationship.
Ultimately, the choice between a purchase order and scheduling agreement will depend on your specific procurement needs. By understanding the benefits and limitations of each document, you can make an informed decision that supports your business goals.