Optimize Small Business Spend with an Automated Purchase Order System
As per the Annual Survey of Entrepreneurs conducted by the Census Bureau, small businesses (firms employing lesser than 20 employees) made up 89% of the firms in the United States. The success of small businesses makes a significant contribution to the U.S economy. Managing a small business requires a complete and continuous focus on various aspects like managing employees, suppliers, finance and accounting, and streamlining the business road map. In addition to basic small business principles, the business owner also needs to have a fair knowledge of human resource management, financial management, procurement management, and regulatory compliance.
Among the business functions, procurement management has a direct bearing on business expenses. Streamlining the procurement function helps small businesses gain complete control over organizational spending. An automated purchase order system can help small businesses control and optimize their expenses.
Optimizing the Procurement Workflow
There is a great potential to increase the efficiency and optimize the procurement and supply chain processes irrespective of whether it is a small or medium or large business. Optimizing existing procurement processes helps small businesses save costs, increase efficiency, and improve product/service quality. By managing the procurement function effectively small businesses can save costs by procuring goods, services, and contracts at the best process.
By optimizing the procurement workflow, the company would not miss out on any warranties or discounts that are often missed out in manual procurement systems. In addition to cost savings, optimizing the procurement function provides deeper visibility into the company’s spend and budgets, which allows them to negotiate better with vendors.
Here are sure shot ways to optimize the procurement workflow:
Maintaining good vendor relationships: Procurement professionals are increasingly focusing on establishing and maintaining strong supplier relationships that are beneficial to the buyer and supplier. Maintaining strong vendor relationships also helps increase market share, improve responsiveness to market changes, and shortening order fulfillment lead time.
Deploying a purchase order system: Purchase order processing is an important part of the procurement function. Purchase orders are contracts that bind the vendor for supplying goods and services as per the agreed terms and conditions. Timely approval of purchase orders ensures timely delivery of goods and services. Deploying a purchase order software accelerates the purchase order processing by eliminating process redundancies. A purchase order system for small businesses helps in streamlining procurement operations and improving the efficiency of the process. Although the vendor volumes may be small for small businesses, having a purchase order and invoice software helps save time and costs.
Up-skilling Employees: Having a robust training and development program is a good way to upskill employees. A good training program will have a positive impact on the company’s productivity and revenue. Engaging employees through innovative learning modules help them achieve their full potential and boosts their morale.
Consumer-driven procurement: The procurement policies must be designed with a consumer focus. Consumer needs and the way they interact with your brand must form the crux of your procurement policy. This approach empowers small businesses to cater to evolving consumer demands successfully.
What is a Purchase Order System?
Small businesses need to engage in the purchase of goods and services from vendors at some point over the course of business operations. Irrespective of the volume of purchase, tracking and documenting order details is a must. Small businesses can effectively control expenses and forecast future expenses with a purchase order system. A simple purchase order software allows small businesses to create, monitor, and manage purchase requisitions, purchase orders, and invoices effectively.
Purchase order management software helps small businesses cut through the chaos and establish a well-defined PO workflow that is devoid of bottlenecks, unapproved purchases, and fraudulent practices. Purchase order system for small businesses helps track and control direct, indirect, and capital expenditure by creating custom approval workflows. Purchasing system empowers small businesses with real-time insights into PO statuses and cash flow, which enables leadership to make smart and strategic procurement decisions.
The entire purchase order processing workflow can be automated by cloud-based purchase order software. Automating the PO workflow eliminates the discrepancies and errors induced due to manual purchase order processing. Purchasing or procurement software enables businesses to create POs quickly, accurately, and approve them faster. The steps in a purchase order process are listed below:
- Creating a PO basis purchase requisition data
- Document and budget verification for PO approval
- Sending PO to vendors after approval
- Managing the legal contract between buyer and supplier
- Receiving goods/services and inspecting them for defects
- Receiving invoice from the supplier and ensuring that the terms and conditions match with the original PO and purchase requisition
- Closing the PO after ensuring that there are no discrepancies
A Purchase Order (PO) system manages the entire lifecycle from creation to payout. Implementing a PO system for small businesses streamlines the entire workflow and
Why Do You Need a Purchase Order System for Small Businesses?
Small business owners often think that purchase management for their business does not require software. The cost and effort involved in setting up a PO system deter small businesses to implement purchase order solutions. The benefits that small businesses can reap from a simple purchase order software outweigh the costs and efforts in setting it up. Here are 5 reasons to implement a purchase order system for small businesses:
1. Getting the legalities right:
The last thing that a small business owner would want to get into is legal hassles with the vendor. Following a formal purchase order system ensures that all the legal and compliance standards are fulfilled. A purchase order software for small business standardizes the business processes involved in creating and managing POs. The purchase request software allows business owners to track all the data pertaining to the PO and also connect, gather, and store all the documentation related to each purchase order. Formalizing the PO processing helps in avoiding duplication, fraud, and unapproved spending.
2. Save money and time:
Manual purchase order systems have a high incidence of duplicate purchase orders, which cause unnecessary expenditure and wasted effort. A purchase order system helps avoid duplicate orders, saving time and money for the business. A signed PO is a legally binding document that protects the buyer from price fluctuations and any legal disputes.
3. Easy tracking and recording:
A purchase order system makes it easy to track and match purchase orders with purchase requisition and invoice information. Accurate recording of purchase requests and purchase order information helps establish an audit trail for compliance audits and making informed procurement decisions.
4. Improve the efficiency of procurement workflow:
Automating the PO processing eliminates redundant and repetitive steps from the purchase order lifecycle. Employees get to spend more time on strategic tasks rather than low-value admin tasks. The overall efficiency and productivity are greatly improved by automating the procurement workflow.
5. Improve planning and budgeting:
A purchase request or purchase order software makes it easy to track and control the procurement function. The data gathered by the system provides deeper insights into organizational spending and helps lead in the planning and budgeting initiatives.
How to Create a PO system?
Automating the purchase order system for small businesses requires a good amount of planning. The deployment process may be broken down into 3 main steps as mentioned below.
Defining the purchasing policy:
A prerequisite for creating an automated PO system is understanding the company’s purchasing policy. The main reason why businesses go for automation of the purchase order system is to save time and money and eliminate the drawbacks in existing workflows. Understanding the existing workflow and figuring out ways to revise and refine sets the tone for designing the new workflow. To understand the existing purchase policy, you need to review existing workflow, roles and permissions in the company, and vendor selection process.
Choosing the purchasing software:
Once you understand the existing purchasing policy and identify the issues and loopholes in the system, choosing the right purchasing software that addresses business requirements becomes easy. The market is flooded with PO software that comes with different feature sets. Choosing a cloud-based purchasing software that is easy to install and use is an ideal choice for small businesses looking to streamline their procurement function.
Phased implementation of the purchase system rather than implementing it at all levels at once. The most important decision-makers must be made to use it first and then implemented at lower levels.
Businesses large and small will benefit by implementing a purchase order system. Irrespective of the type of industry or size of the business, a purchase order system transforms the purchasing process of the business into a more efficient and optimized workflow.
Here are a few tips to create a PO system from scratch:
Design purchase forms:
Creating digital purchase forms is the first step in creating a PO system. Digital purchase order forms can be created from scratch or automated templates can be used to gather required information like the purchase order number, vendor details, etc. The nature of the purchasing process determines how simple or elaborate the purchase order would be. Once a purchase order has been created it can be used in multiple ways, such as auto-generation of POs based on purchase requisition data or linked to the master vendor database to generate a vendor list as per the requirement.
Map existing purchase workflow:
The purchase order workflow varies with the organization’s structure and business requirements. Designing a PO system requires a good understanding of the process workflow and related tasks. The procurement team will be able to effectively identify the gaps and bottlenecks in the process workflow after mapping the existing process.
Creating the new process workflow:
The new process workflow is created so that the gaps, redundancies, and bottlenecks are eliminated, and the workflow is more streamlined and optimized. Based on the purchase process in the company, the new workflow can either gather data, allow stakeholders to review the form or approve the form. Workflows created for approval can include automated alerts or notifications that are sent to approvers for timely review and approval of the POs.
Defining the permissions and roles:
Depending on the role played by the stakeholder in the purchase process, access permissions need to be set in the workflow. Visibility and access to important and confidential purchase data are provided based on the role played by the stakeholder. The person who initiates the purchase order needs permission to input purchase order details, managers require permission to review and approve the PO.
Implementation and testing:
Before implementing the automated purchase order system for small businesses, it is important to appraise and train the procurement team on the new workflow. Ideally, small-scale implementation of the workflow helps review and assess the performance before implementing on a large scale. Once testing is done, based on the feedback and performance review the new workflow can be implemented for the entire process.
Measuring performance KPIs:
Performance of the new workflow can be measured using procurement KPIs. Based on the KPI data, the workflow can be modified and improved wherever required.