Optimizing Purchase Order Approval Workflows

Purchase order workflow is an essential part of procurement, helping organizations ensure a smooth and effective supply chain. Good purchase order workflow management allows you to stay within budget and maximize efficiency, yet creating a quality workflow can be challenging. 

Throughout this guide, we will review everything regarding purchase order approval workflows, from what these are to best practices for effective workflow optimization. Thus, let’s dive into it. 

What is a PO and Purchase Order Workflow? 

First, let’s start by defining a PO. PO stands for a purchase order. It is a legally binding document created by the buyer and the seller (supplier/vendor). Essentially, the document lists goods and services that the company needs to purchase, including the specifications such as quantity, types of products, payment terms, and delivery details. 

The purchase order workflow is the process of buying raw materials or other equipment required for production. This process involves several stages, from requisition to payment. 

Understanding the Purchase Order Approval Process 

The purchase order approval process is a structured workflow with various approval stages organizations utilize to authorize and monitor POs more efficiently. It is a part of the purchase order process. 

So, essentially, the PO approval process involves a series of steps for companies to follow to create, approve, and fulfill a purchase order. The main stages of the purchase order approval process include purchase request, initial review, budget approval, approval workflow (hierarchy-based), purchase order creation, supplier confirmation, receipt of goods/services, invoice and payment, and record keeping.

Importance of Optimizing Purchase Order Approval Workflows 

As far as we are clear on what POs and PO workflows are, it is time to understand the importance of optimizing purchase order approval workflows. An optimized PO approval workflow helps enhance operational efficiency by streamlining the approval stages and speeding up approval times. 

It is important to understand that optimized PO approval workflow will also contribute to enhanced collaboration between the departments within the organization. It will help departments to collaborate and navigate financial activities efficiently, share accountability, and ensure the availability of necessary resources. 

Benefits of Optimized Purchase Order Approval Process 

Optimizing purchase order approval workflows equips organizations with multiple benefits ranging from enhanced financial control to risk mitigation. So, let’s review everything in more detail. 

Enhanced Cost Control 

First of all, it helps to control spending and reduce costs. PO approval workflows enhance the visibility and transparency of the process, allowing you to track the stages and identify cost-saving opportunities more efficiently. 

Also, with the use of the right solution you can take advantage of spend analysis. 

Improved Risk Mitigation 

Another benefit of an optimized purchase order approval process is improved risk management opportunities. The PO approval process requires a standardized workflow that helps organizations ensure regulatory compliance with internal and external policies and guidelines. This approach allows for minimizing the risk of legal issues or financial consequences. 

Also, it is worth mentioning that a streamlined process also helps to ensure vendor compliance with the set contract terms and conditions. 

Supplier Relationship Optimization 

Overall, effective PO workflows help foster better supplier relationships. A streamlined approval workflow helps to build and maintain positive relationships with the vendors by pricing clear guidelines, timely approvals, and allowing for timely payments. 

Also, a streamlined process requires the right software solution that will enhance communication opportunities by providing real-time communication channels with the suppliers. This will allow you to negotiate better deals with the suppliers and benefit from bulk purchasing by signing long-term contracts with the best vendors. 

Example 

For instance, let’s say company X implemented a solution to optimize PO approval workflows, and company Y did not. Well, company X, by leveraging automation and clearly defined approval policies, reduced PO cycle time by over 40%. Also, they managed to negotiate better deals with the suppliers by showcasing consistent behavior of timely orders and payments. 

On the other hand, there is Company Y, which still relies on manual and non-optimized processes. First, company Y always deals with time delays and faces stockouts that affect the business’s reputation. Besides, company Y’s vendors are not interested in providing a better deal for the company as payments are always late, and there is a lot of miscommunication involved in the process. 

Data-driven Decision-Making

One more prominent benefit of optimized purchase order approval workflows is the fact that these allow for data-driven decision-making. The data generated during the process can be used to inform further decision-making. 

Analyzing historical procurement data can help you identify patterns and trends, evaluate supplier performance over time, and uncover more cost-saving opportunities for further process optimization and improvement. 

Best Practices for Optimizing PO Approval Workflows 

Time to dive into the practical section of this guide and find out the best practices for optimizing purchase order workflows. 

Standardize Purchase Order Processes 

The first strategy is to standardize the purchase order processes. 

In order to ensure a smooth PO approval workflow, first of all, you need to establish clear guidelines that will suit your purchase requirements and budgets. This will help to avoid unauthorized purchasing and minimize overspending. 

Also, a standardized process allows you to complete POs much faster. 

Define Clear Approval Hierarchies 

To efficiently optimize purchase order approval workflows, you need to clearly define approval hierarchies within your organization. A well-defined approval hierarchy will allow for an efficient and smooth approval process, reducing cycle time and mitigating financial/reputational risks. 

To create a clear approval hierarchy, start by defining user roles and responsibilities for each approver. This will help to avoid confusion and unauthorized purchasing. 

Automate Routine Tasks 

Oftentimes, your employees' time is taken up by routine and repetitive tasks that can be easily automated. Examples of such tasks include identifying materials that need to be reordered, getting approvals, tracking POs, and filling in PO details manually. These are quite tedious and time-consuming. 

However, with the right software solution, you can optimize this process and reduce time spent on all the stages, speeding up the overall PO approval process. This will help you to save time, reduce human error, and boost overall purchase efficiency. 

Incorporate the Right Software Solution

Firstly, do not forget about the importance of incorporating the right software solutions. In fact, according to PWC, by 2027, organizations will have over 70% of procurement processes automated. This projection showcases the growing trend of procurement process optimization via automation solutions. So, jump on the train and ensure good supply chain management with the right software solution. 

When looking for a purchase order management solution, make sure it offers features such as: 

• Customizable workflows to customize PO approval hierarchies and overall PO workflows based on predefined criteria and the company’s needs. 
• Visibility and tracking features to monitor order statuses and delivery updates 24/7 and gain insights into procurement performance. 
• 3-way matching system to automate invoice, PO, and receipt matching, mitigating risks of duplicate invoices and fraud. 

You can also look for more advanced solutions that will allow you to automate other procurement processes, repetitive tasks, invoices, and supplier performance tracking. One of such tools is Tradogram. 

Conduct Training 

Make sure to train stakeholders within the organization regarding new processes and policies. Everyone, including employees, management, and other stakeholders, must be well aware of the new requirements. This will help to ensure that the approval process is smooth and fast. However, not training appropriate personnel on how to use software and approve PO workflow at different stages will lead to a slower process and increase the risk of falsehood. 

Continuous Improvement 

Finally, do not forget about the importance of continuous monitoring and improvement. Purchase order workflows can always be improved, and the key is to track every stage of the process and quickly identify areas that need improvement. 

Efficiently Optimize Purchase Order Approvals with Tradogram 

If you are looking for a software solution that will efficiently optimize purchase order approvals and the overall procurement process, then you are in the right place. Tradogram is an all-in-one procurement solution that comes in handy with all the necessary features for effective PO optimization and automation. 

Tradogram, as a purchase order management software, features a range of tools necessary for organizations to streamline purchasing and invoicing. The main features include a centralized PO management tool, spend analysis, mobile accessibility, customizable workflows, and advanced PO tracking. 

To learn more about how Tradogram can help your business optimize PO processing and increase ROI, schedule a free demo, and our team will gladly assist you.