There’s a time in every growing company when it’s time to change the old way of doing things because they’re no longer manageable. This holds true when it comes to the procurement process and the importance of purchase order management in helping to control costs, drive efficiency, deliver key insights and incorporate best business practices. As your company grows, it becomes more confusing to track the procurement process without purchase order software. In our last blog, we reviewed the basic steps in the procurement cycle and common pitfalls to avoid. In this blog, we cover nine ways that purchase order management helps growing companies .
9 Ways Purchase Order Management Helps Growing Companies
- Avoid Duplicate Orders - When the purchase request volume increases, it often gets very difficult to determine the status of who ordered what, when, and from whom. In the confusion, it’s a common mistake for duplicate orders to reach your vendors. Purchase order (PO) software helps reduce duplicate orders and avoid confusion. PO software creates a digital, searchable record of every purchase, POs provide full visibility into your spending for less costly mistakes.
- Better Budgeting and Spend Management - Purchase order software helps give you the insight of what, when, from whom, and for whom you are buying. You have access to review and analyze this data over time to get insight into your company’s spending patterns. This helps make budget planning more accurate. You also gain a clear picture of where company spend is coming from, which can alert you to potential waste and opportunities for savings and efficiencies.
- Negotiate Volume Discounts - When you can quickly and easily access purchase history it helps you negotiate with existing and potential suppliers how much you spent with them last year, and what specific items you purchased, you can more effectively negotiate volume discounts with those vendors going forward. Consolidating all current requests onto one PO from multiple departments and requesters will help you will meet vendor requirements for additional discounts such as free freight. In addition, purchase order software helps you identify opportunities for earning those discounts by consolidating your spending of similar items with a single, high-performing vendor.
- Help with Invoice Confirmation/Matching - Vendor invoices typically arrive in the payables department for processing. The trouble is, if the invoice doesn’t reference a PO, it’s difficult for the payables department to determine if the charges are warranted or if the goods have been received. By routing all purchases through the requisition and purchase order cycle, and the associated approval process, your payables team can focus on the rapid processing of invoices, rather than tracking down the source and legitimacy of the charges.
- Serves as Legal Contract - Purchase orders can act as a legally enforceable contract. Having a written agreement regarding the prices and quantity of items in your order protects both you and the seller. Purchase orders protect you by giving you a legal, binding record of exactly what you ordered and at what price. If the vendor delivers the wrong quantity or substitutes an incorrect item, or if you’re charged the wrong amount, you can refer back to the purchase order to help resolve the issue.
- Reign in Maverick Spending - Maverick spending refers to purchases made outside of agreed upon contracts (i.e. purchase orders). It’s estimated that up to one-third of all purchases organizations make are made without the knowledge of the procurement department. Research suggests that maverick spending increases purchasing costs by almost 40 percent. Making requisitions and purchase orders a cornerstone of your procurement process goes a long way toward reining in maverick spending. By bringing most expenses under direct management, you gain the efficiencies and control that help reduce waste and keep costs in line.
- Track Encumbrances - Depending upon the items ordered and the vendor ordered from, there can be a long lead time between the time you order a product and the time you receive the goods. Even though those products may not yet be in your warehouse, you have committed to and are liable for the associated costs. Without a purchase order, these costs are often invisible to an organization, which can lead to overspending and inaccurate reporting. By using purchase orders, you can easily track these encumbrances — the financial obligations associated with goods in transit.
- Track Vendor Performance - Which vendors consistently deliver products on time, at the agreed upon price, and without errors? Using purchase orders helps build a history of your vendors’ performance by creating an audit trail containing information like date ordered, date promised, price and quantity ordered, quantity and date received, and quantity and price invoiced. You can run reports with this data to gain insight into your best and worst performing vendors, and award future contracts accordingly.
- Improve Inventory Management - Many eProcurement solutions offer integration with popular ERP solutions. Integrating your requisition and purchase order processing with your ERP provides you with an inventory management system with access to pending and approved requisitions and purchase orders as it performs routine replenishment calculations, allowing it to make more accurate, informed recommendations for reordering inventory items.
Purchase orders don’t always receive the respect they deserve at gatekeepers of corporate spending. When leveraged as part of a comprehensive eProcurement solution, the humble purchase order is elevated to a vital role at the center of an effective, successful, corporate-wide procurement cycle.
If you are interested in learning how to improve your procurement, purchase order and requisition processes, contact us – email, call 800.725.4408 or visit - www.paramountworkplace.com.
We look forward to learning about your unique company workflow and requirements and how Paramount WorkPlace can specifically help you achieve your objectives.
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Paramount WorkPlace
Paramount WorkPlace develops, sells, and supports advanced web-based and mobile requisition, procurement, and expense software solutions for mid-market and enterprise companies. Over 131,000 worldwide users trust and rely on Paramount WorkPlace cloud-based and on-premise solutions for their powerful capabilities, intuitive features, and the option for a stand-alone and integrated extension of Microsoft Dynamics GP, AX, NAV, and SL; Sage ERP 100, 300, 500, Sage Intacct, Blackbaud Financial Edge and NXT, Acumatica, NetSuite, SAP, Oracle, and Epicor. Learn more at www.paramountworkplace.com
About the author:
Salim Khalife is the founder, president and CEO of Paramount WorkPlace, a technology company that develops, sells, and supports advanced web-based and mobile requisition, procurement, and expense software solutions for mid-market organizations. The company introduced its first cloud-based SaaS requisition application in 1997 and continues to innovate and expand its partnerships and integrations ever since.
Another version of this blog was previously posted on Paramount WorkPlace’s Blog by Salim Khalife, Founder & CEO - The Lofty Importance of the Humble Purchase Order
Image courtesy of freedigitalphotos.net - “Buy Now Computer Key” by Stuart Miles