Purchase Requests
WHAT IS A PURCHASE REQUEST?
Buying things using a pool of money with many stakeholders can be complicated. Purchase requests are how teams, companies, and other large organizations coordinate their purchases.
THE TOOLS AND METHODS OF PURCHASING
In an modern economic system, there are lots of tools that have been developed to exchange goods, services, and currency. Exchanging funds for goods and services is often more complicated in practice than expected by young professionals. Organizations have lots of different mechanics used to purchase different kinds of things and insure that agreements are clear and waste, abuse, and fraud are minimized.
Below are a few of the common tools, methods, and roles you are likely to encounter in your career:
Cash Exchange
Most people are familiar with cash exchanges. This is a very fundamental exchange of a currency for goods or services. In the exchange, the buyer gives the seller cash and the seller gives the buyer goods or services typically in rapid succession. There is an implicit or explicit agreement between buyer and seller that the trade is acceptable to both parties.
While physical cash is occasionally used by organizations, there are limitations of speed and quantity when it comes to day-to-day operations that lead most businesses to use other contractual mechanisms.
Quotation
Quotations are not actually a means of purchase, but rather a preliminary written statement from a seller who agrees to exchange a certain amount of a good or service for a certain amount of cash or equivalent.
Quotations will typically come with an expiration and often come with additional terms. Some may be legally enforceable while others may only be tentative and could be retracted or changed by the seller at any time.
Quotations tend to be a critical element of setting up some of the next methods of purchase.
Purchase Order (PO)
A purchase order is a contract between a buyer and seller that one or more goods and/or services will be rendered on/by a certain date(s) and that payment will be rendered on/by a certain date(s). Like other contracts, this is a legally enforceable document if either party fails to comply with its terms.
Purchase orders are typically constructed by the buyer using a certified seller quotation as a source of exchange details and agreement from the seller.
Purchase orders may come with additional terms and contingencies. It is common for payment terms to be used to delay payment until some amount of time after the goods and/or services are delivered. Payment can then be transferred by a variety of means such as a physical cash or a bank transfer such as a wire, money order, or check.
Seller/Vendor Credit
Seller/vendor credit accounts are similar to purchase orders, but are typically open-ended contracts, meaning that the buyer can request to be delivered as much goods or services as they want (typically up to a maximum limit) within a certain time period. At the end of that time period, the total value of the goods or services will be billed to the buyer with specified payment terms.
Seller/vendor credit accounts are often used between trusted parties to simplify their exchanges. Other terms are common in these types of agreements such as fees or minimum exchanges.
Credit systems come with risks to both parties. The seller risks that a buyer may not be able to pay the back for the goods delivered. The buyer has a more psychological risk in that it is easy for them or their employees to take more than they need and run up a large bill, so internal controls (such as signature approvals or trusted buyers) are often implemented around pulling from vendor credit line.
Purchase Cards (P-Cards)
Organizations will often have Purchase Cards which are credit or debit cards registered to the organization. These cards can seem simple these days, but it is valuable to understand the basics of how these exchanges work behind the scenes.
These cards are issued by a creditor or the organization's bank and come with an agreement that the creditor/bank will pay a seller that the buyer receives goods or services from up to a limit. This creditor/bank also has an agreement with one or more sellers that they will be paid for goods or services provided to a buyer with their card up to a limit. These agreements will generally have fees charged to the different parties for the value of the convenience.
Like any other credit systems, all parties are exposed to risk. Within the buying organization, these cards are typically only issued to trusted parties with limits commensurate with their trustworthiness and role. Internal controls and bookkeeping tools like Expense Reports are often essential to insure that these cards are being used in a responsible and traceable manner.
Many sellers (think of Costco, Amazon, or HomeDepot) will issue their own credit cards such that the seller and the creditor are the same party. These cases are equivalent to Vendor Credit agreements.
Reimbursements
It can occasionally become necessary, valuable, or otherwise convenient for an employee or member of an organization to make a purchase for the organization with their personal funds with the understanding that the organization will pay them back.
In these cases, the employee or member will purchase the good or service and will retain record of the exchange (typically via receipt). The employee or member will then submit this record to the organization through an Expense Report. If approved, the organization will transfer a cash amount to the employee (typically via check or payroll).
The employee or organization member in these cases takes on risks of the purchase, so it is important for them to act responsibly. Particularly in cases of large or extravagant purchases, the employee or member should seek pre-approval from the organization in advance.
Example: Many organizations allow or encourage employees to make their own travel purchases and have them reimbursed. This reduces the complexity of having another person at the company coordinate the travel for a different employee. The employee also gets to keep perks like airline miles and/or credit card rewards for these purchases.
In the case of Senior Design, students should always seek pre-approval before risking their own funds.
Expense Reports
Organizations are typically responsibly and legally obligated to perform bookkeeping of their expenses. With the potential for lots of individuals within a company to be spending money, it becomes important for these individuals to report on what they spent that money on and why.
Depending on the nature of the organization, this can be complex or simple, but typically an expense report will require:
An itemized summary of what was purchased so the organization knows what it paid for.
Proof of purchase (receipt) so the organization has proof that the exchange actually happened.
Approval of another member of the organization (usually a manager and/or purchasing specialist) so the organization has a verification that the purchase was reasonable.
Purchaser
A purchaser (sometimes called a "buyer") is a person within some organizations who is responsible for executing purchases. This is a responsible party who people within the organization will make requests through to buy things. They take on a good deal of the responsibility and logistics of executing purchases so others don't have to.
A purchaser will have very different roles and responsibilities at different organizations. For example, a purchaser may be responsible for:
Establishing and signing Purchase Orders
Executing purchases on a Purchase Card they are entrusted with.
Getting multiple quotes for a needed item.
Finding vendors and holding them accountable for on time delivery.
Facilitating financial transfers to vendors or creditors when due.
If an organization has a purchaser/buyer that you will work with, it is wise to get to know what they do and how they prefer work with you like any other teammate. You will typically exchange detailed information with this person through Purchase Requests which typically spell out what you need, when you need it, and why. Having a good relationship and clear communication with your purchaser can be the difference between correct quality parts that arrive on time for the right price and not getting parts at all.
PREPARING FOR A PURCHASE REQUEST
A well prepared team must understand a great deal of context to insure that they submit appropriate requests. Clear and well prepared requests will improve your chances of a quick review and a successful purchase both in the senior design program and in your future career.
Understand the fundamental justification what you are requesting.
This can be simple or complex.
A part could be needed because the project contract explicitly requires purchasing a specific part/service to be tested.
A part/service could be needed because of a broad set of requirements converging on this as a possible solution that the team has researched and concluded is necessary.
Think in terms of value to the project.
Spending resources should be directly traceable to your objectives. If you can't describe the value of your order to someone new to the project, you may not understand the value well.
It is often acceptable to take risks to get outcomes, like buying a part/service that may not work out, but if it does work out it should reveal something commensurately useful.
Having budget left is not a justification for a purchase.
Check your budget/bookkeeping.
If you can't afford a purchase, you'll need to go back to the drawing board to find more funds or reduce your spend.
Keeping track of your budget and spending with bookkeeping is critical.
If you don't know how much capital you have spent, you don't know how much you have. If you don't know how much capital you have, it becomes very hard to plan and acquire what you need.
Verify you are ordering the right thing.
Finding out you ordered the wrong thing not only saps confidence and can waste resources, but it often takes a significant amount of time to get fixed
Read spec sheets, check part/service against requirements, double-check analysis, and have someone review your decision to make sure you are prepared.
The bigger the purchase and longer the lead time, the more important this verification becomes.
SENIOR DESIGN PURCHASE REQUESTS
The senior design program has a number of mechanisms for making purchases depending on what is being bought. Use the below guidelines to determine how to go about organizing your purchase.
Note: The project team is always responsible for maintaining their own bookkeeping as a group. The program will maintain its own accounting, and an audit may be requested from the Academic Director by a team if there are discrepancies, but a team running out of money in their budget is their own responsibility.
The Project Advisor may choose to hold the team accountable for failure to responsibly keep track of finances.
The Academic Director may cut off purchases for a team deemed fiscally irresponsible.
Request for Purchase
Typically done for parts, materials, and services from online vendors which accept credit cards.
When a team needs to purchase things from online seller, the purchase will typically be done via a Purchase Card held by the program. In order to request such a purchase, the team will need to:
Save a copy, fill, and export as PDF the "Purchase BOM Form."
If purchases are from multiple vendors, fill one "Purchase BOM Form" per vendor.
Save a copy, fill, export as PDF, and sign the "Request for Purchase Form."
Submit that forms as PDFs through the Senior Design Purchase Request ticket.
If vendors provide links to auto-fill carts (often referred to as "share" or "send"), provide this in the request.
Request for Purchase Order (PO)
Typically done for material or services from local or industrial companies for things like materials and equipment.
When a team needs to purchase things from a quote from a seller using a purchase order, they will need to submit a Request for Purchase Order. In order to execute this, the team will need to:
Save a copy, fill, export as PDF, and sign the "Request for Purchase Order Form."
Submit that form as a PDF along with the seller's quote through the below "Senior Design Purchase Request" ticket.
Reimbursement Requests
Typically used for travel or small but urgent purchases from local sellers.
Save a copy, fill, export as PDF, and sign the "Reimbursement Pre-approval Request Form."
Submit that form as a PDF through the below "Senior Design Purchase Request" ticket.
Wait for written approval from the Academic Director to execute the purchase.
Only after approval, execute the expense and save all receipts (credit card slips & itemized receipts).
Without proof of purchase, you may not be able to be reimbursed.
The same individual should make all purchases. Do not split reimbursement purchases amongst multiple team members unless absolutely necessary.
Save a copy, fill, export as PDF, and sign the "Reimbursement Expense Report."
Respond to your open ticket with the expense report as a PDF and attach all receipts.
Elastic Resources/Vendor Credit
Typically only done for computer science online recourses like AWS or Github where charges are accumulated and then billed at the end of the month.
Save a copy, fill, and export as PDF the "Elastic/Credit Setup Form."
Follow the steps on the form, and, when appropriate, submit that form as a PDF through the below "Senior Design Purchase Request" ticket.
Work with the Academic Director and their designated reviewer(s) after submitting to set up the appropriate safeguards and configure a credit line.
Submit an "Elastic/Credit Expense Report Form" with a billing record for each billing cycle to the academic director to provide detail on what money was spent on the account.
Purchases through Sponsors
Occasionally a sponsor will choose to purchase or provide items/equipment/resources.
If you are not sure if your sponsor is purchasing something for your team, contact the Academic Director before requesting any purchases from the sponsor.
BOOKKEEPING
Once you have money and start spending it, it is important to keep track of it so you know how much you have left at any given time and where what you spent went for accounting.
For guidance and tools for this process, see: Bookkeeping 101