Chemical company purchasing focuses on boosting profits through a simple chain of obtaining required materials and services. In today’s rapidly moving digital world, purchasing requires a comprehensive strategy that can adapt rapidly changing conditions.
Is your company still using manual archaic systems to manage purchase orders? An antiquated purchasing process can easily lead to mismanagement and simple user errors, reducing your profits.
Times, however, have changed. Using a technology-driven approach that automates the entire supply chain and includes real-time supplier collaboration saves time and money. These systems increase efficiency while boosting profitability.
Figure: 1 Integrating the Purchase Order Process
Companies using software tools lacking a common design and style, especially those made 3rd-parties, are looking to cause data errors. Having a common suite of tools for daily use that can share information goes a long way to reduce errors and improve efficiency.
For example, connected business solutions from Microsoft help streamline internal processes. They automate repetitive tasks so your people don’t have to.
of companies agreed that there are loopholes in their PO practices.
of organizations reported having plans for addressing purchase order management inefficiencies in the near future.
Figure: 2 The Purchase Order Lifecycle
Procurement and the Purchase Order Life Cycle
Buying raw materials and finished components starts with negotiating terms and then acquiring goods or services from approved vendors. It also requires establishing payment terms and evaluating suppliers based on past transactions. Other steps are sending purchase orders, receiving purchased goods and processing invoices and payments.
The purchase order lifecycle has six core steps:
1.Vendor Selection: After receiving supplier quotations, buyers shortlist the ones meeting company requirements and budgets. While that happens, the procurement team verifies the supplier’s integrity, taking stakeholder input to reach a unified decision on which suppliers to use.
2.Negotiation and PO Dispatch: Buyers and suppliers negotiate the delivery timeline, set on time in full (OTIF) key performance indicators (KPI), establish a payment process, agree on quality standards, dispute resolutions, confidentiality, risks, change in requirements and other details. Suppliers and buyers sign purchase contracts, locking in the price and other terms.
3.Purchase Order Creation: Once the procurement team receives approval on purchase requests, it creates a purchase order containing product details, pricing, delivery terms, freight methods and other details. When dealing with multiple line items, some buyers’ systems may create purchase orders for each item.
4.Receiving goods and quality checks: Vendors send shipments according to the buyer’s instructions and terms in the PO. After receiving the supplier’s shipment, the buyer conducts a standard quality check, confirming it matches the PO’s requirements and packing slip. The receiving clerk verifies the item count is correct and conducts a surface level check for damages, noting any errors or damage. When the shipper and receiver numbers and quality levels do not match, relevant parties are provided details on what was found. After disputes are resolved, the receiver records the receiving information into the inventory management system.
5.Processing invoice payments: The supplier invoices the company, which routes it to the Accounts Payable(AP) Department. An AP clerk inputs the invoice, verifies details and charges against the PO and posts the PO or invoice. The transaction creates an open invoice against the supplier in the system. The open invoice now appears on an aging report.
6.Processing the payment for the purchase: As the invoice due date approaches, an AP clerk prepares a payment proposal that follows a standardized company workflow. Approval typically depends on the invoice amounts with higher figures requiring higher-level executive approvals. After getting approval, another AP clerk prints checks or sends electronic payments before posting the payment and clearing the open invoice.
What do these steps tell modern businesses? Each overly-simplified step shows that being detail oriented is a primary requirement. Anything that reduces human error and improves the overall accuracy of the purchase-to-pay lifecycle must be considered.
Small companies may skip the PO process, relying on strong relationships with only a few vendors. When verbal deals break down into a battle of “he said, she said,” the result is often an unnecessary legal battle. Having an automated written process keeps everything documented, safeguarding your company from potential losses.
Underlying Reasons for a Purchase Order Failure
There are plenty of reasons, including human error or process failure, why a purchase order system can fail. Some of the reasons are:
- Authorization limitations
In most cases, only an authorized person should sign a purchase order, obligating the company to pay it. Situations may arise when the authorized agent doesn’t receive the PO or forgets to complete the sign-off. In such cases, Accounts Payable may refuse to accept the invoice.
- Using wrong codes and supplier names
The person assigned to complete the purchase may lack crucial details such as the full supplier name and business code. Incomplete or inaccurate forms wastes time and money.
- Not completing all essential columns and boxes
When handling POs manually, there are no system reminders to fill in every mandatory data field. Missing data in one field can have a domino effect on other areas.
- Failing to use the preferred suppliers’ list
In an automated PO management system, a preferred supplier list is given preference. It forces the buyer to stick to what is listed. Choosing suppliers outside the approved list requires providing an explanation to management, even when the altered decision benefits the company. Automated systems often have a trigger, requiring management approval before the PO progresses. Manual processes are challenged to monitor approved supplier checks.
- Delivery Delays
One of the apparent problems faced in manual Purchase order processing is enhanced visibility in delays of goods/ services delivery. Typically, a high volume of orders or errors results in the supply system slowing down or losing track of vendor shipments.
Automation as a Solution
While digitizing purchase orders requires a significant initial investment, it’s a long-term solution resulting in a tangible return on investment. The sooner a company upgrades to automated electronic invoicing solutions through enterprise resource planning (ERP) software, the faster it sees the benefits. Producing electronic POs in an older ERP removes paper but doesn’t end manual processes. Buyers still need to extract the PO from the ERP and email it to the supplier.
Having an automated PO system that easily fits your business requirements makes purchasing more efficient. It should have features such as automatic purchase order creation and approval routing. It should notify suppliers via email or through an alert triggered in an online supplier portal.
When your advanced ERP—like Microsoft Dynamics 365—has an online supplier portal, your vendors can receive purchase orders, make modifications, send order acknowledgments and generate accurate invoices.
Get a Free Assessment to Begin Your Digital Transformation in Purchase Order Automation.
5 Steps to Creating an Automated PO System
There are five steps required to create an automated PO system:
- 1.Integrating the purchase order system with ERP
- 2.Creating an electronic PO requisition and approval process
- 3.Transmitting electronic purchase orders to suppliers
- 4.Providing suppliers with easy online access to view your POs, acknowledge orders, and send advance shipment notices (ASNs) instantly
- 5.Streamlining supplier transactions to help manage your purchase-to-pay process
Key Benefits of Automating Purchase Order Process
Chemical and pharmaceutical companies plus their suppliers gain several benefits from using an automated purchase order system. These benefits include:
Providing suppliers with 360-degree views of orders, invoices and payments
PO requisitions automatically route for approval
Increasing invoice accuracy and reducing duplicate data entry
Saving time and resources while making users more compliant
Minimizing inconsistencies and reducing opportunities for error
Streamlining the entire PO process, promoting faster speed and better efficiency
Enhancing productivity by managing multiple orders simultaneously
Reducing long-term expenses
Streamlining inventory management and improving decision-making capabilities
Figure 3 Upgrading to an Automated PO System
Improving Supplier Interactions with Dynamics 365
Dynamics 365 works with Microsoft Office 365 to simplify and automate daily tasks, letting your procurement team focus on managing purchases.
For example: Your buyer receives an email from a supplier requesting additional details on a quote. The system recognizes the sender, enabling the buyer to easily pull up prospect cards within Outlook. From this dashboard, the buyer reviews the account that includes the supplier’s existing quotes, ongoing orders and purchase history. While the buyer manages the quote, supplier and product information auto-populate, helping him get it done faster.
Another example is while your buyer is sending a purchase requisition, a message is sent to their inbox from a potential supplier they recently interacted with at an event. The system recognizes the supplier’s email address is not in the supplier database, prompting the buyer to add it. Without leaving Outlook, the buyer creates a profile in Dynamics 365 Finance.
Both of these examples show how automation reduces time spent on administrative tasks, allowing your purchasing team to quickly respond to quotes and ultimately improving overall customer service.
As a business owner, imagine receiving an email from a high-priority customer needing an order delivered fairly quickly. Fulfilling that order depends on receiving materials from your suppliers. Without leaving your inbox, you can check inventory and discover that you don’t have enough stock on hand to fulfill the order. Your sales team can quickly send a PO directly to the Buyer with “approval to proceed.” In the same interface you create and send a purchase order to the vendor and a quote to your customer.
With Dynamics 365 and Office 365 working together, you can take quick action right from your email – allowing you to spend more time managing your business and connecting with customers.
Efficient purchase order automation increases the point of revenue, makes the operational process easier and reduces error rates.
The mature and robust functionality of an automated purchase order system ensures better functioning of the Purchasing department, with a cloud-based procurement solution offering greater transparency on purchase order management with even greater ease of access.
CONTACT US and get started with your Purchase Order automation process using Power package with Microsoft Dynamics 365 Supply Chain!
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