Companies use a process order to replenish their inventory. At its most basic level, the order specifies a certain number of products, a price and the delivery deadline date. The business then sends this order to a supplier, where it is fulfilled. The supplier sends the necessary goods, and bills the business. Processing these purchase orders can be a significant cost for the business, especially if an order needs to be created for every transaction.
High End Orders
On the high end, purchase orders tend to cost around several hundred dollars. A 2006 SC Digest report placed purchase order processing expenses at a wide range between $50 and $500. These highly complex orders have a wide variance based on their terms of negotiation and order needs. For many businesses, a lower high-end average may be around $100 to $150 for typical inventory needs, especially when the business does not deal with exclusive products, according to author Dave Piasecki.
Lower End Orders
When the distributor and supplier have a set relationship with mutual understanding and little room for negotiation, purchase orders tend to be easy to purchase and process. These orders cost between $10 and $20 on average and tend to be more stable, according to Learning Werks. These purchase orders are often automated and the business inventory system may send orders on its own, potentially without authorization.
The reason that purchase orders can range from $10 to several hundred dollars is the differences between industries. For many businesses, generating purchase orders requires significant study of current and future needs so the company orders the right amount of supplies. For industrial manufacturing, when supply terms are often set, costs may be about $60. But for complex industries, such as those involving fossil fuels, a purchase may cost over $700 to process.
Purchase Order Expense Reduction
Businesses can often reduce these expenses by developing closer relationships with suppliers and creating terms that can easily be used at a moment's notice when creating orders. Supply chain management analysis can help automate many processes and decrease the costs associated with on-spot analysis.
- Learningwerks.com: Oracle Apps Tutorial - How to Adjust Average Cost with Invoice Price Variances (IPV)
- "My World of Integrated Supply and Alliances"; Mort Harris; 2011
- Inventory OPS; "Optimizing Economic Order Quantity (EOQ)"; Dave Piasecki
- Ontario Ministry of Finance: Average Cost to Issue a Purchase Order