By the Numbers
- $35.88: The minimum cost of a PO according to APCQ.
- $506.52: The estimated maximum cost of a manual purchase order according to APCQ.
- $53-$741: The average cost range of POs according to CAPS Research.
- $60,000: APCQ’s estimated annual cost associated with manually producing purchase orders.
POs and the departments that approve them
- 8%: No approval required
- 21%: Finance
- 52%: Budget owners
- 84%: Supply management
Today, purchase orders (POs) are the lifeblood of all companies, especially manufacturers. Being able to use POs properly helps in several different ways, including:
- 1.Simplifying the ordering process, making it easy to find approved items and place orders.
- 2.Aiding in budgeting by helping you determine how much you need to spend and how much you need to sell.
- 3.Enabling accurate planning by providing insights into company performance.
- 4.Warning of unexpected expenses when a PO is submitted, providing time to research it.
- 5.Confirming the quantity and price of goods bought or sold, eliminating miscommunication.
- 6.Providing legal protection against errors in quantities or unexpected price increases.
- 7.Controlling spending by limiting who can place and approve POs.
- 8.Tracking spending by providing details into where your money goes.
- 9.Helping manage vendors by seeing who delivers on time at the agreed price and who is late or constantly complaining.
- 10.Improving inventory management by telling you what should be arriving compared to what actually arrives.
Types of Purchase Orders
Most POs used today typically fall into one of four types. An automated purchase order system helps manage each of these types of POs.
1.Standard Used for one-time orders such as office furniture.
2.Planned purchase orders (PPOs)Typically lacking a delivery date and location, they are used for restocking items at irregular intervals.
3.Blanket purchase orders (BPOs), also known as “standing orders.”While similar to PPOs, they lack the known quantity and have uncertain delivery dates. Vendors may place limits on amounts so they can deliver.
4.Contract purchase ordersThey are used to set the terms and conditions for future purchase orders. Their primary function is ensuring a smooth ordering process.
The Disadvantage of Manual Purchase Order Systems
The job of a purchase order automation system is to send each PO to the appropriate staff member for review and approval. These systems leverage existing purchasing processes and rules to perform their jobs while protecting your business at the same time.
Modern automated systems often counter significant issues associated with older manual PO processes.
Figure: 1Disadvantages of an Manual PO System
Compared to modern, automated systems, manually created POs tend to suffer from a number of drawbacks, including the following:
- 1.They’re less efficient
- 2.They’re paper heavy
- 3.They lack accountability
- 4.They open the company to security risks
- 5.They lack process regulation
- 6.They’re often time intensive
Using an automated system for POs in place of any older, manual processes results in a number of benefits, regardless of a company’s size:
- Increased cost savings
- Reduced human input error
- More visibility into the PO process
- Increased flexibility and control
- Improved process efficiency
Improving process efficiency is usually overlooked in a businesses day-to-day affairs, but this boost to efficiency is huge and provides a number of key benefits, including:
- Significantly reducing the time between orders being placed and shipped.
- Providing a verifiable audit trail so a manager wanting to know the status of a requested item can get a real-time view of the order. If a discrepancy occurs, the PO provides a written record.
Want to learn more about handling purchase orders in Microsoft Dynamics 365?
Benefits of a Modern PO Management System
According to a recent Altametrics blog, purchase order management “is an in-house procurement process implemented by businesses to ensure that every purchase is required, accounted for, and augmented for costs. The purpose is to ensure workers follow all policies and procedures before fulfilling a purchase order.”
Using a modern automated PO management system ensures that all orders are created, approved, and dispatched according to current policies and procedures set in place by the organization. These systems exist to ensure that your company has complete control of its purchasing and can make quick adjustments in the event of an emergency.
Once generated, these purchase orders are considered a binding contract
- Company A agrees to pay the stated price for the listed items upon delivery from Company B.
- Company B agrees to provide the goods on time, and at the agreed-upon price, terms and conditions.
If any mistakes are realized, a modern PO management system provides a streamlined way to quickly resolve any discrepancies.
Properly managed POs:
- Eliminate overpayments
- Reduce damaged goods
- Save time
- Eliminate inefficiencies
Modern PO management systems start by examining a company’s current methods to identify bottlenecks and ways to improve efficiency. These systems can strictly adhere to existing procurement policies and procedures using simple guidelines. This enables shop floor workers to make requests converted into accurate POs.
PO management systems also help to organize existing information. For example, they can create a real-time vendor management database showing which companies are approved. This lets buyers know who they can deal with to get what they need and when.
Another tangible benefit is the ability for workers to track the status of any current POs directly. Instead of having someone else take time away from their duties to provide an update, workers can quickly log into the system and find out themselves.
The best PO management systems make it easy to create and track POs and share the information seamlessly with other departments when included as part of an overall Enterprise Resource Planning (ERP) solution.
Procurement and Dynamics 365 Supply Chain Management
One of our favorite ERP solutions is Microsoft’s Dynamics 365, a modular ERP system that includes asset management and procurement functions in its Supply Chain Management module.
Located in the Asset Management > Common > Procurement > Work order purchase requisition section, this software shows a list of purchase orders related to work orders. It also shows how the purchased goods are used for assets, maintenance jobs, spare parts, and work orders.
This module can be configured to indicate any potential delays. The system can generate notifications giving management teams different options to resolve the issue
- Wait out the delay or
- Find an alternate supplier.
As well, work orders, job orders and purchase orders can all be tied to each other through the Supply Chain Management module. The end result is visibility:
- Purchasing knows what items are in the pipeline,
- The warehouse knows what is coming,
- Production knows when the materials it needs will arrive, and
- Sales knows when customers can expect delivery of their finished goods.
Note: Click here to see how to create a purchase order in Dynamics 365 Supply Chain Management.
Dynamics 365’s Supply Chain Management module also lets you control other aspects of the purchase order process. It provides a number of critical business functions, including creating purchasing policies, product receipts and invoices, and more. More than just a PO management program, Supply Chain Management also has direct ties to rebates, production controls, service management, transportation, warehousing plus sales and marketing.
By providing everything from an overhead view of your entire supply chain to the status of an individual PO, Supply Chain management provides companies of any size with the information they need to control their inventory.
The Bottom Line
Purchase orders continue to be an integral part of all businesses. Continuing to enter this data manually—and trying to keep track of it all on paper—makes the process cumbersome and prone to mistakes and expensive errors.
An automated PO management system, like that included in Microsoft’s Dynamics 365 solutions, helps reduce the number of manual inputs, ensures only permitted vendors are used, and simplifies the approval process, even automatically approving smaller purchases, debiting them to a department’s budget, or forwarding them to the correct department for approval.
Connecting this PO management system to your overall inventory control system is one of the best ways to ensure you always have the right materials on hand to meet your production and sales goals.