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Key documents in the procurement process

Like any part of the business, procurement has its own set of documents. Whether they are digital or still on paper, signed or not, they will not go away any time soon. Let us check them out.

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We have to sign them, and frankly, we do not check them all. But, be aware. The documents I will mention here have financial and legal consequences on you and the company you work in. We all get bored with them, and after some time, treat them like we treat newspapers. Pile them in some corner. Once the corner is full, put them in some boxes in the far corner of the store. Hoping that nothing goes wrong and we will never need to open them again.

OK, let us not go too much into the dark side. These documents are required in most countries. And they represent a written confirmation of our business with our suppliers. They serve to prove that we have ordered goods and that the goods have been delivered. And there are not too many of them.

The most important ones are

Quotation

The quotation is issued by the seller, stating

  • Product or products, service
  • Price, usually with all taxes and sometimes including transport, installation or other costs
  • Quantity, or the full scope of work, in the case of larger projects and services
  • Delivery and payment terms.

 Usually, a quotation will have as well as validity clause.

 While we all tend to jump on the price, do not forget to negotiate as well all other points in the quotation. I have seen many cases where the supplier bids low, but then adds high installation cost or additional warranty to get his profits.

Local Purchase order (LPO):

LPO is the official order issued by the purchasing department. The LPO is a basic contract. It confirms the goods, quantity, price and delivery terms. And it is binding for both sides. The buyer must accept the goods once they arrive at the gate. And the seller must deliver according to the LPO. While LPO’s used to be signed and sent by fax, now it is quite normal to have computer-generated LPO’s, sent via email directly from the ERP.

Terms & conditions

They are usually hidden, and the only reference to them is a “this LPO is issued according to our T&C’s”. Or “detailed T&C’s of this offer are available on our web page”. Sometimes you will find them on the backside of the invoice as well. They are written in very small letters and are difficult to read and understand. I have a feeling that lawyers did this only to confuse us “regulars”. Anyway, the moment you signed the document they relate to, you have accepted the T&C’s as well. The good thing is, they don’t change often. Take some time and glance through the T&C’ of your main suppliers. You will find very quick out that they are almost the same. So, after reading a couple, you will spot if there is anything unusual immediately. In this case, consult your legal advisor. Better safe than sorry. I have seen T&C’s where the seller remains the owner of the equipment until it’s fully paid. Also, he has the right to charge 2% interest per month and to take his goods back until the bill is fully paid. Those guys hope you will miss the payment…

Delivery note (DO):

Confirmation that the delivery has been done. It is signed by representatives of the buyer, usually the store’s personnel. This document is issued by the supplier and accompanies the shipment. With this paper, the transfer of ownership has been confirmed. The goods are yours, and you owe the money. Do not sign before you check and confirm that this is what you have ordered.

Goods received note (GRN)

GRN is very similar to DO. The difference is that stores create the DO as proof of delivery and give it to the supplier. It is used in multi-site companies, as not all sites have access to the system to enter the data. So they issue the GRN and send it to the administrator.

Invoice

This is the official bill that is sent to the accounts for payment. The invoice is subject to 3-way match: is the price and quantity the same in the LPO, DO and invoice. It is quite common to have the invoice delivered at the same time with the goods and the DO. Some companies that have modern systems do not need any invoice as a document. They connect their systems that automatically exchange data based on the GRN from the store.

All of them have a specific role in the P2P cycle. And all have similar important points you have to take care off:

Authorization

Is the person signing authorized to do so? If an unauthorized person signed a document, it is invalid. If you end up in court with such a document, it will be very difficult to prove your case.

Document storage

Do not be the guy from the beginning of the post. Spend some time creating a system that will allow you to find the needed document fast. Even boxes are fine, as long as everything inside is sorted in some order. And there is a sticker on the side that will help you to find the right box.

The “four eyes” principle

This is something I learned in banking. Every document should be reviewed by two persons from different departments that do not report to one manager. For LPO and invoice, it is mostly finance and procurement. DO’s and GRN’s are often reviewed by QA or operations besides stores. Or security does a check at the gate. This reduces fraud risk, as different people from different departments are checking documents and matching them as the goods move through the Supply Chain.

 

 

In my career, I have been a couple of times in a situation where we had legal or auditory requests to find old documents. And in some cases, it was a nightmare. There is no time, the authority expects that you can find a 2-year-old delivery note within minutes. Preparation is the key. Yes, it takes a bit of time to get it organized at the start. Yet, later you may thank yourself as you don’t have to dig through piles of old, dusty papers. Have them designed to contain all the needed data. Signed by the right persons. Stored properly. And if all this is done how it should be, you will never need them. Because your Supply Chain is working like clockwork.

This Post Has One Comment

  1. Matija

    Nice

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