A purchase order is where a purchaser creates and sends an order to a vendor for goods or services. In a standard purchase order, the purchaser will, at a minimum, specify what products are being ordered, the quantity, the agreed price and delivery and payment terms.
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A purchase order may arise out of a past order, an advertisement or offer by the vendor, or the parties’ negotiation as to the price and quantity. In this respect, a purchase order is a great way to concretely record what the purchaser and the vendor have agreed on. Purchase orders are essentially contractual offers. When a vendor chooses to accept a purchase order, that purchase order becomes the basis for a contract between the purchaser and the vendor.
The four main types of purchase orders
Standard purchase orders
A standard purchase order is typically used for irregular, infrequent or one-off procurement. As mentioned above, it contains a complete specification of the purchase, setting out the price, quantity and timeframes for payment and delivery.
A restaurant might raise a standard purchase order when it purchases new tables and chairs. If all goes well, this should be a one-off purchase for the restaurant, and the contract will be fulfilled once the chairs are delivered in good order.
Planned purchase orders
Like a standard purchase order, a planned purchase order is relatively comprehensive. A planned purchase order requires full details of the goods and services to be purchased and their costs. Dates for payment and delivery are also included in a planned purchase order, but these are treated as tentative dates. Issuing a release against the planned purchase order places individual orders.
For example, a restaurant might require 50,000 disposable placemats in one year – the manager could create a planned purchase order with a commercial printer detailing the price and quantity with a tentative delivery schedule. After using the first 5,000 placemats, the restaurant would create a release against the purchase order to order more.
Blanket purchase orders
A blanket purchase order involves a purchaser agreeing to purchase particular goods or services from a specific vendor, but not at any specific quantity. Pricing may or may not be confirmed in a blanket purchase order. This type of order is typically used for repetitive procurement of a specific set of items from a supplier such as basic materials and supplies.
In the restaurant example above, they could equally choose to use a blanket purchase order to procure the disposable placemats — not having to confirm a specific quantity may make this a preferable option if the quantity required is not clear.
Contract purchase orders
A contract purchase order sets out the vendor’s details and potentially also payment and delivery terms. The products to be purchased are not specified. A contract purchase order is used to create an agreement and terms of supply between a purchaser and vendor as the basis for an ongoing commercial relationship. To order a product, the purchaser may refer to the contract purchase order when raising a standard purchase order.
What is Straight Rebuy?
A straight rebuy is defined as a buying situation when the buyer routinely reorders the same order from a supplier without any modification. A company’s purchasing department places such orders periodically to meet their manufacturing needs.
In this case, the company orders the same product in the same quantity from the same supplier. Since the straight rebuy situation happens periodically, the company doesn’t go through the trouble of researching suppliers, prices, and products.
Once a company is happy with their chosen supplier they get into this buying routine - which results in straight rebuy.
Different types of Buying Situations
There are three main types of buying situations:
- Straight rebuy- reordering the same product in the same quantity that one purchased the last time.
- Modified rebuy- reordering from the same company but with slight modifications.
- New buy- when a company places an order with a certain supplier for the first time.
Companies resort to one of these buying situations depending on the following factors:
- How new the buying requirement is
- If the problem being solved is complex or routine work
- Total time to solve the problem (if the task is already done there is no need to reorder)
- If its a long-term or a short term project
New buy is fundamentally different from modified rebuy and straight rebuy buying situations. Since the order is being placed for the first time the process takes comparatively longer. The company has to perform detailed analysis and research to understand which supplier’s offering best fits their needs. Only after the detailed analysis will a company place its first order.
Straight Rebuy vs Modified Rebuy
As mentioned above, straight rebuy and modified rebuy buying situations are both very similar. The company chooses to reorder from the same supplier but their order is different in both cases. Let’s understand how these two buying situations differ.
1. Straight Rebuy
In the case of a straight rebuy, the reorder specifications exactly match the specifications of the last order. This is a routine affair, both the parties - supplier and company expect the order to be placed and fulfilled on time. There is no room for any delays or confusion or misunderstanding.
To maintain this buying situation suppliers have to ensure timely delivery and consistent product quality. This buying situation is also convenient for companies as they can skip the research process and directly place the order.
2. Modified Rebuy
In modified rebuy, the company reorder from the same supplier but they modify some elements of their order. The modification can be in terms of features, design, quality, packaging, quantity, or even delivery time.
Modified rebuy can sometimes result in delayed delivery or a wrong supply of goods. Because of the modification, the whole process can turn time-consuming.
Let’s take a few examples to understand straight rebuy better.
Routine Coffee Order
Starbucks is a huge corporation with outlets around the world. Many consumers visit Starbucks every morning to place the same coffee order with all the same specifications. This is a classic example of straight rebuy as all the elements of the order remain the same. The consumer visits the same supplier each day and places the exact same order.
Manufacturing Companies
Manufacturing companies rely heavily on suppliers to deliver their products on time. Any delays in the delivery of raw materials can affect the entire supply chain. Therefore these companies have to straight rebuy their orders for a specific project. Depending on the duration or complexity of the project the order might eventually change, but for a short period, the straight rebuy buying situation is being implemented.
Restaurants or Food Chains
Restaurants need fresh produce and pantry staples delivered routinely. Most restaurants buy fresh produce every day but the specific product, in this case, might change depending on the season. But pantry staples like milk, flour, salt, sugar, pepper, etc are essential. Restaurants definitely need a regular supply of them. So in this case the straight rebuy buying situation can be implemented.