An effective purchase order management process is imperative for not only creating purchase orders and seeing them through to their completion but also for everything that happens in between. It includes sending an order to vendors, its delivery, and confirmation of the details in the invoice.
Read on to get a detailed insight into what the purchase order management process is all about, its different steps, and the steps to optimize it.
What is the Purchase Order Management Process?
As a company’s procurement process, purchase order management involves the fulfillment of requirements, accountability, and augmentation of costs for the purchase of essential items. The main objective of purchase order management is to ensure that a company’s professionals adhere to the processes and policies of their company while concluding a purchase order.
In brief, a purchase order is any transaction made by a procurement company for procuring goods or supplies. The identification of a product by a company marks the first step of the process. It concludes when a procurement company clears the payment for procuring its ordered supplies.
Different Steps in the Purchase of Order Management Process
The purchase order (PO) management process involves a long list of steps. These include the following:
- A team of procurement professionals creates a purchase order.
- In the next step, depending on whether or not the purchase order needs any adjustment, it goes to an authority who is responsible for signing it off.
- The procurement company in question sends the purchase order to its intended vendor.
- If the vendor accepts it, a binding contract is created, which includes key details like the pricing information, the shipment date of the product, the purchase order number, and the details of the buyer.
- The management team from the vendor’s end delivers the ordered item to the warehouse of the procurement company, wherein the warehouse manager checks its quality. If the ordered product has any issue, it is returned to the vendor management team. Otherwise, the warehouse manager of the procurement company verifies the invoice and sends it for the close of the purchased order.
- Before closure, the warehouse manager verifies the details of the invoice through a three-way matching process.
- If no discrepancies are spotted, the purchase order is closed.
Essential steps for the optimization of purchase order management
Companies that are a part of the supply chain have two major objectives. Perfecting their degree of efficiency aside, such companies also aim at the systematic distribution of resources. A fixed workflow is necessary to achieve these objectives. With a fixed workflow, a company can also benefit in other ways. For instance, a company can address its existing problems by using it. Plus, the latter also helps the former to keep an eye on the rising costs.
Taking the following steps will help you optimize purchase order (PO) management.
- Assess the ongoing PO process
Contrary to popular perception, PO management is an elaborate process. Whether you think of its first step or the last step, or any step in between, many problems can creep in. So, you can take the first step in the PO management process by identifying the various issues in the handling of current purchase orders of your company.
Communicate with everyone who has a role in the procurement process of your company, including the ones who are associated with warehousing. This measure will help you identify the existing roadblocks in your firm’s procurement and warehousing processes.
Additionally, do not forget to talk to the stakeholders as they are the experts. As experts, they will be able to suggest better solutions to help you address the existing problems. Once you prepare a checklist of the current issues, the rest will be simple and easy for you.
- Put clearly stated guidelines on pen and paper and make them accessible to your management team
Just like others, your team of managers also needs clear guidelines to conclude purchase orders. By stating clear guidelines, you can help them with it. Your managers can easily conclude their purchase orders by following those guidelines.
In general, employees and professionals are more likely to fulfill the orders when they have a good knowledge of the procedures and policies. Not only does it help boost the performance of the processes, but it also allows stakeholders to improve their productivity and performance.
Before putting your guidelines in pen and paper, don’t forget to take some time out to discuss them with the stakeholders. It will help you ensure that you are not missing out on anything. Once the discussion is over, and you have a clear idea of what to include in the guidelines, prepare a set of guidelines that everyone must follow. Make them accessible to all stakeholders. Also, do your best to implement those guidelines. This will help you keep all your employees on one page and avoid the possibility of any confusion among them.
- Have a central vendor database in place to facilitate your workers to complete their real-time purchase orders in real-time
Choosing the right vendor is the name of the game called procurement. Without detailed information about a vendor, choosing them for the first time can be a hard nut to crack for your workers. By creating a database, you can empower them to choose the right vendor based on the previous purchasing experience of your company. Your company workers can refer to the information about a vendor in the database to decide whether or not they should choose the latter.
The choice of the right vendor can turn out to be a real game-changer for your company as it will boost both its overall productivity and efficiency. From the viewpoint of your company’s workers, the availability of a vendor database will help conclude real-time purchase orders.
- Segregate your supply items into different categories
Are you only looking for raw materials or also other office supplies along with it? Knowing the answer to this question is of paramount importance. Based on the answer to these questions, you can plan your next moves.
You might wonder why it is important to segregate your supplies. The answer to it is simple. Every company has a budget. Chances are your company also has its budget. Your best bet to monitor the expenses for your orders is to track several items as a whole instead of tracking the expenses for each item individually.
You can also reduce the burden of monitoring the expenses on your team of warehouse workers by asking your managers to set a cap for a specific group of items. This will help your warehouse professionals to streamline the entire operation of ordering items. In case a certain group of items exceeds its limit, your warehouse employees will ask for auxiliary authorization from your managers. This way, you can prevent the possibility of overspending.
- Have a transparent and reasonable process for approval
When it comes to ordering items, companies that procure them face the challenge of working out a middle ground. They need to work out a process for PO management that is neither too stringent nor too lenient.
A stringent approach to PO management causes delays in the delivery of orders which can reduce a company’s efficiency. On the other hand, a lenient approach to PO management also leads to negative consequences. It gives rise to spending and affects the precision of orders. Sometimes a lenient approach to the approval process for orders leads to the partnership with expensive vendors, which can maximize the budget.
If you control or manage a procurement company, the best thing you can do is focus on two distinct aspects at once. Alongside emphasizing the budget of your company, you also need to focus on how you implement the procedures and policies linked with the approval of purchase orders. The way in which you strike a balance between both these elements will set the benchmark for your company.
- Make sure your workers can see purchase orders in the hour of need
After initiating an order, the management team of your company might want to monitor it to keep abreast of the latest developments and updates. The manual method of tracking purchase orders can be hectic. Relying on a software solution can help reduce the duration of time in monitoring the updates of a purchase order through automation.
Consider investing in a procurement software program that can automate purchase orders. This way, you will be able to manage such orders automatically without compromising your degree of efficiency. Your management can track their orders at any time in the hour of need.
Accountability and optimization of costs are the two primary goals of purchase order management. The purchase process of a procurement firm involves a wide range of processes. These include the creation of orders, approval flow, dispatching purchase orders, blinding contracts, delivery of goods, and three-way matching. If everything goes according to plan, a purchase order (PO) can be closed in the end. Your best bet to close a purchase order (PO) desirably is to follow the common steps for its processing and optimization as given above.