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Aug 16, 2021

What Does a Healthy PO System Look Like?

by Arielle Kushner

PO system

Businesses both large and small operate on keeping order and organization. Ensuring they can see the full picture helps finance leaders analyze data accurately, make informed decisions, and budget accordingly. So when it comes to making purchases, getting the right approvals, and working with suppliers, a proper purchase order (PO system) should be in place. Without one, the lifeline of a procurement or finance team can get clogged up with bottlenecks, choking a purchasing process and starving it of smooth and timely approval flows that are essential to the health and resilience of the organization.

What is a PO System?

Within a standard purchasing process a PO system is put in place to create purchase orders (POs) based on approved purchase requests. Smaller organizations can usually get away with a manual system that requires users to place data into spreadsheets or open tickets, but as an organization grows, these practices become more time-consuming, harder to track, and more error-prone. More teams are moving over to automated PO systems which allow them greater visibility in real time – not to mention fewer mistakes and overall faster purchasing cycles. 

Types of POs

There are a few different types of purchase orders and understanding the difference will help you better manage your purchasing and procurement processes. 

Standard PO

Standard purchase orders are the most commonly used. They are typically very detailed and used for individual, one-off purchases.

Planned PO

Planned purchase orders are similar to standard purchase orders, but they either do not include delivery information, or include tentative delivery information that is subject to change.

Blanket PO

Blanket purchase orders are agreements to purchase goods or services from a specific supplier, but do not necessarily specify a quantity or price. This type of purchase order is typically used for repetitive purchases from a trusted supplier.

Contract PO

Contract purchase orders are quite different from the rest. They don’t include very much detail, and instead work to outline the negotiated terms and conditions of a buyer-supplier relationship. Contract purchase orders include supplier information, and are used as a basis for an ongoing relationship and the foundation for which all future POs with this supplier can be based. 

How Does a PO System Work?

A purchase order system can be very simple. If you really think about it, the purchase order is just an official document that the buyer sends to the supplier outlining what the purchase entails and what/how much needs to be fulfilled. The steps before and after this document is created make up the PO system and can be as straightforward or as involved as the organization wishes. 

Typically, a standard PO system will look like this:

Purchase request 

  • A request for a certain purchase of goods or services is placed and waits for the right approver

Purchase order 

  • A PO is then created upon approval and sent to the selected supplier

Order fulfilled

  • The supplier uses the PO to fulfill the order and sends it to the buyer

Goods received

  • The buyer receives the order

Invoice sent

  • The supplier invoices the order including the PO number

3 way match

Payment 

  • Payment can then be issued

Closure 

  • The order is closed

The above steps can be carried out as a manual process in smaller businesses, or as an automated process. As companies scale and purchases become more complex, the PO system may be adapted to accommodate more involved purchasing processes. This is where an automated purchase order software makes all the difference in visibility, organization, and speed. 

How Do You Set Up a PO System?

Each organization will have its own policies and purchasing procedures that dictate how an effective purchase order system should be constructed. Before setting up an official PO system, your team must first decide on how to customize purchase request and purchase order forms. Relying on a prepackaged system can create more bottlenecks in the long run, while customized processes ensure specific needs of the procurement and finance teams are met upfront.

Outline exactly what information related to line items, prices, and more are required to open a purchase order and trigger the correct approval process flow. Once the purchase order is created based on the purchase request, it will require certain vendor or supplier information,. These are the types of decisions that can be made when customizing a process during set-up. Starting off on the right foot will help maintain a smooth purchase order process system and as organizations and purchasing frequencies grow. 

Benefits of an Automated Purchase Order System

Migrating to an automated process is not as difficult or time consuming as one might imagine. When done with a bit of foresight and planning, implementation can be smooth and provide many benefits when compared to a manual process.

Greater Visibility

An automated PO or purchasing system provides the full, real time visibility needed to understand the status of each purchase order at every stage in the process. This type of system can help you see where things get stuck or bottlenecks occur. And it allows you to easily identify and nudge the appropriate stakeholder to keep the ball moving.

Having complete visibility will help teams avoid duplicate purchases, understand need when it comes to inventory management, and always ensure the right approver is overseeing the approval process.

Simplified Internal Approval 

Speaking of the right approver, an automated PO system makes it much easier to get approvals fast. When users don’t have to deal with inputting data manually, or worry about following up and checking in with approvers via email, the approval flow becomes simpler, faster, and more manageable.  

More Control Over Company Spending 

Because automated PO processing helps to greatly reduce human error, procurement and purchasing teams get an accurate picture of business spend. They can make informed decisions to control spending, easily manage spend, and ultimately save money.

Moving Parts Become Streamlined

There’s so many moving pieces to a procurement process. Having a proper, implemented online purchase order system creates order, lets every stakeholder know where they fit in, and helps teams to eliminate unnecessary steps or practices that may simply be clogging the pipes.

Greater Flexibility

With the added visibility and control of an automated PO system, key stakeholders can easily get involved at any stage in the purchase order process without interrupting the approval flow or causing bottlenecks. Finance teams can get a clearer view earlier on, affecting decision making, and making their accounts payable workload lighter.

When preparing to implement an automated PO system, keep in mind that the best purchase order systems rely on cloud based purchasing software. Consider what the current status of your PO process needs in order to become stronger, and take the steps needed to establish and carry out a PO system that truly contributes to the health of your organization.

Interested in implementing a spend management system that simplifies and streamlines your business’s existing process? Check out Approve.com and request a free demo today!

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