CPIM Practice Exam

What is a purchase order?

1. A contract for services rendered

2. A formal authorization of a purchase transaction

3. A request for product delivery

4. A quote from a supplier

The correct answer is: A formal authorization of a purchase transaction

A purchase order is indeed a formal authorization of a purchase transaction. It represents a document that is generated by a buyer indicating the types, quantities, and agreed prices for products or services. Once the supplier accepts the purchase order, it becomes a binding contract between the buyer and the seller, clearly defining the transaction and the expectations of both parties involved. This formal authorization ensures that both sides have a clear understanding of the terms, including pricing and delivery expectations, which is essential for effective supply chain management. In contrast, the other options describe different concepts: a contract for services rendered pertains to agreements for services, a request for product delivery typically refers to an action initiated by the buyer for items already ordered or modeled after an order, and a quote from a supplier is merely an estimate of costs or pricing, not an authorization to purchase. These distinctions highlight the unique role of a purchase order within procurement and purchasing processes.