How Do I Setup My Purchasing

Industry Norms and System Design Philosophy

Trades are often instructed to begin work directly, and invoices are issued upon completion of the work rather than based on a prior Purchase Order.

Matching incoming Purchase Invoices to specific Purchase Orders will regularly require manual intervention because trades release Purchase Invoices as work is completed and not based upon the Purchase Order that you send them. Consider a scenario: a Work Order is issued for lots 5, 6, 7, and 8, and the incoming invoice includes charges for lots 1, 3, and 6. Reconciling this invoice with the corresponding Purchase Order becomes complex and time-intensive.

Feedback from users has consistently highlighted that managing trades and their invoicing timelines can be challenging, particularly when attempting to align invoices with Purchase Orders. Therefore, we recommend using Work Orders rather than Purchase Orders for base contract purchases.

Solution: Incorporating Purchase Orders, Work Orders, and Purchase Orders for Extras

In multiple systems designed for Homebuilders, the term “Purchase Order” is used for documents that effectively function as "Work Orders", i.e. the purchase invoice does not need to align directly with the Purchase Order in these cases. This introduces flexibility but also potential confusion in terminology.

Within our system, the workflow using a Work Order involves a series of statuses: "New," "Issued," and eventually "Completed." A completed Work Order does not necessitate direct alignment with a purchase invoice. However, if a Purchase Order is created, it will require reconciliation with the associated purchase invoice.

Regarding Purchase Orders for Extras (POE), it is not mandatory to complete these within the system. A POE remains open and unreconciled, allowing for purchase invoices to be processed independently as they are received. For example, a POE can be issued, printed, and left in the system without closure. This accommodates scenarios where the purchase invoice is processed separately.

Work Orders and Base Contracts

The system is designed for efficient use of Work Orders based on pre-agreed costs, typically outlined in vendor contracts. Work Orders act as formal requests to initiate work, ensuring alignment with contractual terms. For example:

• A base contract specifies the scope of work, such as installing tiles.
• A Work Order is created to signal readiness to begin,(e.g. in Lot 5.) supported by predefined costs and scopes from the contract. Work Orders are integrated into the system without the need for traditional Purchase Orders.

Recommended Process for Base Contracts and Vendor Agreements

The recommended approach:

1. Set Up Vendor Contracts: Establish base contracts with vendors and create model items that become Planning Lines on a Lot.
2. Initiate Work with Work Orders: When ready, generate Work Orders to signal work commencement, optionally including cost details.
3. Confirm work completeness.
4. Process Purchase Invoices: Upon receipt of Purchase Invoices, use Planning Lines to post them. (process them "stand-alone", i.e. without the need to match with a WO or POE)

• Selection Package Workflow: For selection packages, Purchase Orders for Extra (POE) are released. Purchase Orders (POs) are generated only where necessary.
• For inspections, service orders are used instead of Purchase Orders. These service orders do not require invoicing, as they represent requests for remedial work rather than contractual transactions.

Flexibility and Adaptation to Business Needs

While the Work Order approach is the recommended process, the system accommodates flexibility to suit various business requirements. Some organizations may prefer initiating every vendor transaction with a Purchase Order as a legal document.

This approach may be chosen for reasons such as:

• Lack of reliable vendor contracts.
• the need for strong controls when it comes to dealing with trades.
• A preference for formalized documentation for each request. (hence the need to use Purchase Orders)
• A division of responsibilities, where one team creates Purchase Orders and another reconciles invoices against them. In such cases, the system allows the use of Purchase Orders to ensure control, even in the absence of vendor contracts.

Using all Document Types

It it possible to use Work Orders and Purchase orders in one company. The process can be illustrated as follows: