Purchase Order Management System

[Rene Seiler]

Businessorganizations order thousands of goods and services each year. Everything your company needs to operate and grow comes by way of a vast network of suppliers. The main form of communicating these needs is through the tried and true purchase order.

Purchase orders are the means by which a buyer indicates their intent to purchase goods, raw materials, or services from a supplier. Purchase orders come into play after the initial purchase requisition has been submitted and approved.

The purchase order management process is the method of ensuring these purchase orders are correctly drafted and accurately reflect the desired purchase. In addition, this process monitors the progress of orders from placement through fulfillment and delivery. It tracks the accuracy of delivered goods against the original purchase order and offers data insights about this facet of the procurement process over time.

Clear expectations: Lack of visibility is not only frustrating, but it can be time-consuming as well. A purchase order process that clearly outlines the responsibilities and expectations of each party reduces confusion and allows everyone to stay clear on the next steps. For a medium-sized or enterprise company engaged in hundreds or thousands of purchases with suppliers, keeping everyone on the same page is vitally important.

Reduced errors: Purchase order management is largely a practice of double-checking. By creating secondary approval workflows for internal and external stakeholders, many order and invoice discrepancies are avoided. Reducing exceptions on supplier invoices improves processing time and reduces wasted spending.

Fewer delays: In a world that relies on just-in-time delivery and increasingly complex supply chain management, avoiding delays is of paramount importance. With a thoughtful approach to purchase order management, miscommunications and associated processing delays can be drastically reduced or eliminated.

Higher product quality: Taking time to finalize details regarding ordering, shipment, and payments has the downstream effect of shortening the time to fulfillment. When everything is double-checked in advance, suppliers get products out the door faster, and accounts payable can settle invoices without needing to conduct extra research.

Better spend management: Keeping a careful eye on your orders is intrinsically related to managing spending. When internal buyers and approving managers stay in contact about purchases, there is less room for maverick spending and unnecessary additions to orders. Maintaining communication on budget and pricing keeps everyone focused on the important goal of optimizing spend.

Process improvement: Continuous communication may also reveal areas where the order process could be improved. By establishing a formal process, you can iterate using feedback from stakeholders to improve the process further.

Receive internal and external confirmation: Communicating needs and changes helps both sides achieve their objectives and ensures everyone understands their role and specific requirements. Confirming the items, quantity, and pricing on the PO allows those involved to provide updates where needed and ensure correct and timely delivery.

Consider using technology: Using a purchase order system automates many of the checking and tracking activities within a successful purchase order management practice. It reduces the time investment of tracking purchase orders by creating an audit trail to make reporting a touchless process that yields better results.

Streamlining approvals: In a manual PO process, many hours are wasted chasing approvals and completing follow-ups. Purchasing software allows you to automatically channel approvals through the right people, get questions answered quickly, and avoid the log-jam of approving through email.

Providing real-time tracking: Automation allows stakeholders total visibility into the process, from approvals to fulfillment and delivery notifications. Everyone has access to the information they need to perform their role and keep material orders in motion. This improves delivery outcomes and aids in inventory management.

Centralizing data: No longer will users need to dig through paperwork in search of answers to their questions. Using procurement software to automate the purchase order process allows users to instantly database all available order and supplier information. All relevant data is available through dynamic search. This approach to data management reduces manual data entry and creates automatic contract management.

Speeding up processing: Processing speed greatly improves when approvals route automatically and answers are available in seconds. Orders are fulfilled and shipped days or weeks sooner than with a manual process.

Enhancing reporting: Reporting is a central and automatic function of a purchase order management system. Reporting tools built into the platform can parse and visualize data with only a few keystrokes.

Saving money: The fundamental outcome of all the above process improvements is cost savings. Investing in a purchase order processing system improves the bottom line by reducing wasteful spending, human error, and payment issues.

The Order.co platform brings together the best features of a robust procure-to-purchase (P2P) platform into a user-friendly interface. Within the platform, users can easily produce, track, and reconcile purchase orders for every material order they need. With Order.co, many formerly manual processes are automated, giving users granular visibility, touchless monitoring and matching, automated payment processes, and access to a wealth of data to greatly improve outcomes and spend optimization.

With direct procurement, stock management necessitates the use of productive purchase order processes. With indirect procurement, internal purchasing and approval processes require one; without a framework of measures that facilitate each step of the purchase order process, the entire system can break apart. As a result, the company will allocate resources poorly, mismanage money, and lose its competitive advantage.

The two types of procurement activities are direct procurement and indirect procurement. Direct procurement is procurement associated with the production of a final product, such as raw materials. Indirect procurement is a non-production-related procurement that includes items like standardized office supplies, software solutions, and heavy equipment maintenance.

Once accepted by a supplier, an approved purchase order is a legally binding document between the buyer and the seller for goods and services being purchased by a business. Purchase orders include details such as quantity, delivery instructions, pricing, terms, and delivery dates.

The purchase order process encompasses all of the actions businesses take to produce, approve, validate, manage, and track purchase orders from the moment a necessity is identified through the point of delivery or sale.

To get volume discounts from a vendor, companies may create a blanket purchase order for a specific contract time period. A blanket purchase order is approved for obtaining scheduled, recurring order deliveries. Using a blanket purchase order, your company gets product deliveries from a vendor when needed that references the unique blanket PO number, instead of issuing a single-delivery purchase order.

These standards and procedures are critical for accomplishing procurement objectives while staying within budget constraints. They include establishing particular actions and privileges for all supply chain participants and acting on them by employing specialized tools and communication channels.

Spreadsheets and e-mails are standard methods for managing purchase orders, which are frequently preceded by phone calls; however, minor changes in information cause unnecessary problems in this scenario.

A company can summarize the purchase order management process into five steps. The first step is to plan and design the purchase order. This step usually occurs in the purchasing department, where buyers create a requisition for goods or services.

The requisition is then sent to the following department, which is typically production or engineering. They will verify that they need the items on the requisition and that they have the capacity to produce them. The next step is for the procurement or accounting department to create and approve a purchase order form.

Afterward, the purchasing department verifies that all of the necessary approvals have been obtained and forwards them to the supplier. The supplier will then ship the goods to the company, and upon receipt, the accounting department will post the invoice to the correct account and match the purchase order with the invoice and any receiving report.

In purchase requisitions vs. purchase orders, the purchase requisition is the standard intake document specifying the desired purchase details and requesting approval for the company making a purchase; the purchase order is prepared upon approval of a purchase requisition.

If applicable, the purchase requisition may be sent to the next department, which is typically production or engineering. Production/engineering will verify that they need the items on the requisition and that they have the capacity to produce them.

The next step in PO management is for the procurement department to create purchase orders through a PO flip, which uses the same purchase request data fields to automatically create a purchase order form electronically. Afterward, the purchasing department gets or verifies that all necessary approvals have been obtained and forwards the PO to the supplier.

The receiving department is responsible for verifying that the goods received match the purchase order. They will also inspect the goods for any damage or discrepancies. If there are any problems, they will contact the supplier immediately.

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