How to Effectively Manage Purchase Orders for Your Business

Efficient Purchase Order Management can achieve 3-5% cost reductions and up the business to 10% of its bottom line. 

Regardless of the medium or field of business you are involved in, you purchase goods or services to maintain operational flow. Purchase order management is crucial for supply chain optimization. However, manual workflows and outdated information can lead to inventory discrepancies and delayed deliveries. This impacts both cost-effectiveness and operational efficiency.

Purchase order management involves systematic requests and acquisitions of goods from vendors along with their detailed specifications, quantities, prices, and delivery schedules. Read more on the effective management of purchase orders. 

What is purchase order management?

Businesses purchase goods or services and should keep a record. The records belong to different categories, such as invoices, debtors, creditors, etc. The lack of invoice record management leads to trouble during the audit. The records must adhere to the organization's protocols, procedures, budget, and standards.

Efficient purchase order management utilizes ERP systems to track order status, automate tasks, and analyze data. Streamlined management helps to reduce costs, improve efficiency, and strengthen vendor relationships.

How does purchase order management work? 

Unique to their industry requirements, companies have distinct purchase order management processes. The most commonly followed steps are:

1. Place the PO

The procurement officer creates a purchase order. It includes a PO number, service/good information, ship-to details, and delivery timeline. The purchase orders can be standard (need-oriented), pre-planned (before the requirement), blanket (bulk ordering), or contract (contract with the vendor).

2. Business’ approval

After drafting the purchase order, it must be approved by the internal reviewers. This step is essential to maintaining the company’s policies and budget. 

The purchase order is forwarded to the vendor via a predefined communication channel if it meets all the policy standards.  

3. Vendors’ approval 

The approved purchase order reaches the vendor for approval. Several factors are considered, such as the confirmation of the requirements, the delivery date, and the product details. Negotiations are considered at this stage if required.  

4. Track the purchase order

Upon confirmation, the vendor showcases samples or directly dispatches your order. Post-delivery, it's important to ensure the PO matches what’s delivered. The business must ensure that the numbers involved are cross-checked and keep an eye out for defective pieces.

The mismatch between the PO and the delivered items requires replacement, for which the vendor issues an invoice.

5. Cross-check and pay the invoice

The invoice should help you track the purchase order placed, goods received, and matched invoice. When matched, the invoice is sent to the concerned department for further proceedings. 

Why is purchase order management critical?

There are important reasons why you should implement purchase order management, apart from a smooth workflow and saving time:

1. Reduced errors

Delivery dates, product color, quantity, and calculation are common errors that slip our attention while placing orders. This could lead to resource waste, both human and material. However, the purchase order management lessens the chances of these errors occurring. 

2.  Improved product quality 

The list of suppliers and the number of invoices are numerous for a business. Going through each invoice consumes unnecessary human labor. And it's a universal truth that human error is common when entering data manually. 

Purchase order management helps your company work more efficiently. Since your invoices, POs, and delivery notes will already be rechecked, your accounts department can pay your suppliers faster.

3. Legal protection 

Last, you wouldn't want to get involved in legal trouble. It ensures having a record of all the information that'll help you at the audit.

Legal trouble is a common threat to businesses in all fields. Data or food traceability records must be on file for a financial company or a food processing enterprise. 

Practices for purchase order management 

There's no doubt about the efficiency and effectiveness of POM, but sometimes it is challenging to perform. 

Consider the following for easy proceedings in your POM:

1. Create guidelines 

Remembering your business' policies and guidelines on your fingers can take time and effort. To save yourself the trouble, create a list of guidelines to check while placing orders. 

Create separate guidelines for separate stages to make sure everything necessary is noticed!

2. Simplify the process

Segregate the tasks and delegate them among your team members instead of involving everyone in everything. This helps reduce misunderstandings and allows individuals to focus on the task. 

3. Use vendors’ databases

Instead of spending time finding and selecting vendors every time you create a PO, set up vendor databases that contain the records of all the suppliers your business has ever ordered from. 

These easily accessible directories will help you streamline the PO process, make it easier to find relevant suppliers, and draft POs in minutes instead of the usual hour it takes.

4. Create templates

Creating templates could avoid repeating the requirements every time you place an order. For example, create a template if your business periodically requires paper reams.

Similarly, you can keep track of the vendor suppliers your business deals with to avoid repetitive hustles.  

5. Use an Automated Procurement System

The chances of errors are apparent when dealing with the details of several suppliers, hundreds of vendors, and thousands of POs. To avoid this, an automated document processing system should streamline these talks. It saves time and resources. 

Purchase order management ensures a smooth purchasing experience for your business. By using advanced technologies, clear guidelines, and automated procurement systems, enterprises become more cost-effective and optimize the procurement process.

Automated document processing saves time, accelerates your process, eliminates the chances of procurement fraud, and scales up the business without more human resource involvement.

‍