Fashion merchandising basics: Purchase orders in 6 easy steps
Like many jobs, the most exciting parts of the role are often paired with a pile of admin to follow. Like it or loathe it, administration is a necessary part of running any business, and believe me when I say creating purchase orders is one of them. Below is a breakdown for the retail newbies of this essential step in the fashion merchandising process. Cause thou shalt not buy a collection, without drumming up some solid POs.
So, what’s all the fuss? If you’re running a retail business, your POs aren’t just a pile of paperwork. Purchase orders are key to:
keeping on top of your inventory,
managing your cash flow, and
knowing what’s on order and when to expect shipments.
The last thing you want is to lose track of the orders you have placed, which could lead to duplicates or forgotten orders 😬
So let’s double down on this dreary task by making it a smooth, six step process. Who knows? You might even learn to like it.
What is a purchase order?
A purchase order (PO) is a legally binding document between two parties where a buyer agrees to purchase goods or services from a supplier.
A PO outlines the product details, agreed cost prices, and quantities the buyer would like to purchase.
Each PO will contain a PO number eg, PO123 for tracking purposes on both the supplier and buyer sides. Delivery addresses, dates and payment terms are also included on the PO along with any identifying product codes such as barcodes or Stock Keeping Units (SKU) codes.
As mentioned, creating a purchase order for the stock you buy can help track incoming inventory and manage cash flow. As in, you’ll have a pretty good idea of your income vs your outgoings because of your forecasted sales on the stock count of a particular shipment.
The vendor also uses the PO to confirm production or give the green light for the supplier to start collating the order to be shipped and delivered by the specified receiving dates.
What is the difference between purchase orders and invoices?
An invoice is provided by the supplier to the buyer to request payment for the products or services ordered by the buyer via the PO.
The invoice contains the same information as the PO including, product details, quantity, outstanding costs and payment terms.
The main difference is invoices request payment for products shipped. In some cases, a supplier might have limited units in a particular size so they will only ship what they have available and charge for that specific amount.
What does a purchase order look like?
There are a few key elements that each PO must contain as outlined in the image below.
Sample Purchase Order
What is the purchase order process?
1. Range selection
After viewing the next season's range (the most exciting part of the job by far, right?) the buyer will decide what items they would like to purchase in line with their allocated retail budget and range plan.
Style Arcade’s visual Range Planning tool makes it easy for buyers to digitally view images of the collection of styles they have selected alongside their budget. This will help guarantee delivering on a cohesive collection of products to take to market that customers will love; while hitting budgeted sales.
Being able to view your range after going to market is a godsend. It gives you the opportunity to ensure you haven’t missed a key shape or gone crazy with one colour. You can view exactly how your products will look once they go live onsite eliminating any room for error.
Sample Range Plan in Style Arcade
2. PO drafting by size
Once the buyer is happy with the selected products and quantities to order they must upload the product details from the supplier to their system so a PO can be created. Style Arcade makes this task a breeze, simply upload the order from the supplier straight into Style Arcade and all details are ready for you.
The supplier will require the final quantities to be broken down by size (fun times!). It’s important to get this step correct or you risk losing profit, or worse missing sales. Once again, Style Arcade can save you time and provide accuracy with our size curve function.
Size Curve function in the Style Arcade app
3. PO Submission to Supplier
It’s the buyer's responsibility to provide the PO to the supplier and adhering to order cut-off dates and supplier deadlines is a must. Set alarms, make calendar reminders, do what you can to stay on track, because if you miss the supplier deadline, you’ll miss your carefully allocated delivery and drop dates. Suppliers are required to log their orders with factories to allow sufficient production time to meet the required delivery dates (so they're not likely to care if you missed the cut-off because an all-important warehouse sale was on!)
4. PO Confirmation
The supplier will either accept or reject the PO if they are unable to fulfil the order. It is common for certain styles you have ordered to be cancelled by the supplier. There are a number of reasons this may occur, the main one being Minimum Order Quantities (MOQ) were not met.
MOQ refers to the minimum order quantity required by a factory to produce a finished item.
For example, you may want to test cashmere socks alongside your winter apparel offering with 200 units, but you’re probably going to get knocked back (at least at the wholesale price) from the cashmere sock manufacturer who operates with a 1000 unit MOQ. Now it’s up to you, and historical data to decide whether or not to risk it.
If an item is cancelled it will need to be noted by the buyer who will then ascertain the impact on sales. Picture this: you have a style on order that you had forecasted to bring in 20k in sales and it’s cancelled by the supplier with limited notice. Eek! How do you fill a 20k sales gap? Could you pull another style forward from a later month to make up for the lost sales, or ask another department to cover it? 😱
This is fine. Everything's fine.
Now breathe. Stay calm. If your business uses fashion software like Style Arcade's Range Plan, you’ll be able to instantly identify:
a) the gaps left by the obsolete/cancelled styles in your collection,
b) the financial impact to the sales for that month, and
c) a quick view of styles on order in upcoming months that may need to be pulled forward.
Done and sorted. Crisis averted. 😮💨
Literally suppliers everywhere.
5. Vendor Invoicing
Once the order is complete, the supplier will send an invoice for the goods as outlined in the PO.
The buyer pays the supplier the outstanding amount as per the agreed payment terms which was agreed upon during initial supplier negotiations.
Payment Terms outline the method and currency in which the payment should be made, time frames for payment, and any penalties.
Abiding by these agreements will encourage a healthy working relationship between you as the buyer, and your suppliers.
What are the benefits of using purchase orders?
POs, they’re not so bad! Once you master one, you’ve mastered them all. Using purchase orders is a requirement of most suppliers in the merchandising world, they offer a number of other benefits:
Improve inventory management and incoming orders
Control and track spending so you can keep on top of your cash flow
Reduce the risk of order duplication, or forgotten orders
Provide legal protection to you the buyer and the supplier
Purchase orders are a necessary part of the merchandising process. They offer many benefits to running a business including managing inventory, legal protection, and keeping on top of cash flow. Basically it's impossible to operate efficiently without them so it's best to be friends with them.
Style Arcade allows you to view your upcoming styles using the Range Plan function. Imagine having access to all style information, delivery dates AND IMAGES in one location, it really is a merchandiser's dream.
To find out how the Range Plan can visually change your merchandising world, reach out to one of our team for a casual chat.
About the Author
Cherie is a retail professional with over 8 years experience in fashion and beauty buying. She has worked for brands such as Sephora and The Iconic covering both brick and mortar and eCommerce channels.