November 20th, 2018 • Procurement Process • purchase order
Purchase orders are at the heart of a procurement process. However, most small businesses neglect using purchase orders effectively. Although they purchase goods and services, they don’t always plan their purchases as well as they should. As a result, they end up dishing out more money than they need to.
Even after spending more, if there is an issue with the quality of the goods or services received, they can’t raise a dispute. They battle with substandard suppliers and sub-par customer service every day. Failing to devote enough attention to the purchasing process spikes up their operational costs and shrinks profit margins.
As a result, they are forced to live with little to no profits and higher risk. All of this can be prevented if businesses spend more time formalizing their purchasing process using purchase orders. Purchase orders can help organizations not only control their purchasing activities but also optimize organizational spend.
Here’s all you need to know to simplify your purchase order processing.
Given below are the steps involved in purchase order processing, that cover the entire lifecycle of a purchase order.
The purchase order is prepared by the purchasing team once a purchase request is approved. Once a purchase order is created, it is sent through a purchase order approval process: first to the finance team for budget approval, and then to the requester’s manager to cross-check the purchasing details.
The next step of the purchase order process is vendor selection. Here, depending on the items required, the purchasing team will pick a vendor from their preferred list or use a comprehensive strategy like RFPs to find the right supplier.
Once the supplier is identified, a copy of the purchase order is sent to the vendor. Once a purchase order is acknowledged and approved by the vendor, a legally binding contract activates, after which the order is fulfilled. A purchase order stays open until the requested items are delivered.
After the items are delivered, the purchase order is compared with the received invoice. If everything is found to be in order, the invoice approval system passes on the approved invoice to the finance department. Hence, the lifecycle of a PO ends here.
For a purchase order process to function appropriately, every stakeholder needs to be on board. It will be the best if organizations don’t do it manually and ensure everyone understands the importance of automation. Here the 4 steps to automate purchase order processing.
The first step is to design a purchase order form. You can either install a pre-designed purchase order form template or create one from scratch.
This digital form will collect all essential details like the PO number, vendor details, buyer info, payment terms, and can even attach files (a purchase requisition form).
You can make your purchase order app do anything from auto-populating credentials and custom fields to creating tables that calculate the total cost based on quantity.
The next step is to set up the purchase order workflow. You can keep it as simple as a single sign-off from the purchasing team or create a complex workflow with condition and rules.
Assigning a task owner for each step of the workflow will make team members accountable for their role in the process.
You can also quicken the purchase order approval process by sending automated notifications to all stakeholders requesting them to review and act on time.
Each stakeholder will receive a push notification (or an email), which will direct them to the PO app. The participants can then review the purchase order form and perform one of the three available actions: approve, reject, or request more info.
To streamline the purchase order process, you can connect KiSSFLOW with other procurement software solutions used by your organization. API integration will ensure seamless data transfer across your procurement applications.
With seamless integration, KiSSFLOW users eliminate data silos, reduce manual intervention, and keep the process accurate and consistent throughout.
Once the purchase order app is ready, make sure you test all the internal and external parts of the workflow and the digital form before deploying it.
After the app is made live, track the purchase order process, analyze the bottlenecks and see how to improve it.
Although the high cost associated with manual purchase order processing has always been a concern to organizations, it was hard to zero in on the exact PO cost. As the cost varied based on the industry and line of business, it was a challenge to set a proper benchmark.
However, PayStream’s 2018 procurement insights report dove headfirst into this topic to gauge average processing costs. In this review, a lot of metrics like the centralization of procurement, the number of manual tasks involved, and the time taken to process a PO, etc were taken into account.
Tasks like processing email, entering data, managing vendors and vendor database, handling internal procurement system, and more were assessed. As a part of this evaluation, PayStream split organizations into three major groups based on the technology they used to process purchase orders—Novice, Mainstream, and Innovator.
Novice organizations, made up of primarily SMBs, ran on manual purchase orders. They had the highest cost per PO and took the longest amount of time to process a PO
Cost Per PO
*Table: Automation Maturity and Cost Per PO- PayStream’s 2018 Procurement Insights Report
Organizations that fell into the Mainstream category typically used automation, at least a little bit, either through their homegrown procurement tool or with the help of an ERP system. These organizations tend to process their POs more efficiently than novice companies. But still, their cost per PO is slightly on the higher side.
Innovators, on the other hand, use cloud-based purchase order systems. Their purchase order process requires little to no manual involvement making the cost of processing a purchase order invoice go down by almost 200 percent when compared to the other two categories.
There are many other benefits in addition to lower processing costs. The three greatest improvements of implementing purchase order best practices through automation are reduced cycle time, enhanced visibility and transparency, and improved control and security.
While purchase order automation might seem like a huge leap for organizations that don’t even have a purchase order process in place yet.
Implementing a purchase order system will not only go a long way in improving not just an organization’s existing bottom line, but also ensure financial and business stability in the long run.
When the purchasing process of an organization is widespread and uncontrolled, there is no way to control organizational expenses or ensure financial stability. With an automated purchase order system like KiSSFLOW, organizations can rein in unregulated purchases and bring all their organizational spend into one controlled environment.
Automation will help organizations make informed, strategic purchasing decisions using features like automated workflows, online purchase orders, a customizable rule engine, and real-time analytics.
KiSSFLOW also streamlines processes for PO creation, approval management, invoice reconciliation, and integration with accounting software.
KiSSFLOW does much more than standardizing a manual purchasing process. It enables the purchase order process to become a strategic asset that helps the whole organization.
Looking for a way to make your purchasing process painless? Say hello to automated purchase orders with KiSSFLOW.
(annual billing only)
(annual billing only)
*Enterprise pricing is based on expected transaction volume and maximum number of users