With the right approach, procurement teams can increase the chances they accurately project spend.
A complete guide to optimizing the purchase order process
An inefficient purchase order process can be a financial and administrative strain on your business, especially when you consider the volume of purchase orders your business places within a fiscal year, and the operational reliance on this business-critical function.
Although requiring no initial investment, manually processing purchase orders with spreadsheets and email, or paper-based systems, causes undue frustrations, inaccuracies, and delays that cost your organization time and money.
By deploying purchase order software, your business can overcome these challenges and eliminate clunky, error-prone, and expensive processes. But first, let’s uncover exactly what’s involved throughout the process.
What does the purchase order process entail?
The purchase order process refers to a series of activities and checkpoints involved in processing a PO to purchase goods or services for your business. An effective purchase order process often includes the following steps:
- Purchase request linked to an authorized or contracted supplier
- Validation, budget, and compliance checks
- Request for quote (RFQ)
- Purchase request approval
- Purchase order creation and submission
- PO revisions (for change requests or if items are out of stock)
- Receiving of goods
- Invoice capture and two or three-way matching
- Invoice approval
- Export to ERP system
- Purchase order closing
Managing these steps manually can lead to errors, delays, and risks, including duplicate orders and discrepancies. Navigating auditing season and keeping your vendors accountable to your agreements is simplified by an automated PO process with centralized access to documentation.
Purchase order benchmarks
According to the Center for Advanced Procurement Strategy (CAPS), the average cost to place a purchase order is $217.
Calculate the hard savings you can achieve by optimizing your organization’s purchase order cycles. If it costs $217 to process a single purchase order, and your organization places 6,000 purchase orders a year, by automating the purchase order cycle successfully to reduce costs by 10% ($22 per purchase order cycle), you stand to generate annual savings worth $130,200.
Let’s explore ways to optimize the purchase order process: Automation, visibility, and accessibility are key pillars to achieving operational efficiency and cost-savings.
Visibility and accessible purchase order data
To optimize the purchase order process, you need to maintain visibility of all orders. Purchase order software facilitates this oversight throughout the procure-to-pay lifecycle. You can gain visibility into the status of all orders in one centralized place. You’re able to track and report on which purchase orders have been sent or closed, as well as ones that are awaiting next steps.
With the transactional spend visibility that purchase order software provides, you’re equipped to drive significant savings, and streamline processes, even in decentralized environments - procurement managers or buyers can easily consolidate purchase orders, reduce the frequency of order placement, qualify for volume discounts and early settlement discounts, or save on delivery charges.
Cost-saving opportunities like these are hard to identify when juggling multiple emails, spreadsheets, or locating hard copy POs from disparate locations.
Automated purchase orders
Similarly to how purchasing software automates the approval and compliance workflows of purchase and expense requisitions, it automates and simplifies purchase order creation and management.
For organizations that process numerous POs a day, automated purchase order generation from system-approved requisitions is a cinch. Ensuring accuracy from requisition-to-purchase order is also that much easier when the purchase order software pre-populates the PO, accelerating the process and removing the margin for human error.
Automated POs can be emailed directly from a purchase order system, removing manual steps, any potential delays, and discrepancies. This is a surefire way to ensure that purchasing only occurs with authorized suppliers, as all purchase orders will be linked to authorized and pre-populated supplier records.
These efficiency enablers alone are adequate grounds for automating the purchase order process.
Fast & compliant change orders and approvals
In fast-paced business environments, requirements and circumstances change rapidly, and having the flexibility to adapt is essential.
With purchase order software, users can quickly revise purchase order line items (quantities, delivery location, tax rates, unit costs and the like) without posing any risks to the business. Change orders or PO revisions are routed to the appropriate authorizer to review the suggested changes within the system, and each touchpoint is tracked and accessible via a detailed audit trail. These features eliminate an endless loop of emails that can lead to untracked processes, bottlenecks, purchase order errors and mitigates the risk of unauthorized transactions.
Electronic three-way matching
Sourcing purchase order software that facilitates collaboration and streamlines key processes between departments will go a long way in driving operational efficiency. The accounts payable department can leverage invoice matching capabilities to easily cross-check purchase orders, goods receipt notes, and supplier invoices.
Reduced purchase order cycle times
With this feature your business reduces the admin time spent on tracking down relevant staff members and finding missing documents, all of which significantly increase purchase order cycle times. You’ll gain a fast, efficient, and robust workflow and maintain better relationships with suppliers by paying early, or on time - giving your procurement leader an edge when negotiating contract terms and pricing.
Optimize your purchase order process with cloud-based software
Ensure that your team can operate effectively from any location, from any smart device. By deploying cloud purchase order software with the option to integrate financial systems, you’re setting your business up for success: Your team can complete their tasks faster, with more accuracy and efficiency, and less risk, and your purchase order process can scale as your business grows.
Explore purchasing software like Fraxion, the cloud solution provides a framework for informed decision-making and responsible spending processes that result in approved and compliant requests and an efficient automated purchase order process. Your business will benefit from the visibility, mobility, proactive control, and sustainable savings in time and costs.