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How to Get Your Purchase Order (Bill Of Materials) Right The First Time [Podcast Ep03]

 

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It’s what you don’t specify that poses the greatest risk

You don’t know what you don’t know, that’s the famous expression.

If a purchase order or supplier’s pro forma invoice is too short in detail, you may feel like you’ve got the specific information or requirements that were discussed and agreed.

However, the devil is in the details and I can’t emphasize this enough.

The more you specify, the more confidence you can have on what you get at the end.

Later on, for example, we’re going to talk about the 11 key areas to cover in your purchase order. This will give you a guideline to make sure you’ve covered all the areas.

But what’s commonly misunderstood is this:

Buyers often expect suppliers to assume certain things based on the country they’re shipping to and based on their experience.

However, a manufacturer looks at it completely differently, in terms of, “whatever you ask me for, I will give you.”

It’s a completely different philosophy.

If you’re shipping to Australia or Europe, you expect your supplier to understand Australian, European regulations and ship a product that’s compliant to that.

However, a supplier looks at it as…well, if you haven’t asked for that you may not need it, so it’s not required.

Disputes often arise at a later date as a result of not including specific things, and it creates a lot of damage down the line and a lot of bad feelings between the buyer and manufacturer.

Another example is color. If you say yellow, you can get any shade or variation of yellow, and the manufacturer would be technically correct.

But you might be disappointed in getting the wrong shade of yellow, so you need to actually specify the Pantone color for example.

These examples extend to everything from:

  • Engineering
  • Commercial terms
  • Payment terms
  • Quality standards
  • Compliance standards…

To even the gift box and packaging:

  • How thick will the material be?
  • How thin will it be?
  • How many layers in the cardboard?
  • What type of sticker will you use?
  • what type of adhesive will you use?

Now, all I’m saying is, if you don’t specify it, you can’t blame the manufacturer for either not doing it, or for doing it and using their own standard or their own material.

So the more you understand and the more you know, the more you’ll reduce risk and the more you can include in your purchase order.

Always ask yourself, “what haven’t I told the manufacturer?”

Because that’s where most of the problems come in. “What have I not specified?”

If you can remove that from the equation, you’ve got a much greater chance of getting a better product at the end that meets your expectations.

How we do Purchase Orders at Global TQM

At Global TQM we’ve developed a proprietary methodology called Order BOM to build our purchase orders.

The Order BOM covers 11 critical areas

1. Features

List the features you expect very precisely and clearly. Omit nothing.

A lot of features can be optional in your product, so you should specify exactly what you expect.

2. Product safety warnings and markings

This is very important to include up front.

If there are any hazardous markings that are required by your country or warnings of do not let children play with this, put it in your purchase order to avoid serious problems down the line.

3. Packaging and labeling

Always specify how you want the product packaged.

Is it going to be a blister pack, a gift box, full-color printing, two-color printing, the thickness of the packaging, and any drop test ends that the product should pass?

Are there any labels, stickers on the product?

They all affect cost and production time, so include them all in your purchase order.

4. Technical information

If there’s specific technical information you’re aware of that you require on your product, include it here.

Technical information could include things like software versions or just types of material that you want to specify or ensure the manufacturer uses.

If you’re not sure, ask them questions on what they recommend or what’s included.

Then, you can include that in your purchase order to make sure you get what they’ve told you you’re getting.

5. General terms and conditions

Include what you’ve mutually agreed with the manufacturer:

  • Is there a percentage for warranty?
  • Are there failure return rates that they’re going to provide you?
  • Are they going to provide you any spare parts free of charge?
  • Are there any commercial terms you’ve agreed to that need to be recorded and documented somewhere?

This is where you put the above terms and anything related.

6. Special instructions

Use this section to highlight something unusual or a one-time instruction.

Any special instruction, no matter how silly it is, can be documented and recorded under special instructions.

Here are some examples:

  • Retaining one or two or more production samples before the goods ship out
  • Arranging special production samples for releasing inspection
  • Anything you don’t want the manufacturer or your internal people to forget about this product before it ships
  • An action or event that needs to happen
  • A final product photograph to be supplied before goods ship
  • A final instruction manual couriered before shipping

7. Shipping and logistics

This is where you want to have all your shipping instructions:

  • Who your designated forwarder is
  • How you want them to ship the goods
  • If it’s by LCL, by FCL, etc.

You can also include special instructions about your shipping documents:

  • How you want them to prepare the shipping documents
  • If there are special ways to describe the product
  • If there’s any kind of customs requirements that you have that need to appear on your documentation

Put all this information under shipping and logistics so that’s all consolidated in one space and be checked off easily prior to shipping.

8. Regulatory and compliance

This is where you’re going to specify any standards, certificates, or test reports that you need for their product to comply with your local market.

This is the most important section to have completed and verified.

You also want to specify here the official standards number required as well as the type of document you need, if it’s a certificate or report.

You also want to specify if there are any approved or accredited bodies that these reports or certificates must come from.

9. Factory audits and approvals

This is where you want to specify any factory audit requirements you may have or accreditations or approvals.

For example:

  • The factory must be ISO 9001 certified and you need a certificate to validate that
  • A factory must have certain ethical compliance and you want a Sedex or other related certificate to validate that

Even if it’s going to be audited and checked during the production process, you need it on your purchase order to make sure the audit is not completed until all these items are complete.

10. Quality control checklists

This can be broken up into many sections, but the general principle is this:

You want to include any specific quality requirements you have that are generic.

For example, you want to have a drop test for your product to make sure it can withstand email shipping and courier shipping.

You also want to specify your final product inspection standards.

That is, what standard will be used at final inspection to determine if the goods are OK or NOT OK? This is very important.

11. Construction Requirements

Include any

  • Internal construction requirements,
  • Safety and reliability requirements,
  • And any external construction and cosmetic requirements

…that you may have picked up during sampling and testing that you want to specify and have improved for mass production.

You want to put it under the quality control checklists, which are broken down generally into:

  • External construction check
  • Internal construction check
  • Reliability and safety
  • Packaging and labeling
  • Function and performance

Before you go…

We’ve put together a handy guide for businesses who want to source their products from China – “China Sourcing for Startups.”

Even if you’ve been at it a while, you might find some useful tips to improve your experience overall.

Click here to download your FREE copy.

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