Once your business crosses a certain financial threshold, you need to bring in some order. What might have worked in the freestyle, learn-as-you-go days can work against progress once there are multiple moving parts.
Consider purchase orders. You can take care of these ad-hoc if it’s just an 8-member team which discusses purchases months before you even consider buying. But when you’re working with multiple teams, a significant number of customers, and with regular POs, you need a good, efficient purchase order system.
However, a number of companies decide to ‘make do’ and run POs through the accounting software they use, or an ERP platform. The reason in both cases comes down to convenience. Both these tools don’t do full justice to the procurement process, specifically purchase orders.
Read through these 6 reasons to see why.
Six reasons accounting systems and POs aren’t a good match
1. Purchasing isn’t done by one department alone
For most organizations, purchasing isn’t restricted to the procurement department. Learning & development may want to hire the services of a software trainer, IT might buy hardware, and marketing may want to purchase material for an upcoming seminar series.
You can’t realistically expect team members from these non-procurement teams to be familiar with tools like SAP, Quickbooks or Sage! In any case, it would be impractical to buy memberships for employees outside the procurement department, given the hefty subscription charges involved.
This often ends up with people from other departments emailing or calling in requests to your procurement team, taking you back to the pre-ERP age!
2. All that paperwork!
You create a lot of paperwork to work around the gaps in your accounting system’s tacked-on purchase order app. This is usually in the form of communication between teams, and archived versions of POs, purchase requests, and more.
With a dedicated digital PO system, you won’t have to:
- Print hundreds of reams of paper for POs, communication between teams
- Dig through 12 file drawers before you can pick up a folder that may contain the invoice you’re looking for
- Hire an external team if you decide to get rid of PO-related documentation that won’t be used anymore
- Have a brain aneurysm if a vendor needs access to a purchase request from over 5 years ago
- Using accounting software to take care of POs doesn’t do enough to let you completely eliminate paperwork from the entire PO or procure-to-pay cycle.
3. Vendors you’re unhappy with aren’t eliminated
Without a dedicated PO system, vendor management usually has you using the tried-and-tired system of comparing budget to actual profits and performing a loss analysis at the end of every month. You can definitely track bad apples this way, but this might be a case of ‘too little too late’. Bad vendors that you keep using just because your system doesn’t spot them quickly enough, can end up costing you.
PO software usually comes with the ability to generate custom reports on request. This means you can spot patterns in vendor interactions and relationships, isolating the good vendors from those who want to charge you as much as they realistically can. Overcharging is a common problem especially with service vendors.
Without a dedicated PO system, you can end up overpaying vendors and getting overbilled by greedy vendors.
4. Maverick purchasing is a serious problem
With a slow, difficult purchase process built on the makeshift PO section of your ERP software, you may end up encouraging maverick spending. This is when purchasing is done outside of your organization’s spend policies, contracts, and price agreements.
Maverick spending usually pushes up purchasing costs by up to 15%. Making efforts to control this will cost you even more. Methods like checking cash-out rates (how much of the procurement expenses in the total credit-side financial volume is controlled by procurement department) are difficult to execute unless you have an e-procurement software taking making note of every last transaction.
5. Communication gaps and information silos
Your accounting system won’t tell you who has authorized a purchase, or which team member is responsible when an invoice has an error. You have to rely on spreadsheets and emails, which means that information gets siloed within departments–this slows down the process and makes transparency impossible.
Your procurement, finance, and accounting departments often have to go on Sherlock Holmes-style hunts to locate signatures, POs, and more.
6. Procurement is streamlined with an automated PO system
This is arguably the biggest edge a dedicated purchase order app has over PO solutions tacked onto accounting or ERP platforms. Dedicated PO apps are designed to not just ‘cover’ executing PO tasks, but to help you execute POs faster, and more efficiently.
Why choose Kissflow?
Kissflow offers a PO solution that can speed up the entire process, and take the load of transferring form data and approvals off the team and into its hands. Further, you can tweak it (with no coding knowledge required) to suit the way your organization handles POs.
Try Kissflow’s PO system for today, and see how it works for you.
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- Guide to Moving Your Purchase Orders to the Cloud
- Ditch PO Template using Kissflow