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A purchase order is crucial for a business process. Without procurement of goods in time, there will be a hindrance in the business process, and your teams may find it hard to work with insufficient resources.
From the point of selecting a vendor to approving, placing a purchase order, and tracking the delivery, the process should be frictionless. However, manual operations might not always provide a seamless purchase order process.
Keeping track of all the data and managing them in a sheet will cost your team more time and effort. If you are still doing this, this blog is meant for you.
Explore the possibilities of purchase order process automation and how it can transform your business for the better. This detailed read will teach you the definitions, benefits, and steps involved in the purchase order system. Let's jump right in.
A purchase order is the approval of an order sent by a buyer to the supplier of goods/services. The buyer typically sends a letter to a seller to acknowledge the transaction.
Once the supplier approves the purchase order, it turns into a legally binding document, which can save both the buyer and vendor from discrepancies in the future.
Though the purchase order definition seems simple, the process requires multiple teams to work in sync to make it possible.
The purchase order process is a combination of multiple steps that must work seamlessly to achieve the end result. It involves selecting a vendor, sending an RFP, confirming purchase approval, and finally validating and tracking the order.
The purchase order process requires multiple teams' involvement to make it frictionless, which is why it is better to use a tool to automate the process to avoid human errors and other inconsistencies.
Let's look at these in detail:
The first step in the purchase order process is the activity of creating an order.
This necessitates the involvement of all internal teams and consideration of customer demands. It will assist you in determining the products/services required to meet customer demands.
Once you've decided on a product, you should conduct a feasibility analysis and a budget check, assign a priority to the order, and determine when the product is required.
After you've identified all the requirements, you'll have a finished purchase order in your hands and can proceed to the following step.
The next step after creating the purchase order is the vendor selection process. This is a crucial step as a vendor is more like a business partner, and your business’s reputation depends on the product you acquire from the vendor.
So, it is necessary to choose the right vendor for your process. Here are a few important factors you must keep in mind while selecting a vendor:
These are some crucial criteria you must look for in a vendor. Then you can select a vendor that checks all the right boxes.
After selecting the right vendor, it is time to send the request for proposal (RFP). Vendors will be sending their quotes; ask your evaluation team to perform a complete check on the proposals before placing the purchase order.
The quote will include the price, estimated delivery time, return policy, and other necessary details. So, a thorough check is needed to avoid inconsistencies in the future.
Once you deem the quote from the vendor to be fit, you can move on with the purchase order. If the supplier accepts it, it will be a binding contract between the buyer and the supplier.
This contract will also stipulate the conditions of the purchase and what needs to be done in the future in case of any errors or inconsistencies.
After receiving the purchase order, the vendor will deliver the required products. Then comes the process of GRN.
GRN or Goods Received Note is a two-way document sent by the buyer to the vendor to acknowledge that the products have been received.
A GRN serves multiple purposes besides delivery acknowledgment:
After receiving the GRN, the vendor will include the product invoice and send the GRN back to the buyer. The buyer will perform a quality check on the products and send the invoice to the accounting team, and the payment will be released to the supplier.
This is a crucial step performed by the buyer before the payment is released. Three-way matching is where you compare the GRN with the purchase order and invoice sent by the supplier to check whether all the products requested have been received promptly.
Once the three-way matching is done, the supplier will release the payment.
Once the supply confirms the payment, all the products received will be stored in the inventory, notifications will be sent to the teams for record-keeping, and the purchase order will be closed.
Here are the main reasons why a purchase order system is important:
A purchase order is much needed for a business because it provides significant information relevant to the product, such as how it was developed from raw materials to a finished product. In addition, to product & purchase order data, quantity, and payment terms, it is a binding contract between you and the vendor that includes important information.
The purchase order also serves as the beginning point for documentation and comprises all of the information necessary for the job.
As a purchase order system is about documenting all the necessary data from approval to procurement, it helps the accounting team manage the budget effectively. Consistent documentation also helps the team avoid any lapse in budgeting.
The purchase order system enables the company to analyze the man-hours, wages, and even charges, such as lighting and heating expenses, that the vendor required to produce the finished product.
These details will assist you in determining overall production costs and give you an idea of how to control and manage your expenses in the coming fiscal period.
The main purpose of the purchase order process is to manage orders effectively. It increases the visibility of all the processes from approval of orders, RFP submission, shipping, and inventory management to payment release. All the processes fall under a single umbrella, making them easy to manage.
Purchase orders are where businesses face discrepancies due to a lack of communication and coordination.
However, having a process in place minimizes the risk by increasing transparency; it leaves bread crumbs along the way, making it easy for the financial and auditing team to backtrack and increase accountability.
POs come in handy while analyzing new market trends.
Checking the complete history of your purchase order process will reveal where your business made the right decisions, places where the expenses went higher than expected, vendors who delivered subpar products, etc.
You can use this information to enhance your purchase order and manage your expenses better in the future.
Demands will keep changing, and so will the market. To stay relevant and ahead of the competition, you must constantly enhance your purchase order system with new guidelines.
You should not follow the same purchase order process for all products as trends change and so does technology. Your purchase order system might gradually become outdated.
Using an outdated purchase order system might lead to an inaccurate flow of information, poor budget management, loss of accountability, etc. This is why you must follow the best practices to keep your purchase order system up to date.
Here's how to do that:
You might not notice it unless you pay close attention to it – your current purchase order process will reveal a lot to you. It might have inconsistencies, bottlenecks, and outdated data that cause issues in terms of product priority, availability of the product, requirements of the team, available budget, etc.
You can improve the process by talking to internal teams, partners, stakeholders, and especially your vendors to check if their products are available. These analyses will help you streamline your purchase order process.
The most important thing to do before creating a purchase order process is to analyze the end goals. These goals will help you design your process accordingly and avoid bottlenecks.
As we said earlier, the purchase order process is the collection of various activities involving multiple teams. Before you get started with the purchase order, you must clearly document the guidelines, so other teams will know what to contribute to the process.
Include individual responsibilities in the document to help the team collaborate and achieve the end goal effectively.
If you are already working with a list of trustable vendors, you can create a list of suitable vendors for the purchase order process. This will help you save expenses and operational time. Once the purchase order is created, this list of vendors will help finalize the one for the process.
A purchase order is not created and sent to the vendor right away. It must go through multiple approvals before the request is sent. This reduces the lapse in the process and helps maintain the budget effectively.
So, creating approval workflows will greatly benefit your team. All you need to do is assign the approver role to particular members of your team and stakeholders and get on with the process.
We live in a digital world. To stay relevant in the market and ahead of the competition, you need to use the latest technologies. One such technology is business process automation tools that can run your purchase orders on auto-pilot.
Such tools save you time and will increase productivity, minimize human errors, and streamline your purchase order process.
Automating your purchase order process will reap multiple benefits for your business:
These benefits are just the tip of the iceberg; using an automation tool can bring so many more advantages to your business than you think.
Hubler is a well-known task automation platform that can help you enhance your business by automating tedious and complicated operations in your purchase order process.
It is a no-code, do-it-yourself platform that allows you to simply create automation workflows to automate purchase order operations and other repetitive tasks.
Hubler was created to serve various businesses, including information technology, hotels, automobiles, retail, and facilities management. We have the best tools to help you automate your purchase order process from the ground up and enhance your revenue, regardless of your business/vertical.
Hubler is not your average task automation tool; when used correctly, it can easily skyrocket your revenue. The ability to integrate with multiple systems on the go is Hubler's most useful feature. Hubler can simply interface with your existing apps or databases. You can select from a predefined set of API keys or build your own connectors to meet your individual requirements and benefit from seamless interactions.
Some of the important features of Hubler include:
Have you just created a purchase order process and want to automate it with ease? Then Hubler is the platform you're looking for.
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