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 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 are 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 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 a 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 carries 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 maintenance of data
Cloud-hosted procurement software provides the following advantages.
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.
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 the 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 would 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 and 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 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, price, and quantity of each item, date and time of delivery, payment terms, any other additional information.
Types of Purchase Order Forms
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.
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.
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.
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 of 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, 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 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 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 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 to fill in 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 cause 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 inability to handle high volumes of PO processing are the main reasons why archaic, manual systems fail.
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 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 for improving their business operations.
An automated purchase order management system empowers businesses to do more with less. What is purchasing software? A 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.