Overview of the purchase order process
Different roles within an organization use purchase orders to update and keep track of the status of the purchase orders.
For example, the purchasing agent uses purchase orders to create a list of products that will be purchased from a specific vendor, and then they record the information in the purchase order. The purchasing agent then sends the purchase order to the vendor to be reviewed and accepted. After the vendor has reviewed and accepted the purchase order, the purchasing agent confirms it.
Alternatively, this process can be done through the Vendor collaboration portal. For more information about this portal, refer to Configure and manage vendor collaboration in Dynamics 365 Supply Chain Management.
A warehouse worker could also use a purchase order to check the status of the inventory transactions, on-hand quantity, and to post product receipt when the goods or services are received from the vendor. An accounting clerk could use a purchase order to enter and generate an invoice so that a payment can be made to the vendor for the products provided.
Working with purchase orders
Various pages and list pages are available to create, review, and update purchase orders. The following topics review the Purchase order page and Purchase order list page functionality.
The All purchase orders list page is found in Procurement and sourcing > Purchase orders > All purchase orders. The list page displays all purchase orders for the current company. You can use the list page to create, change, or review any purchase orders in the system for the company that you are logged on to.
The All purchase orders list page contains two FactBoxes that display additional information about the selected purchase order:
Latest purchase orders - Displays a list of recent purchase orders for the same vendor as the purchase order that is selected in the grid. You can go to a related purchase order by selecting the Purchase order link inside the FactBox.
Purchase order totals - Displays information such as Line discount, Subtotal amount, Total discount, Charges, Sales tax, Cash discount, and Total amount.
You can use the buttons on the Action Pane to complete various tasks that are related to the selected purchase order(s). Not all buttons are available when you select more than one purchase order.
Purchase order types
When you create a purchase order, you must indicate which type of order it is. You can select one of the following types:
Journal - Use as a draft. This type does not affect stock quantities and does not generate item transactions. The purchase order journal lines are not included in master scheduling.
Purchase order - A purchase order is a document that represents an agreement with a vendor to buy goods or services. The document also helps keep track of product receipts that are made toward the order and, later, the accounting of vendor invoices that the vendor bills toward the order.
Returned order - Use when you return goods to the vendor. The returned item number, which is the RMA number that you receive from the vendor, must be entered on the Other tab.
You can set up a default purchase order type on the Procurement and sourcing parameters page in the Purchase type field.
Purchase order statuses
A purchase order can have several statuses that indicate where the selected order is in the purchase order process. As part of the workflow and change management activation process, the purchase order status is implemented on the purchase order header, and it can be any of the following:
Open order - Orders have been created and quantities are on order.
Received - Some of the quantities have been received, but they haven't been invoiced yet.
Invoiced - The full quantity on the order has been invoiced. Note: If an order has been partially invoiced, neither Received status nor Invoiced status is appropriate. Therefore, the order will still have a status of Open order.
Canceled - An order was confirmed but later canceled. Therefore, this status indicates that there are no longer any open quantities on order.
Additionally, as part of the workflow and change management activation process for the purchase order, an approval status is implemented on the purchase order header. This header, and the purchase order status, always exist regardless of change order management activation. However, the Approval status updates are impacted by change management.
The Approval statuses of the purchase order are:
Draft, In review, and Rejected - These statuses are used only when an approval workflow is used for the PO.
Approved - This status is assigned to orders that have completed workflow approval. Orders that are created without using an approval workflow receive a status of Approved immediately.
In external review - This status is used in scenarios where a purchase inquiry is sent to the vendor so that the vendor can confirm terms of the PO. This status is also used in the process that is initiated by the Confirmation request action. For this process, the vendor is asked to confirm terms of the PO by connecting to your system and registering whether it confirms or rejects the order.
Confirmed - This status is assigned after the order has been confirmed.
Finalized - This is the final approval status.
You can learn more about how to create and work with workflows in the Work with workflows in finance and operations apps module.
Purchase order document statuses
Each purchase order has a document status that indicates which documents are generated for a selected purchase order. These statuses include:
None - No document has been processed for the order yet.
Purchase inquiry - A purchase inquiry has been generated, and the order is awaiting feedback from the vendor.
Purchase order - Confirmation has been processed on the order.
Product receipt - Product receipt has been processed on the order.
Invoice - An invoice has been accounted with the order.
Because the status and document status are calculated separately, different combinations of statuses and document status can help additionally identify the status of an order.
For example, if the status of an order is Open order and the document status is Invoice, you can conclude that the order is partly received and invoiced.
Charges on purchase orders
Charges that you want to add to purchase orders, such as invoice fees, freight, and insurance can be added to the header or each line of a purchase order. You can add charges manually or Supply Chain Management can generate them automatically.
Only charges where credit is vendor are added to the totals and included in the calculation of the total amount. After you have completed setting up the charges for a purchase order, the next step is to allocate charges to purchase order lines before you process the order.
The charge allocation could be based on:
- Net amount
- Quantity
- Per line
Allocate charges to lines could be based on:
- All lines
- Positive lines (purchase)
- Negative lines (vendor returns)
You can choose to allocate all, based on the items that have been received and/or stocked.
You can use the Allocate charges page to allocate charges from the purchase order header to the purchase order lines.
You can add charges to the purchase order header or to the purchase order lines. Sometimes, the charges that are allocated to the purchase order header will also need to be allocated to the lines. The charges that are assigned to a purchase order are controlled on the Procurement and sourcing > Setup > Charges > Charges code page under the Posting FastTab and Debit section, where Type should be Item.
For example, if transportation cost should be added to the line item cost price, the transportation cost must also be allocated to the lines by using one of the following methods.
Allocate the total charges amount to the various purchase lines in the following ways:
According to the magnitude of the line amount in relation to the total net amount of the lines.
According to the number of units in relation to the total number of units of the lines.
Equally, according to the total number of lines.
Specify the types of purchase lines to which the charges will be allocated so that you can allocate to all lines, positive lines, or negative lines. By doing this, you avoid allocating charges to returned items.
Determine, manually, the exact lines to which the charge will be allocated.
Process purchase orders
When change management is turned on for purchase orders, the purchase order must be submitted through workflow and approved before the purchase order can be sent to the vendor. When you are in agreement with the vendor, you can confirm the purchase order.
Purchase orders can be confirmed individually or in mass. You also have options to print a pro-forma purchase order so that you can view the details before confirming and sending it to the vendor.
The purchase order confirmation will print according to the print options that are selected in the Confirm purchase order page. If print management is being used, the confirmation will print according to the print management settings.
Watch this video to learn how to create and process a purchase order.