What Is Purchase Order (PO)?
Also known as: PO, purchase order in ERP
Definition
A purchase order (PO) is a document a buyer issues to a supplier committing to buy specified items or services at agreed quantities, prices and delivery dates. In ERP it drives receiving, invoice matching, open commitments and supply in MRP.
Purchase Order (PO) Explained
A purchase order is the buyer's formal commitment to a supplier. It carries a header (supplier, currency, payment terms, incoterms, ship-to) and one or more lines (item, quantity, unit of measure, unit price, promise date). Once the supplier accepts it, the PO is the contract reference for everything that follows: receipt, inspection, invoice and payment.
In ERP the PO is also a planning object. An open PO line is scheduled supply: MRP counts it against demand, and a late promise date triggers reschedule or expedite messages. It is also a financial object, because the open value is a commitment that finance uses for accruals and budget checks before an invoice exists.
Every major system has its own shape. SAP creates POs in ME21N and posts receipts against them in MIGO. NetSuite has a Purchase Order transaction that turns into an Item Receipt and then a Vendor Bill. Infor SyteLine uses the Purchase Orders form with PO lines and PO receiving, and Infor LN uses purchase orders in the Procurement module with the order lines carrying planned and actual receipt dates. Odoo converts a request for quotation into a purchase order with one click.
A PO is usually created from a requisition, from a planned order that MRP converted, or directly by a buyer. Approval limits, supplier restrictions and price-list lookups are applied at this step, which is why PO controls are one of the first things auditors test.
Why It Matters
- It is the contractual anchor for price and delivery terms, so disputes with suppliers are settled against the PO, not an email.
- Open PO lines are scheduled supply in MRP, so wrong promise dates produce wrong shortage and expedite signals.
- Receipts and invoices match against it, which makes the PO the control point for three-way match and payment.
- Open PO value is a financial commitment, which feeds accruals and budget control before invoices arrive.
In Practice
A buyer orders 500 machined brackets at 14.20 each with a promise date of the 20th. The supplier confirms 300 on the 20th and 200 on the 27th. The buyer splits the line into two releases with their own dates. MRP now sees 300 arriving on the 20th and 200 on the 27th, and the shortage message for the work order due on the 24th correctly shows 200 short, instead of the whole 500 appearing on time.
Frequently Asked Questions
What is the difference between a purchase order and a purchase requisition?
A requisition is an internal request to buy something and usually needs approval. A purchase order is the external commitment sent to the supplier. Requisitions are converted into purchase orders.
Can a purchase order be changed after it is sent?
Yes, but most ERPs track it as a revision or change order, keep the history, and may re-trigger approval if the value rises. Changing price or quantity after receipts exist is usually restricted.
Is a purchase order a legal contract?
Generally it becomes a binding contract once the supplier accepts it, but enforceability depends on the terms and jurisdiction. Treat the PO and its referenced terms as the governing record and get legal advice for specifics.
Related Terms
Purchase Requisition
A purchase requisition is an internal request to procure goods or services, routed for approval against budget and authority limits before a buyer sources it and converts it into a purchase order sent to a supplier.
Three-Way Match
A three-way match is the accounts payable control that compares the purchase order, the goods receipt, and the supplier invoice on quantity and price before releasing payment, ensuring a company pays only for what it ordered and actually received.
MRP (Material Requirements Planning)
MRP (Material Requirements Planning) is the ERP calculation that explodes demand through bills of materials, nets it against on-hand and on-order inventory, and offsets by lead time to produce timed purchase and work order suggestions.
Lead Time
Lead time is the elapsed time between initiating an order and having the material available for use. In ERP it is the offset MRP applies when back-scheduling a planned order from its due date to its release date.
Landed Cost
Landed cost is the total cost of bringing purchased goods into inventory, combining the supplier price with freight, insurance, customs duty, tariffs, brokerage, and handling, so inventory is valued at what the material truly cost to acquire.
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