Why Self Purchase Orders Are a Bad, Bad, Idea
The constant pressure to deliver on deadlines can tempt procurement leaders circumvent the existing process and resort to self purchase orders. However unlike standard purchase orders, self purchase orders come with an array of complexities. The way in which self POs surpass multiple layers of approval can end up enabling maverick spend without necessary measures.
What are Self Purchase Orders?
Self purchase orders are directly generated by the employee who requires the goods/service, instead of the procurement officer or the usual decision maker. Most purchase orders must run through a series of approvals before they are sent to the vendor. Self purchase orders are raised instantly without any purchase order approvals.
The second key difference is that the employee who raised the request themselves deals with the vendor, which is usually a job for the procurement team.
This has an effect on the company’s spend culture, as you’ll soon see.
Why You Shouldn’t Consider Self POs
Here are some reasons why this is never a good idea, whatever your industry vertical.
Procurement teams consist of people who understand the ins and out of business purchasing, and usually perform due diligence to eliminate overspend. Employees from other departments don’t have the full knowledge and experience that populates procurement teams.
Often, the initiator of a self PO will end up overshooting budgets by a considerable amount, distracted by time constraints and work pressure from their other responsibilities. They generally don’t have the know-how to set up an up-to-date accounting system that monitors spend. Procurement experts will recognize this as ‘rogue spending’.
You might think a system of spreadsheets might keep things in check, but the only real fix for this issue is to get a procurement solution with real-time visibility and insights into spending.
2. Unchecked vendor performance
With the procurement team handling things, it is common practice to keep a constantly updated record of vendor performance. Individual vendors are ranked on the basis of their ability to deliver on schedule, with good pricing, and other such factors.
Authors of self PO are hardly procurement experts; their general priority is to get products delivered on time. Beyond that, things like vendor monitoring and management are hardly any of their concern.
Without central visibility into vendor performance, your organization might pick the wrong vendors, which cuts into your bottom line.
3. Exposure to fraud
Self POs are more than a niggle in the mind of some procurement team member who is a stickler for policies. No, they can be outright dangerous. With an employee-initiated and controlled self PO, you leave yourself open to the following risks:
- Employee may use their control over vendor choice to pick a vendor for their own reasons, including bribes from vendors
- Employee might be buying something for their personal use, taking advantage of the self PO system to cover their tracks
- Employee may be generating false invoices, raising “purchase” funds that they’re secretly siphoning off to their own bank account
Procurement in general is prone to fraud, and self POs just make it convenient for people with nefarious motives to get away with their efforts.
4. No accountability in pricing
Employees from outside of the procurement team, as discussed in an earlier section, often lack the know-how and the accountability that keeps their decisions aligned to the company’s best interests.
Moreover, an employee raising a self PO might not have the know-how for effective price negotiations with the vendor. They may sit back in pride at having completed what they think is a good deal, while the procurement manager might get a nasty shock when she reviews it!
With good procurement software, purchasing managers get key insights into buying patterns. This is key information that helps them get better deals out of vendors, citing frequency of deals and previous orders.
A Convenient Solution
A solution like Kissflow can help you eliminate the need for self purchase orders. The main myth surrounding these is that self POs can be executed faster. Consider this–with relevant and timely notifications, mobile access, cloud computing, and quick approval routing, a solution like Kissflow eliminates the very need for a self PO-based system.
Not convinced yet? Skip the self PO route, and take a look at Kissflow Procurement Cloud.