Last Updated on November 30, 2021 by Jay Clover

Before we place our order we want to be sure that our supplier knows what we expect from him. We will use a Purchase Order Contract for this. That sounds very serious, but will provide invaluable during disagreements. In this document, we will simply write down all the specifics we have discussed with our supplier. We recommend setting up a PO contract on big orders, for the budget conscious seller, a clearly formatted excel or Alibaba’s built in contract service will suffice.

For example, if we have agreed with our supplier that he will manufacture a garlic press, made from 304 stainless steel that weighs exactly 9 ounces & 7.5 x 3 x 2 inches. We will put all of this in our PO contract.

Defect rate

One of the most important things to include in our PO contract is the defect rate. When you order 1000 garlic press, you can’t expect all of them to be sublime. There will always be a couple of defects. This is completely normal. However, we need to set a maximum defect rate. By default, we set this at 2%.

Why do we need this document?

In case we run into any problems with our production we will have this document to refer to. You don’t want to have a discussion with your supplier later on about the weight of the product. You can simply refer to this signed document where he agreed to manufacture 9-ounce garlic press.

This is also the reason we plan our inspection before we pay the remaining 70% of the balance.

Example

After we received our inspection report we discovered 15 / 200 products had a defect. This is a 7.5% defect rate, much higher than our 2% we agreed upon. If we did not have this contract or inspection in place we would be stuck with a very low-quality product, which would result in loads of return & low review rating on Amazon. Luckily we do have this in place so we can quickly resolve this with 1 simple e-mail:

Dear supplier,

During our inspection, we discovered that the defect rate on this order is 7.5%. Which is not below the 2% we agreed upon. We can not accept this order & we will not pay the remaining 70% yet. Please let me know how you will fix this and when we can plan a new inspection when the new order is done.

Thank you and have a nice day!