Order Processing and Purchasing: The terms you should know

Last month, we shared some Basic ERP definitions  with you to break down not only what we do at SalesPad, but also to overview commonly used terms when discussing Operational ERP and Inventory Management. Hopefully, those definitions clarified some of the terminology around your business operations.

In this article, we want to continue our list of handy definitions, starting with those relating to purchasing and order processing. We know how crucial fine-tuned and efficient purchasing and order processing are to a wholesale business, and we want to make every step clear for you. Time to take a deeper dive!

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Purchasing Terms:

Purchase Order (PO)

A request to purchase goods, a purchase order is a commercial document and the first official offer issued by a buyer to a seller, indicating types, quantities, and agreed prices for products or services.

Vendor

Also known as a suppier, a vendor is a party in the supply chain that makes goods and services available to companies or consumers.   

Reorder Point

A reorder point is an inventory quantity that, once your inventory reaches this point, alerts you that it’s time to create purchase order(s) to restock the inventory.

Drop Shipping

Drop shipping is an order fulfillment method in which a company enlists a third-party vendor to ship the order directly to the customer, rather than keeping the inventory in stock.

To learn more about drop shipping, read “What is Drop Shipping?

Blind Shipping

Blind shipping is the vendor’s role in the drop shipping process. You might also hear it referred to as a blind drop ship. In an effort to conceal that the product was shipped from a third-party vendor and not from the seller, the third party’s information is removed from the shipping label and any documents that will accompany the shipment and replaced by the seller’s information. The customer is then “blind” to who actually fulfilled their order.

To learn more about blind shipping, read “What is Blind Shipping and Double Blind Shipping?

Backorder

A backorder occurs when an order is placed for a product that is temporarily out of stock. In most cases, a purchase order has gone out to the vendor to replenish said stock and fulfill backorders (hopefully!).

Lead Time

The estimated amount of time that passes between sending a purchase order to a vendor and receiving the goods is called the lead time. It is very important to consider lead time when determining restocking strategies.

To learn about purchasing best practices, check out

Be Prepared: Purchasing and Restocking Strategies to Help You Maintain Inventory Conrol.

Order Processing Terms:

Quote

A quote is an estimated cost of goods or services that is sent to a customer for review. Once approved, a quote can turn into either an order or an invoice.

Sales Order

Also known simply as an order, a sales order is an itemized list of goods purchased, used internally to fulfill an order. When payment on an order isn’t immediate and goods are shipped without payment, a sales order turns into an invoice.

Invoice

Similar to a sales order, an invoice is an itemized list of goods purchased or services rendered and the dollar amount owed for those goods or services. The invoice is sent to the customer after the goods have already been exchanged.  

Document Splitting

Document splitting allows you to process an order even without all the needed inventory items on hand. Splitting fulfillment into separate workflows allows the part of the order that you currently have in stock to be completed immediately, while the remainder waits on backordered items to be received, processed, and shipped.

Smart Printing

Smart printing is the ability to automatically print a document based on its movement within your workflow. For example, you might choose to have a pick ticket automatically printed in your warehouse every time an order has been approved and is ready to pick, pack, and ship.

Point of Sale

The time and place at which a retail transaction is completed is called the point of sale. More specifically, a point-of-sale system refers to the combination of software and hardware that retailers use to process a customer in-person. When you are at your favorite clothing store and the cashier scans your items, swipes your credit card, and hands you a receipt, they’re using a point-of-sale system.

Counter Sales

In many cases, counter sales and point of sale can be used interchangeably. At SalesPad, we define counter sales as an in-person transaction in a non-traditional retail environment, such as a walk-in customer to a large warehouse.

PCI Compliance

PCI compliance is adherence to the set of policies and procedures developed to protect credit, debit, and cash card transactions and to prevent the misuse of cardholders' personal information. It applies to all companies that accept, process, store, or transmit credit card information.

EMV chip/pin

Up until recently, swiping the magnetic strip on your credit card and providing a signature was used to validate card-present transactions. However, that was deemed insecure and prone to fraud. Today, a new, more secure method of validation is being implemented: the EMV chip and pin. The EMV chip is that small, metallic square you see on new credit cards, and instead of a signature, customers enter a 4-6 digit pin number.

This transition came with a shift in fraud liability. Before the switch, the fraud liability was almost always on the card issuer, no matter what. Now, the merchant must have a card swiper with EMV chip reader. If they don’t, they will held liable for fraudulent purchases that happen in their store.

Ecommerce

Also known as online shopping, Ecommerce refers to goods and services being marketed and sold over the Internet.

SOP to POP

SOP (sales order processing) to POP (purchase order processing) refers to a link between a sales order and a purchase order. SOP to POP allows you to purchase items that you want to sell but don’t currently have on-hand, and it ensures that your purchased items are tied to the correct sales orders. SOP to POP covers your bases when you’re experiencing item shortages but customers are seeking to buy those same items from you.

Until next time.

In the next post, we will discuss terms relating to inventory management and supply chain functions. If there’s a business definition you have yet to see, stay tuned for the next post, or just ask us! We love hearing from you in the comments below.

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