Streamline your Purchase Order System with Cloud-Based Workflow Automation

cloud purchase order system

Key takeaways

  • Organization wide spending is large in the control of the procurement function. 
  • The absence of a streamlined procurement order management system paves way for maverick spending, misplacement of purchase orders, and data discrepancies. 
  • A technology driven approach to purchase order management aims at streamlining the process. 
  • Cloud purchase order system enables businesses to focus on strategic goals rather than the maintenance of data. 
  • A recent survey reveals that procurement managers are looking at increasing the operational efficiency by adopting cloud-based PO systems. 

What is a purchase order system? 

A purchase order system is a set of activities that are performed to process purchase orders. A well defined purchase order system ensures that purchase orders are processed on time without any inaccuracies. Purchase orders are legally binding documents that standardize the way in which an order is fulfilled by the vendor. Manually processing purchase orders is not only cumbersome, but is also prone to errors, delays, and inconsistencies. Cloud based purchase order systems accelerate purchase order processing and also eliminate the inaccuracies associated with manual processing. This blog explores purchase order management in detail and the benefits of adopting cloud based purchase order systems. 

Table of Contents

Streamline your Purchase Order

The procurement function has a direct bearing on organizational spending. A well-defined procurement system ensures optimal organizational spending and resource utilization. The Purchase order system is an important part of the procurement function. This system is often tedious and complicated and involves large volumes of communication between stakeholders.

The Absence of a purchase order management system paves the way for

  • Cost leakages
  • Data discrepancies
  • Misplacement of purchase orders (PO)
  • Delays in approval of POs

Cloud-based purchase order systems enable businesses to manage their purchase order processing effectively and eliminate manual purchase order processing drawbacks.

Procurement System at a Glance

To understand the purchase order system, we need to understand the procurement system in the organization. The procurement function simplifies the procurement of goods and services and boosts supply chain efficiency. Sourcing goods and services based on the requirements in the purchase requisition, evaluating potential vendors from a list of approved vendors and receiving quotes, negotiating terms with chosen suppliers, processing the purchase order, managing receipt of goods or services, and invoice payment is the steps in the procurement function.

Operating the procurement function manually puts the business at risk due to mismanagement and user errors. To keep pace with digital advancements in the business world, business leaders need to formulate a comprehensive procurement strategy for faster and more efficient operations.

A technology-driven approach to procurement management aims at end-to-end automation of the supply chain. Automating inventory management or warehouse operations alone does not provide complete benefits to the organization. Automation software that automates the purchasing department operations streamlines purchase order processing with real-time supplier collaboration.

Operating the procurement function through multiple tools like inventory purchase order software, purchasing software, supplier purchase order software, etc. leads to operational silos that decrease the visibility across the function. Integrated procurement automation platforms help automate all the tasks of the procurement function and provide centralized access to data and real-time visibility into the status of purchase requisitions, purchase orders, and invoices.

Why should Businesses go for Cloud-Based Procurement Software?

Procurement leaders have long debated the choice of procurement software between on-premise and cloud-based software.

  • Cloud computing is a transformative technology that enables businesses to improve their services while lowering costs
  • On-premise software is hosted in-house, and the businesses feel more ownership over the software but carry a huge risk of loss due to disasters
  • Cloud-based software, on the other hand, is hosted on the cloud and enables businesses to focus on strategic goals rather than the maintenance of data

Cloud-hosted procurement software provides the following advantages.

1) Cost-effectiveness

Cloud-based purchase order software does not require upfront installation costs or huge maintenance costs. A SaaS purchase order solution offers flexible pay-as-you-use subscription options for organizations of all sizes.

2) Better system performance:

Cloud procurement software can scale up according to changes in business requirements. Spikes in online traffic and usage can be efficiently handled by the cloud procurement software.

3) Mobility:

Cloud procurement software provides anytime, anywhere access to business data and the ability to view and approve purchase requests and orders. Cloud-based solutions provide the highest levels of data security and safety. Retrieval of lost data can be easily done with a cloud-based solution.

4) End-to-end integration:

Seamless integration with existing procure-to-pay tools is possible when you go for cloud-based solutions. Almost all the SaaS procurement solutions offer end-to-end integration capabilities through API integration.

5) Ease of use:

Cloud software comes with an easy-to-use interface that can be understood and operated by users. The time for training users on the software also comes down and time-to-market is also accelerated.

6) Deeper visibility:

Cloud procurement solutions provide deeper, real-time visibility into process status. Intuitive dashboards provide a bird’s eye view of the purchase process status. Equipped with 360◦ visibility into process statuses, business leaders can make informed business decisions.

Choosing a cloud purchase order system helps streamline and optimize procurement operations in an organization. The procurement lifecycle begins when there is a requirement for goods or services in any of the departments of the business. Fulfilling the requirement cost-effectively and efficiently is the main focus of the procurement system. Archaic procurement systems are ineffective in today’s digitally-driven market scenario. Cloud-based procurement solutions are here to stay, the faster businesses adopt them, the sooner they will realize monetary and operational benefits.

All About Purchase Order Processing

The procurement department is in charge of fulfilling the goods or services requisitions submitted by various departments of the company. It is also in charge of sourcing the raw materials required for making products or services. A purchase order is a necessary paperwork that all businesses are required to process.

The entire journey of a purchase order is termed the purchase order process. The lifecycle of a purchase order begins with the submission of a purchase requisition. Once the procurement department receives a purchase requisition, the purchase-to-pay (P2P) cycle begins. From sourcing to invoicing processing every step in between is part of the P2P cycle. In short, all the steps carried out to fulfill an order comprise the purchase order process. The stakeholders of the purchase order lifecycle are sales representatives, managers, vendors, and buyers.

The purchase order process aims at managing orders and expectations.

  • A purchase order cycle begins with filling out a purchase order form.
  • The PO form is filled with all the information about the purchase order.
  • This form is routed through various steps of procurement as per business requirements.
  • Once a PO is accepted and signed by the vendor, it becomes a legally binding document.
  • In case of any dispute or when seeking clarity, PO forms are the source of reference.

All the details that the vendor and the buyer need are included in the PO form. Complete details on the purchasing process are contained in the PO. The details included in the PO are the list of the items in the order, the price, and quantity of each item, the date and time of delivery, payment terms, and any other additional information.

Types of Purchase Order Forms

1. Standard PO Form

The standard PO form is used to make one-time orders for goods or services. This type of PO form is prepared as per specific needs within the organizations.

2. Planned PO Form

All the details except the delivery date are mentioned while preparing a planned PO. These PO forms are prepared in anticipation of a need that may arise at a later date. The best example of a planned PO form is agreeing with the supplier in advance for future deliveries of office supplies.

3. Blanket PO Forms

Blanket POs are used to establish a long-term requirement. Similar to planned POs, blanket POs also do not have a delivery date. The PO does not specify the quantity of product or service either. The terms and conditions and budgeting limits are specified in the blanket PO, specifics on quantity and date of delivery are provided later. These PO forms guarantee better pricing from the suppliers.

4. Contract PO Forms

A formal agreement between the supplier and buyer without any specific product or services is termed as a contract PO. Contract POs are the most open of PO forms and are used to establish legally binding terms for a future flow when the client decides to work with the supplier.

Purchase Order Life Cycle

The purchase order life cycle or the Purchase to Pay life cycle comprises 6 core steps. The life cycle of a purchase order begins with the submission of a purchase requisition for goods or services.

1. Choosing the Vendor:

Once a requirement has been identified, the procurement team invites vendors for price quotations for the required goods or services. Once quotations are received, buyers shortlist the ones that meet business requirements and budget. Validation of the supplier’s credibility is also carried out before choosing the vendor.

2. Negotiating Terms With a Supplier:

Once the supplier is chosen the negotiation phase begins. Negotiation is done based on terms of delivery timeline, on-time in full KPI, quality standards, confidentiality, dispute resolutions, and other miscellaneous details. The buyer and supplier sign contracts for single or multiple purchases and lock the price and other terms.

3. Preparing a PO:

Once the procurement team receives approval on the purchase request, a single-line or multiline purchase order is created. Complete product details on pricing, terms of delivery, transportation details, and other details are included in the PO. Multiple line items may be created as separate purchase orders.

4. Receiving Orders and Inspecting for Quality:

The vendors send material to the buyer as per the agreed delivery terms. Once the deliverables are received, a quality inspection is performed on all the items to ensure that they are as per the agreed quality standards. The receiving clerk verifies the received goods in terms of quantity, damages, and accuracy. Once the inspection is completed the receiving information is updated into the inventory system.

5. Invoice Processing:

Once the quality inspection is complete, the next step is to send the invoice to the accounts payable department for payment. The invoice details are verified through the 2-way or 3-way matching method against the PO. An open invoice against the supplier is created in the system, which shows up on the aging report.

6. Payment Processing:

As the payment date approaches, the payment clerk prepares a payment proposal that is sent for approval. The payment proposal goes through a workflow of approval, printing of checks, and sending electronic purchase order payments.

The entire purchase order lifecycle is labor-intensive, detail-oriented, and time-consuming. Manually executed purchase order processing is prone to duplication, human error, bottlenecks, and inconsistencies. A purchase order software helps streamline the purchasing system and eliminate process inconsistencies and redundancies.

Reasons for Failure of Purchase Order System

There could be multiple reasons why a purchase order system fails. We have put together a few common reasons why a purchase order system fails.

Limited Authorization:

Approval of a PO can be done by an authorized person only. Unavailability of the authorized personnel or forgetting to complete the sign-off or not receiving the PO are some of the reasons for the delay in signing off the PO. The accounts department may refuse to accept the invoice without the sign-off from the designated authority, causing a delay in the processing of the PO.

Lack of Information:

The person responsible for preparing the PO requires accurate information on the supplier name, business code, product specifications, and other details. Preparing the PO form with incomplete or wrong details leads to loss of money and wastage of time.

Missing Data:

Manual PO processing does not issue alerts or notifications to users to fill in all the data. There are high chances of missing crucial data that impacts all the stages of PO processing.

Delay in Goods and Service Delivery:

Even minor data errors have a domino effect on the subsequent steps. This may cause delays in the delivery of goods and services. Improper handling of high-volume orders due to data errors causes a slowing down of the supply system.

Dealing with Vendors Outside the Preferred Vendor List:

An automated procurement system provides a preferred vendor list based on their purchase history and performance track record. Choosing a buyer within the preferred list saves a lot of time for the procurement team in preparing the PO. Manual purchase order processing systems do not maintain a preferred vendor list and it becomes difficult to monitor approved supplier checks.

Inability to Scale Up:

As the business grows, the requirements for goods and services also increase. Increased demand in turn increases the load on the manual purchase order processing system. Handling high volumes of purchase orders accurately is challenging in a manual procurement system.

Inaccurate Reporting and Auditing:

Manual data handling techniques are prone to errors and inconsistencies. As a result, the reportability and suitability of purchase data are compromised.

There are several areas where manual purchase order systems fail. Delays and bottlenecks in the purchase order processing and the inability to handle high volumes of PO processing are the main reasons why archaic, manual systems fail.

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Cloud-Based Automation Purchase Order System

A Global CPO Survey by Deloitte mentions cost reduction as the top priority for Chief Procurement Officers looking to sustain business growth in a dynamic market. The survey also revealed that only 40% of the respondents have a clear digital procurement strategy. Procurement managers will look at improving the following areas to increase the operational efficiency of the procurement function.

  • Consolidating organizational spend
  • Improving vendor collaboration levels
  • Gaining the competitive edge
  • Redefining and restructuring existing supplier relationships
  • Reducing the total cost of ownership
  • Reducing transactional costs
  • Outsourcing non-core procurement activities

All of the above can be achieved by designing and deploying procurement software that takes care of purchase requisition processing, purchase order processing, and invoice processing and approval. A cloud-based procurement software provides a consolidated view and access to data, which empowers leaders to make informed strategic decisions.

The transparency and consistency of the procurement process are improved significantly by implementing purchase order software. Businesses looking to optimize their procurement function are adopting workflow automation solutions to improve their business operations.

An automated purchase order management system empowers businesses to do more with less. What is purchasing software? Purchase order management software helps businesses automate the entire purchase order processing to eliminate delays and process bottlenecks. Emerging cloud technologies are presenting innovative opportunities for improving the transactional efficiency of the procurement process. A cloud-based purchase order system enables organizations to design and deploy a customized procurement app that caters to the unique needs of their businesses.

Robotic Automation versus Manual Purchase Order Processing

Further, the Deloitte report compares robotic purchase order processing with manual processing. For the comparative study, a team of 10 employees was chosen. These employees use Excel spreadsheets, ERP systems, and emails to process 2,000 cases per month. Processing each case takes up 10-15 minutes of an employee’s time.

A virtual machine (robot) and purchase order management platform were installed with access to the client’s system. The entire implementation and testing of the software spanned around 4 weeks. Robotic automation of the purchase order processing resulted in a drastic reduction in the average time per case. On average 4 min was spent on each case and the results were more accurate.

The defect volume for robotic processing was 0.2%, which was due to missing information in the purchase requests. Robotic automation enables the uninterrupted availability of resources for processing cases. Purchase order processing speed and accuracy are greatly improved through robotic processing.

Key Must-Have Functionalities of Purchase Order Management Software

Software for purchase order management needs to streamline and accelerate the processing of purchase orders. Purchase order and invoice approval software must have the following functionalities:

Easy to use drag and drop interface:

The purchase order software must be easy to operate. The user interface must be a simple one that does not require employees to spend too much time in training. Setting up business rules and workflows must be user-friendly and not require complex coding. Visual drag-and-drop user interfaces are ideal for purchase order tracking software.

Digital purchase order forms:

Manual purchase order processing systems are ridden with missing information, illegible handwriting, and long hours of manual data entry. Processing the POs using PO generation software puts an end to the drudgery of manual paperwork by creating easily manageable digital forms.

Storage and maintenance of digital purchase order forms are a hassle-free affair and purchase data is secure and safe. A cloud purchase order system stores purchase forms safely on the cloud. Capturing POs, retrieving important data, and routing POs to the appropriate authority can be automated in a PO management system.

Real-time spend insights:

Lack of visibility into the status of purchase orders and purchase data in manual processing handicaps the leadership in making strategic decisions. Purchasing application software helps the procurement team to obtain spending insights and visibility into the status of the purchase order. Leadership can make data-driven business decisions with PO-making software.

Customized Reporting:

Data accuracy and consistency are compromised in a manual purchase order processing system. Gathering data for reporting purposes can be a headache with multiple data sources. A cloud-based purchase order system provides centralized access to data and accurate reporting. Businesses can rearrange, display, or hide data based on business priorities and requirements. Accurate reporting empowers leadership to gain complete visibility into the spending data.

Automated reminders:

Delay in purchase order and invoice approvals is a common occurrence in the manual purchase order processing cycle. Approvers not receiving emails missing emails amidst other work-related emails, or unavailability of the approver are some of the common reasons why approvals are delayed. Deploying purchase order software can simplify and accelerate the approval process by issuing automated reminders and notifications to the concerned stakeholders. These notifications also help in identifying the bottlenecks in the process workflow.

Three-way Invoice Matching:

Fraud detection in purchase order and invoice processing is done via a 2-way or 3-way matching process. When done manually, the matching process is laborious and time-consuming. Purchase management software frees up employees from the tedious data-matching process. The purchase order is automatically validated through the 3-way matching process.

Enforce Controlled Spend:

Keeping a tab on organizational spending can be a daunting task with a manual purchase order processing system. A web-based purchase order software sets a rule-based workflow that keeps a tab on organizational spending. Enforcing budget and spending restrictions can be effectively done through workflow management.

Improved compliance:

A purchase order management software standardizes data management by eliminating the need for human intervention. Irregularities, variations, inconsistencies, and discrepancies related to purchasing order data can be rectified by automating the data management process. Automated purchase order processing systems are audit-ready and compliant with policies and regulations. The purchase order system also ensures easy maintenance and high security of data.

Cflow is a powerful workflow automation solution that can automate key business workflows. This software solution provides all of the above features and enhances the productivity of the procurement process. The visual drag-and-drop form builder helps the procurement team set up the workflow in a snap.

Setting up an Efficient and Automated Purchase Order Management Process

Given several advantages of automating the purchase order cycle, why is there slackness in its adoption by CPOs?

One reason could be that CPOs anticipate a drastic change in business operations due to the implementation of an online purchase order system. Another reason is that procurement managers assume that the entire implementation would be complex and involve huge costs.

The best way to put these two apprehensions to rest is to choose a cost-effective yet efficient purchase order system and deploy it on a small scale. Small-scale implementation of the order management software enables the management to gauge its effectiveness and tune it to suit their business requirements. The automated purchase order system takes care of the entire life cycle from order entry to approval.

Here are a few tips to set up an efficient and automated purchase order system:

Purchase order creation:

The first step is the creation of a PO. The software must allow employees to easily create a PO online. The automated PO form must include important fields that provide complete details of the purchase order. Wherever applicable automatic population of fields like employee name, date of PO creation, etc. must be facilitated by the software. Users must be given the option of customizing a fully functional template or creating a PO from scratch. A no-code, visual drag-and-drop interface is preferred for PO creation. Repetitive orders should be auto-filled to save time for employees.

Workflow Design for automated routing:

Once the PO is filled with all details the next step is to route the PO to the appropriate stakeholder for review and approval. Rule-based workflow designers enable clear and automatic routing of the PO to the concerned authority. Any conditional logic required in the workflow must be included in the rule builder.

Adding business logic for conditional routing:

A visual rule builder enables businesses to route the purchase order to the concerned authority based on conditions based on business logic. For example, POs with a value exceeding 10,000 USD require approval from the Procurement Manager.

Notifications to employees:

The employee who created the PO form must be notified once it is approved. Once approved, the PO form moves to the next step.

Vendor notification:

After internal approval of the PO, the next step is updating the vendor. The duly approved PO along with supporting documents is sent to the vendor. The vendor can digitally sign the approved form and prepare an invoice. An electronically signed invoice is considered a legally binding contract.

Accounts payable:

An automated sales order process notifies the finance department so that they are aware of the details of the PO, including the terms and conditions.

Complete testing of software:

Once the automation software is set up, the next step is to test its working. The testing process must be comprehensive and include several test conditions like missing forms, incomplete information, alerts and notifications, routing of requests, high-value POs, data discrepancies, 3-way invoice matching, etc.

Review and KPIs:

Procurement KPIs help evaluate the effectiveness of the procurement process. After successful implementation and testing of the purchase order management software are complete, periodic review is required. The periodic review ensures that the implementation has improved the overall efficiency of the procurement function. Procurement KPIs help in assessing the effectiveness of the implementation. The primary reason to automate the purchase order processing is to bring down the processing time and costs. KPIs that shed light on the effectiveness of the automated process need to be monitored periodically.

In addition to the stepwise implementation of the automation software, it is also important to appraise the employees about the new changes. The procurement team would be the primary user of the software, hence, the team must be appraised and trained on the new software. All of the tedious paperwork is eliminated by automating the PO processing.

Conclusion

There is an increasing demand for impactful procurement that is capable of managing cost and operational efficiency. Conventional constraints of expertise, manpower, and policy regulations are curbing the impact that the procurement function can have on business growth.

For the procurement function to actively contribute to business growth, the following areas need to change – procurement cycles must be shorter, deeper, richer, and agile process insights must be available, and processes must be more flexible, transparent, and efficient. Adopting cloud-based purchase order systems is the way forward for procurement businesses.

The future of the procurement system is dotted with fewer processes and more insights, seamless engagement of stakeholders, and more demonstrable results. Automation of the procurement function enables businesses to achieve all of these future goals.

Cflow is a powerful workflow automation platform that empowers businesses to set sustainable businesses powered by advanced technology. You don’t need to take our word that Cflow is the best purchase order app. Try Cflow to automate your purchase order system for free to see the results for yourself.

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