How Purchase Orders Can Help Retailers with Supply Chain Management

This article is for educational purposes and does not constitute legal, financial, or tax advice. For specific advice applicable to your business, please contact a professional.

During the initial months of the pandemic, a ripple effect across supply chains happened: First, consumers quickly stopped spending, retailers then largely halted purchase orders with vendors, and finally, vendors stopped supplying or importing goods to meet demand. But just as quickly as consumers stopped shopping, they started again, and retailers weren’t able to keep up with the sudden increase in demand, and neither were their suppliers. Additionally, the impact of COVID-19 on the workforce across supply chains and the shipping industry, especially international and overseas shipping, has made a once well-oiled supply chain management process unpredictable and inconsistent for a huge number of retailers. 

Purchase Order Management for Retailers

For retailers, there are a couple of ways that they can pivot to work with the challenges they’re facing, rather than against them. 

Be strategic about marketing inventory allocation: Every day, retailers make choices and trade-offs in order to balance inventory and customer demand. Right now businesses are faced with inventory shortages and supply chain challenges. To weather the storm, one approach could be to reallocate dollars toward marketing the inventory and goods you have available that can help lessen the impact of unreliable inventory, especially during busy shopping seasons. 

Be strategic with purchase orders: Purchase orders, or POs, are a standard document in the retail industry. Buyers place orders with sellers through POs, stating types, quantities, and prices of desired items or services. External suppliers use POs to track the requested fulfillment of an order and inform the subsequent invoicing for the goods or services. Taking a holistic view of your purchase orders and identifying the most reliable inventory at different times of the month or year can help mitigate losses when it comes to inventory. In fact, your purchase orders can be instrumental tools in your inventory management strategy throughout the pandemic and related supply chain issues. 

Purchase orders also play a large role in the process of tracking inventory, for both buyers and sellers.  With ongoing supply chain issues, and large fluctuations in supply-demand across the retail industry, purchase orders are a useful tool in tracking inventory and planning for the future. 

How wholesale businesses use purchase orders for inventory management

For wholesale sellers, when a purchase order is received it becomes a record of an expected order to track against your inventory. Meaning, a wholesaler can immediately remove that order from their inventory so that it can not be ordered by another buyer if it can’t be fulfilled. It’s extremely important for all retailers, both wholesale and direct-to-consumer (DTC), to avoid discrepancies between what customers can order and what is available in the retailer’s inventory. 

Purchase orders also serve as legal documents between DTC retailers and suppliers. It’s important to keep documentation of all orders, fulfillments, and related invoices for all of your POs. A PO and inventory system managed through a centralized tool, like Square for Retail, can keep track of all of these elements, giving retailers a holistic view of their POs and open invoices for all customers.

How retail businesses use purchase orders for inventory management

For direct-to-consumer retailers who are placing purchase orders instead of receiving them, POs are still a helpful tool for inventory management. Inventory management isn’t just about what you have in stock, it’s an instrumental way of tracking what is out of stock and why.

When a purchase order is placed with one of your vendors, your inventory should reflect that expected stock. Once the purchase order is fulfilled, you can update your inventory. For eCommerce businesses, depending on the expected receiving date, you might be able to start taking orders again on these items prior to having them in your hands. However, with ongoing changes and inconsistent expected arrival times between supply chain and shipping issues, this might not be the best strategy right now. 

Purchase orders are a key component of stock management.Tracking what you are consistently re-ordering, or having a difficult time refilling, can help with projected sales and be an instrumental tool in the growth of your business. Managing this process through the same system where you process sales, like Square for Retail, enables you to keep on top of all of your inventory and better plan for the future, even if it’s hard to predict.