What is a purchase order (PO)?

A purchase order (PO) is defined as a formal document that details the specific goods or services that a buyer is requesting from a supplier. It serves as a legally binding contract once accepted by the seller. The PO typically includes important information such as item descriptions, quantities, prices, delivery dates, and payment terms. This structure ensures clarity and protects both parties involved in the transaction.

In a supply chain context, the use of POs facilitates better communication and reduces the risk of misunderstandings or errors regarding what is being ordered. It also provides a trackable trail of the transaction, which is useful for both inventory management and accounting purposes.

The other choices do not accurately represent what a purchase order is. Requesting quotes pertains to the preliminary stages of sourcing, while an informal agreement lacks the legal validity and detailed specifications tied to a PO. A report on inventory levels is unrelated to purchase transactions, as it focuses on the current stock rather than the ordering process itself.