Five ways to improve your Purchase Order Workflow

The PO workflow process can be complicated in your business. Keeping track of the purchase order process can be complicated in your business. Keeping track of items that need to be purchased, creating orders for your suppliers, and making sure you get what you ordered can be one of the most cumbersome processes to get right. 

Improving your purchase order workflow can ease the stress of buying for your business, add visibility to the process and ensure that the procurement function provides total value to your business. In this article, we will explore five key steps to improve the purchase order workflow in your business.

1. Review current Workflow for gaps
2. Digitize the Process
3. Implement Approval Processes
4. Implement Budgets
5. Establish Reconciliation Process

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Purchasing Workflow Process

Before starting with the steps on how to improve your purchasing workflow process, let’s understand what it is and the main elements of the process. 

Purchasing workflow process is a standardized process aimed at helping businesses effectively streamline procurement. The main elements of the purchase workflow process include sourcing suppliers, requisition and approvals, managing invoices and POs, receiving goods, processing payments, and ensuring reconciliation. This structured process allows organizations to streamline procurement and get high ROI rates. 

Also, one more vital step of the purchasing workflow process is evaluating the performance of different aspects from spend management to supplier performance to ensure maximum efficiency and identify areas for improvement.

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Review current Purchase Order Workflow Process for gaps

The best first step in improving a purchase order workflow process is to fully walk through it and understand what works and doesn’t. Review your current purchase order workflow and write down all the steps to complete, starting when somebody wishes to purchase something and finishing when it arrives in your business from the supplier.

Document all steps, making a note of the following information in each stage:

• What is the process
• Who are the stakeholders
• What does “good” look like
• What can (and does) go wrong
• What parts are frustrating for stakeholders

This process will help identify gaps in the process and show you areas to focus on and improve. For example, a gap might be that you don’t use Purchase Order numbers for your orders. Unique purchase orders are essential to have an easy way to track the history of your items and easily reconcile your purchase order with the invoices you receive from your supplier. The stakeholders in this situation are the buying department, your supplier, and your finance team. The process would be good if you used a purchase order number for each order. Challenges may come when trying to remind people to use a purchase order.

Digitize the Purchase Order Workflow Process

Transitioning from a manual, paper-based process to a digital one is one of the primary ways to mitigate risk in your business and save time and resources. 

Spreadsheets are often where people start to record their business transactions and are great for companies to adopt when they are beginning. They are relatively easy to use and can perform simple calculations to give you a view of your business. 

As your business grows, it becomes imperative that you have auditable transactions that are automated and scalable. An Enterprise Resource Planning (ERP) system is a system where transactions occur and allow your business to access your financial performance at all times. 

While most ERP systems have a purchasing module contained within them, they typically don’t specialize in this process. A procure to pay system is designed as an add-on to optimize procurement. Most procure to pay systems will integrate with your system if you already have some of your business digitized but are looking to enhance your purchase order workflow.

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Implement Approval Processes

To avoid rogue spending, it is essential to put an approval process in place. An approval process is a set of rules your team follows around spending specific amounts on different items within your business. It will be up to you to structure your approval processes in a way that works for your business. Approvals can be a blanket amount, where any purchases that exceed that amount require approvals. Alternatively, approvals could be required for transactions in specific categories or procurement of certain core items.

The main focus of implementing an approval system is to have visibility of your business. Your procurement teams will pause to consider their purchasing if they know their work is subject to the second set of eyes. The other benefit of implementing an approval workflow is to catch errors before they occur. As you or other team members in charge of approvals get familiar with what activity is typical, approval is an opportunity to flag purchase orders that are out of the ordinary. Implementing a procure to pay system makes an approval process a snap to manage for your team.

Implement Budgets 

Once you get visibility into the entire procurement process, the next step will be implementing the proper controls to ensure that your purchasing stays in line with what is expected. Budgets are a set amount of spend per department or category within your business.

A great way to set a budget is to calculate what is usually spent on different areas and set the budget for those areas based on an average. Any spending that may exceed the given budget is subject to an approval process, which can mirror the approved processes you have already implemented.

Once your budgets are set and tracked, the following steps are to determine where there is an opportunity to get more efficient. Look for departments or categories that are higher than others and dig into why that is happening. From there, work with your team to identify potential efficiencies.

Budgets can be managed several ways, however digitally is the optimal process to implement. Using a procure to pay system lets you manage your budgets in real-time and react quickly if any activity happens outside of the budgets you set.

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Establish Reconciliation Process

Reconciliation is an essential final step in your purchasing workflow to ensure that you got what you ordered and only paid for what you got. Tracking what was purchased, what was received, and what your business got invoiced for can be one of the most manual processes in a company.

Using Purchase Order numbers is one of the first steps to supporting a robust reconciliation process. When your team orders a product from your supplier, they will provide a unique Purchase Order number associated with that order. When that supplier invoices you for the product, they will quote the Purchase Order number on that invoice. The person who is processing the invoice for payment will have an easy reference to check on what was ordered originally. Some procure to pay systems even have automatic matching between your Purchase Orders and the invoices you receive from vendors.

The reconciliation process is one of the most time-consuming tasks for your accounting department. Improving this process will free up their time for more important tasks, like collecting customer payments and preparing financial results.

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In Conclusion

Procurement is the lifeblood of your business. Regardless of the industry you are in; you need to buy things to keep your business running. Given its importance, it is the best opportunity to optimize processes and positively impact your bottom line. Optimizing your PO workflow will help you gain visibility into your business and reduce the manual tasks associated with the process, enabling you and your talented team to focus on work that adds value to the company.

‍Tradogram is a cloud-based procure to pay platform with a wealth of features that help optimize your purchase order workflows.

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