But this bureaucratic pain is no longer necessary thanks to the advent of purchase order automation software.

Click the links below if you want to jump ahead:

• A Look Into the Purchase Order Process
• What is a Purchase Order Form?
• Pitfalls of a Manual Purchase Order Process
• 9 Key Benefits of Digital Purchase Order Forms
• A Step-by-Step Guide to Digital Purchase Order Software
• Try frevvo Free to Automate Your POs

A Look Into the Purchase Order Process

The purchase order process is the entire journey of a purchase order. It’s part of every organization’s overall procurement process. It starts with purchase order creation, its approval, dispatch, delivery, invoicing, closure, budget checks, contract management, quality checks, and anything else that is required for an order to be fulfilled.

For this process to be clear for all parties involved — the sales rep, managers, and buyers — establishing a proper flow is key.

Here is what one possible purchase order process flow could look like (yours will vary depending on your business requirements):

In this example, the process conditionally requires the approval of a VP if the amount exceeds a certain threshold.

What Are Purchase Order Processes Used For?

The main goal of a purchase order process is to manage orders and expectations surrounding this order. When a clear structure is established, all parties involved understand what will happen at what step of the flow.

This helps to clear up misunderstandings and errors in communication.

However, their use goes way beyond fixing communication. A process following purchase order management best practices also helps you track your paperwork, which will, in turn, make it easier to keep your budget in check.

For instance, imagine how your AP department would react if they received an invoice for several hundred thousand dollars due within 30 days. Without a properly organized purchase order process, the AP department won’t always be warned – this makes it needlessly difficult for them to do their job.

Having a proper paper trail is also vital when you’re audited. Your purchase order process can provide evidence of a transaction in the case of a financial audit, thus protecting you when it comes to the legal aspect of your finances. If you don’t have a proper process and tend to usually note down orders on a piece of paper, this isn’t proof enough for auditors.

What is a Purchase Order Form?

Every PO process starts with a purchase request form that’s filled in with information about the PO and is then routed around according to business requirements.

The purchase order form becomes a legally binding document once it is accepted and signed by the vendor. This document outlines everything the customer and the vendor need to know about an order.

Purchase order forms are the single point of reference in the case of a dispute or an issue in clarity. In 2014, a federal court ruled that purchase orders are an enforceable contract between two parties in the case of MidAtlantic International Inc. vs. AGC Flat Glass North America Inc. If your process requires the supplier to accept the PO, it serves as a legally binding document and can be used to address any discrepancies.

What Should a Purchase Order Include?

Your purchase order must contain everything necessary to clarify the purchasing process. This includes the items in the order, price, delivery expectations, payment terms, and so on.

A typical purchase order form might look like this:

Types of Purchase Order Forms

• Standard: This is your typical PO that’s used to make one-off orders for products or services. They’re usually made when a specific need arises within your company.
• Planned: For planned POs, everything is specified except for the delivery date. This type of PO is usually made when you can anticipate a particular need. For businesses that need to upkeep office supplies, for instance, this is a great way to make an agreement with a supplier for future deliveries.
• Blanket: Similar to planned POs, blanket POs don’t have a specific date OR amount of the product or service. This is used to agree on terms and conditions as well as budgeting limits, but the specifics are figured out only later. Blanket POs are useful to guarantee better pricing from a supplier, since you’re establishing a need over a long period of time.
• Contract: Contract POs are the loosest type – they act as a formal agreement between the supplier and the client, but don’t establish specifics for products or services. These are used to establish legally binding terms and conditions to create a future flow when a client knows they want to work with a certain supplier.

Try now: Check out these free purchase order form and process templates.

Pitfalls of a Manual Purchase Order Process

Using a manual approach, e.g. emailing an Excel spreadsheet around or even a paper form to process your purchase orders, leads to several challenges down the road.

Lack of Visibility

Without an automated PO system, it’s difficult for all parties involved in a purchase to get visibility to all necessary documentation at once. You also can’t tell where you are in your process unless someone happens to tell you.

Lots of Paperwork Generated

Running a business already involves too much paperwork. While some of it is unavoidable, you should aim to reduce paper where possible. A manual purchase order process just adds to the pile of paperwork and makes it increasingly difficult to stay organized.

Dependent on Human Intervention

For the process to move along, only humans can act – this requires the employee making the initial PO to send an email or walk up to their manager for a signature, then remember to follow-up with the vendor. So many details can go wrong – for instance, if the manager is traveling or the email is sent to the wrong person, the process is unnecessarily delayed.

Process Bottlenecks

The smallest details can cause a bottleneck when you’re using a manual PO process. What if you run out of printed PO forms? What if your manager misplaces the form they were supposed to sign?

This may sound kind of ridiculous, but these things do happen and waste valuable time!

Compliance Issues

You need to comply with business or regulatory requirements, but manual processing makes this difficult. You can’t track the exact process for every order, so how do you know if the process is being followed to the letter every time?

Prone to Errors and Inaccuracies

Human error is unavoidable. This isn’t because people are unreliable – it’s just a part of human nature.

Even the best employee can have an off day and make a mistake. When this happens, you shouldn’t default to blaming your employees – instead, take a good look at your process. Errors are bound to happen over time.

9 Key Benefits of Digital Purchase Order Forms

Now that you understand all the challenges of a manual purchase order process, let’s see how an electronic purchase order system helps overcome them.

Purchase order automation is the process of using electronic purchase requisition and purchase order forms and routing to streamline the entire process. Instead of relying on human-driven manual steps, you rely on a solid purchasing system that automates every step.

In short, digital purchase order forms help you solve all of the pitfalls you’ll encounter in a manual process.

Here are nine of the best reasons for companies to opt for digital purchase order workflows.

1. Fewer Errors

Manually creating purchase orders can lead to errors for several reasons. Handwriting may be illegible and misinterpreted or fields may accidentally be left blank. Mistakes could result in an unnecessary back and forth that wastes both parties’ time. Digital purchase orders remove the chance of illegible text or missing information.

2. Save Time and Money

An electronic purchase order form allows all of your vendors and their information to be stored in one place. Nobody needs to waste time searching for form information. Nothing needs to be mailed or faxed. Orders can be sent instantly and a record is automatically saved. 

Since the automated procedure saves time, it allows your staff to focus on other essential tasks. Less wasted time means you save money. A study by APQC found manual purchase orders can cost companies as much as $506.52 per purchase order. Purchasing software can significantly reduce that number.

3. Improve Security

Filing cabinets filled with papers and emails are not a secure place to store confidential information. Automated systems keep your records safe and are only visible to people set up with permissions. Rather than using passwords, you can choose to integrate with your existing authentication and authorization systems.

4. Reduce Waste

Companies create way more paper waste than necessary. When existing paper forms are replaced by digital purchase order forms, you’ll substantially reduce the amount of paper your company uses. Using less paper saves you money, helps the environment, and improves your image as a green company.

5. Save Space

Say goodbye to rows of filing cabinets stuffed with copies of purchase orders. Your digital purchase order information is safe in the software’s electronic repository. You can also choose to save it to an external database, store it on a SharePoint site, save on Google Drive, or elsewhere. With multiple electronic backups in place, you don’t need your valuable workspace to be jammed with filing cabinets.

6. Unlock Productivity

For most growing companies, time is precious. There are never enough hours in the day to get things done and tasks like manually processing POs isn’t just tedious and time consuming — it’s a significant barrier to growth. Imagine how much more time your team could spend on important tasks like planning and executing rather than rote paperwork, documentation, and manual review.

7. Greater Visibility

An electronic purchase order system makes it easier to see where your money is being spent. You can quickly compare each department’s spending and if a vendor relationship seems profitable. A simple search through documents can show you pending orders, the status of orders, and any payments due.

8. Ensure Compliance

When you begin using your digital purchase order software, you’ll have the ability to set any rules you find necessary. You choose which team members are allowed to request products and who has the authority to approve requests. The software will ensure your rules are followed so you don’t have to worry about it.

9. Less Guesswork

Electronic forms can be as comprehensive as you like. You can limit purchasing to specific dollar thresholds or certain items. If you want, some employees could have higher spending limits than others. Decision making becomes faster when you take out the guesswork and you can avoid any miscommunications resulting in overspending.

A Step-by-Step Guide to Digital Purchase Order Software

With all this in mind, how do you improve efficiency for your purchase order forms? Here is a step-by-step guide for establishing a proper workflow using frevvo’s purchase order workflow software.

When an employee within your organization needs to create a new purchase order, your system should allow them to create this PO online.

The automated PO form should include vital fields that the employee can fill in.  Where possible, fields such as employee name or today’s date should be auto-populated.

Step 1: Use a Wizard to Start Creating Your Digital Purchase Order

Using frevvo, you’ll have the option to customize a fully functional, pre-built template so you can quickly get started. If you prefer, you can start from scratch and, using the workflow wizard, rapidly generate a fully functional digital purchase order including a form, workflow, and pre-built business rules.

Read more: View 10 more examples of business rules here.

Once the wizard has generated the workflow, simply drag and drop in our intuitive designer to create or adjust forms. No coding or design experience is required and you can easily create your exact PO form.

Step 2: Customize the Form

The wizard has generated a basic form that you can use as a starting point. However, you’ll almost certainly need to customize the form using the simple, visual designer to fit your business requirements.

For example, a standard purchase order form typically includes:

• A purchase order number
• Date it was created
• Your company’s contact information
• Vendor contact information
• Item numbers, descriptions, quantities, inventory, etc.
• Price breakdown, including discounts
• Shipping address and expected delivery date

For repeat users, auto-fill can help you save time by finishing details you start to type. It’s vital to have a standardized form with all of the necessary information each party needs to see.

Here’s an example: See that all the necessary fields already exist and several are automatically filled in. When the employee inputs information, validation ensures that all required fields are filled in and the data in each field is valid.

This helps eliminate data input errors and helps the employee create the PO much faster than if they needed to input everything manually.

What About Digital Signatures?

Typically, you won’t have to worry about setting up and configuring signatures. Based on the information you provided in the wizard, the generated form already has digital signatures pre-created and configured in the appropriate sections.

The system also auto-generates business rules so that approval sections are only displayed at the right time.

Step 3: Use frevvo’s Visual Rule Builder to Add Business Logic

POs are easier to use if they perform calculations and pre-fill fields automatically.

Use frevvo’s Visual Rule Builder to add conditions and business logic as needed. It’s easy and 100% visual. If you can use a spreadsheet, you can create business logic:

Step 4: Customize the Workflow

The wizard has already generated a fully functional workflow. There’s no complex coding or setup required

However, you may wish to customize the routing. For example, some POs only need to be approved by company higher-ups if they exceed a certain dollar amount or involve specific products or services. With frevvo’s visual rule builder, simply point and click to define any conditional logic needed in the workflow (e.g., only POs above $10,000 require approval from the VP.)

Step 5: Test the New Digital Purchase Order

As noted earlier, one of the hazards of manual purchase order approval workflow is that forms and records can easily go missing.

With frevvo, once an employee has filled out a digital purchase order and a manager and finance department representative (or anyone else designated in the chain of command) gives their approval, the form is automatically sent to all parties. This helps ensure that companies will have legible, accurate, and securely-stored purchase orders.

Let’s take a closer look at the previous example:

Employee Starts the PO

In this frevvo sample, you can see there is a ‘Send to Manager’ button available to the employee. With one click of that button, the PO is sent to the right person – and that’s all there is to it. The system automatically figures out who the right manager is, and routes to that individual.

Manager Verifies Request

The system automatically notifies the manager once a PO request for approval is pending.

From there, the automated process allows the manager to approve, deny, or send back the form for correction. We all know how busy managers can get so the system includes a mechanism to remind them or even escalate to someone else if the PO is not approved in a timely manner.

This systems also allow digital signatures – this avoids unnecessary printing and scanning of documents. Everything is handled from the same online app.

Everything also works seamlessly on mobile devices; a manager who is traveling can handle the PO from anywhere.

As you can see above, approval takes a single click, just like the original PO creation.

It’s good practice to let the manager make comments – without this functionality, managers may decide to send comments by email, which makes it difficult to track all the information that was exchanged about the PO.

Notify Employee Upon Approval

When all parties have approved the PO, an efficient program automatically notifies the employee who originally created the form.

At the same time, the PO automatically moves to the next step.

Send to Vendor

The vendor receives an approved copy of the digital purchase order with all the needed signatures. From there, the vendor can sign the PO and prepare an invoice. This signature requires no printing since it is electronic. It ensures acceptance by the vendor and creates a legal binding contract.

Notify the Finance Department

Finally, an electronic notification allows the department to prepare for the incoming invoice. It also lets them know of all the terms and conditions involved in the transaction.

Wrapping it Up

Updating from paper to digital purchase order forms allows you to get rid of all the extra steps of the process that are needlessly weighing you down, whether it’s printing, data entry, tracking down lost POs, or sifting through endless email threads.

All of that paperwork can be automated for increased profits, reduced errors, and an overall higher ROI for the entire process.

To get started, try frevvo today and see how easily you can automate your purchase order processing — and hundreds of other operations tasks — with no coding required.

The post Digital Purchase Orders: The Definitive Guide appeared first on frevvo Blog.

Where cost control was previously the most important item on the procurement agenda, now your main procurement goal should relate to business resilience. Ethical practices, risk mitigation, and cybersecurity are more significant than ever.

It’s time to throw out clunky, old-fashioned manual procurement operations and replace them for streamlined automated procurement processes. 

Why? Because through digitization, standardization, and automation, you’ll be able to keep a closer eye on the risks and responsibilities along your supply chains. 

This results in more resilient procurement processes that keep your business thriving.

Need a better idea on where your purchasing department should be focusing its attention? 

Read on for the top procurement goals that will keep your business flourishing in an unpredictable world

Want to jump ahead? Click here:

• Cost Control — A Waning Procurement Priority
• 6 Critical Procurement Goals for Creating a Resilient Business
  • Corporate Social Responsibility (CSR)
  • Supplier Reliability
  • Procurement Process Automation
  • Risk Mitigation
  • Talent Management
  • Cybersecurity
• Changing Priorities for a Changing World

Cost Control — A Waning Procurement Priority

Traditionally, procurement’s main goal has been low costs.

It’s still the top priority but its importance is waning. According to a recent survey, the number of procurement managers who consider cost control as their top priority fell from 82% to 72%.

Obviously, procurement managers are focusing on other, more strategic aspects of procurement.

As Olivier Joseph, Senior Procurement Engagement Manager at Microsoft, explains it: “Although cost control is still the main priority at Microsoft, it is now one of seven top metrics that are all equally important.”

If cost control is no longer as important as it once was, what other procurement priorities are clinching that top spot? 

Here are six procurement concerns that your procurement manager should be taking into account for more resilient supply chain management.

6 Critical Procurement Goals for Creating a Resilient Business 

While cost control continues to be important, other priorities are having an impact on procurement goals within companies worldwide.

Ethics, risk management, and efficiency are now hyper-significant when choosing suppliers. These factors shape the face of the business in the eyes of the consumer and help to provide operational resilience.

Here are the top six priorities you should be focusing on to meet your procurement goals in the modern digital age. 

1. Corporate Social Responsibility (CSR)

It’s the era of responsible social practices and customers are holding companies accountable for unethical behavior. 

In 2018, more CEOs were fired over unethical conduct than poor financial performance, showing just how important corporate social responsibility (CSR) has become.

Today, customers champion businesses they perceive to be ethical and denounce those using disreputable practices. 

Consider that nearly 10% of a company’s market cap that’s attributable to reputation relies on social responsibility. If your company runs on poor ethical practices, this can have a detrimental effect on its overall value.

Unethical procurement practices, such as sweatshop manufacturing and unsustainable resource extraction, quickly erode trust in a company’s ability to perform. 

Take sustainable procurement, for example.

For 61% of consumers, clear sustainable procurement practices are expected. If you’re not using greener methods and your competitors are, customers will go elsewhere.

Companies now have no choice but to respond to customer pressure. A third of firms claim that the demands for more sustainable practices are driving their business strategies. 

It’s clear that companies are beginning to accept that they’re fully responsible for the products they sell — from sourcing to manufacture to distribution to support. 

If you want to stay in business, you need to pivot your procurement strategies to toe the ethical line — or customers will seek more socially responsible brands.

This means vetting suppliers and contractors to make sure they uphold your company’s ethical values.

It’s also important to share standards with suppliers, perhaps via a formal supplier code of conduct. That way, they understand the moral, ethical, environmental, and labor standards that your company expects.

2. Supplier Reliability

40% of businesses say delivering goods and services on time, every time is the most crucial element in customer satisfaction. In this respect, it’s imperative that you have dependable suppliers who deliver quality goods on schedule. 

Otherwise, projects stall, product rollouts are delayed, and customers are left disappointed. Missed timelines often result in investors punishing the stock price for public companies.

Right now, it’s harder than ever to find reliable suppliers. The COVID pandemic has caused such unprecedented supply chain disruption that many small businesses have had no choice but to close their doors.

For 64% of companies, supply chain disruption has been the biggest challenge during the pandemic. 62% of these companies cite logistics disruption as the worst problem, while 52% identify manufacturing disruption as their weak link.

Since companies can no longer rely on their existing vendors, 56% have had to switch to a different vendor or manufacturer.

With this in mind, it’s smart to create alternative procurement plans to make sure goods are delivered on time. This might mean finding a back-up supplier or solidifying arrangements with your existing supplier to guarantee you’re top of the delivery list.

59% of procurement managers have taken measures to strengthen the quality of each supplier relationship in an attempt to make sure their deliveries are first in line.

As globalization spreads out and the pandemic shows no signs of shifting, finding reliable suppliers and managing the supplier relationship has become a top procurement goal.

3. Procurement Process Automation

Purchase requisitions, purchase orders, invoice approvals are all simple, transactional processes under the procurement umbrella. Far too often, these processes are manual and are based on emailing Excel documents around.

Email has many issues and hampers your operational efficiency. Yet, the most harmful, long-term effect is that it locks up your proprietary business data.

That data sits in SharePoint repositories, document management systems, or folders. You cannot analyze it — certainly not in real-time — or build models that can learn from it and optimize operations.

While manual processing still plagues most companies, there is a solution. High-performing procurement automation software, like frevvo, can cut out errors, speed up processing, and reduce associated costs.

Despite its existence, however, 52% of Chief Procurement Officers (CPOs) say that the underuse of automation technology in purchasing and procurement is one of the most pressing problems that needs to be fixed.

And everyone’s in agreement.

54% of employees are sure they could cut back 240 hours of wasted time each year by using automation technology, while 48% believe it will help prevent errors.

As organizations are rapidly moving to digital, data-driven environments, it’s wise to migrate purchasing and procurement processes too. That’s why automating these processes and digitizing associated data has quickly become one of the highest procurement priorities of today.

4. Risk Mitigation

To increase profit, every business wants to buy goods and services at the lowest possible cost, in the least possible time, under the most favorable payment terms possible.

But, this should never be at the expense of stability. 

After all, poor risk management can collapse a business. If you’re unable to gauge your supplier’s performance, 64% of procurement professionals agree that this is a major risk.

That’s why half of procurement staff agree that it’s critical to explore supply base risks that might not be immediately obvious from the outset. 

Given the inherent risks in the procurement process, it’s crucial for CPOs to have a comprehensive and proactive approach to risk management. 

An effective risk management strategy is a planned and systematic process that:

• Identifies the risks
• Assesses their likelihood and impact
• Addresses and controls these risks
• Continuously monitors to identify new risks

5. Talent Management

A recent DHL Research Brief entitled The Supply Chain Talent Shortage: From Gap to Crisis warns of severe talent shortages and estimates that demand for supply chain professionals exceeds supply by a ratio of 6:1 and could be as high as 9:1. 

The US Bureau of Labor Statistics reports that jobs in logistics are estimated to grow by 26% through 2020. But that won’t be enough to fill the forecasted gap. 

DHL’s brief also explains that the most important factor is changing job requirements. 

The ideal employee has both tactical/operational expertise, analytical skills, strategic thinking, leadership and innovation. Unsurprisingly, 58% of companies find it hard to find people with all these skills.

Yet, one third of companies have taken no steps to create or feed their future talent pipeline.

Talent acquisition and retention will continue to be a major challenge and priority for procurement departments in the foreseeable future.

6. Cybersecurity

In today’s digital world, cyber threats are a real risk to supply chain management. In recent years cybersecurity supply chain attacks have risen by 150%.

The problem is that most companies aren’t doing enough to mitigate the risks of a cybersecurity attack, with most firms only employing a perimeter-defense method. This is no longer enough to keep out a hacker.

As Stuart Madnick, a founding director of Cybersecurity at MIT Sloan puts it “The thing they [CPOs] aren’t thinking about are people who somehow, one way or another, can slide right in. Because once you’ve slid in, then all those perimeter defenses are next to useless.” 

Take shipping giant, A.P. Møller-Maersk, for example.

International operations ground to a standstill after a powerful piece of ransomware, called NotPetya, managed to enter the firm’s system. 

Hackers didn’t enter A.P. Møller-Maersk directly. The shipping company brought in the ransomware themselves by installing an infected piece of accounting software in one of their smaller offices in Ukraine.

A tiny software company called Linkos Group created the accounting program. The ransomware infiltrated the software firm, hijacking its update servers to reach the company’s wider customer base. One of these customers was A.P. Møller-Maersk. 

That’s how most supply chain attacks happen — hackers come in through less secure firewalls of smaller companies further down the supply chain.

For procurement departments looking to prevent supply chain attacks, it’s important to consider the following weak points in the procurement process:

• Have any of your suppliers merged or acquired smaller companies who have poorer security? 
• Where’s your procurement data being routed? Are these network services secure?
• Are there hidden backdoors embedded in software you’re using? 
• Are you using outside contractors? If so, what’s their security like?

If you’re looking for a highly secure procurement solution, try frevvo. Our multi-layered approach guarantees that all your data is tightly secured and we’re constantly updating our systems to improve security across every aspect of the technology.

Changing Priorities for a Changing World

Procurement priorities used to be simple — a laser focus on cost control. 

Nowadays, things have changed. Businesses have become far more complex thanks to globalization, social responsibility, talent shortages, and cybersecurity risk. Procurement priorities have changed to meet these challenges head on.

When considering procurement priorities, organizations need to think beyond the bottom line.

Disruptions to global supply chains and cybersecurity concerns pose huge risks to the stability of business worldwide. As a result, procurement departments must implement strategic risk management systems to keep these threats at bay.

What’s more, customers will no longer stand for irresponsible business practices. 

The increased scrutiny of labor practices, sustainability, and environmental means that companies who fail to adhere to ethical practices are at risk of losing customers. 

It’s your responsibility to make sure all stages of the procurement process uphold these high virtues or you run the risk of corporate scandal.

Of course, none of this is possible without prioritizing talent. The talent wars are real and shortages are likely to continue for the foreseeable future. Acquiring and keeping the best employees is an organization-wide priority — and procurement is no exception.

And perhaps most importantly, efficiency has become more important than ever. Automating your procurement process is the most effective way to speed up these operations and cut out processing errors. 

If you want to prioritize efficiency and eradicate inconsistencies in your procurement processes, try a free 30-day trial of frevvo today. You’ll quickly be able to iron out bottlenecks for faster, more reliable procurement in an ever-changing world.

The post 6 Critical Procurement Goals for 2021 and Beyond appeared first on frevvo Blog.

Without effective best practices in place, your procurement processes could fall victim to this kind of disruption.

Not only does this cause inefficiencies and delays in your procurement workflow, but it also reduces customer satisfaction and jeopardizes relationships with key suppliers.

To prevent this, it’s your responsibility to streamline your procurement process for end-to-end efficiency.

Read on to learn the procurement best practices that help you to eliminate bottlenecks in your processes and keep your purchasing workflows ticking over smoothly.

Want to jump ahead? Click here:

• Common Supply Chain Bottlenecks
• Procurement Best Practices – 8 Ways to Streamline Purchasing
  1. Automate procurement processes
  2. Have well-defined processes
  3. Practice process transparency
  4. Have a centralized contract and documentation hub
  5. Use data to optimize inventory
  6. Have a multi-sourcing strategy
  7. Build strong supplier relationships
  8. Train your procurement team

Common Supply Chain Bottlenecks

While procurement processes vary from organization to organization, they tend to follow similar patterns:

1. Identify internal needs
2. Research suppliers
3. Pick a supplier
4. Initiate procurement negotiation
5. Create a purchase order
6. Approve purchase order
7. Send purchase order to the supplier
8. Receive goods
9. Receive supplier invoice
10. Pay invoice
11. Maintain records

(Image Source)

All of this requires constant and streamlined cooperation between various stakeholders to keep the process smooth and seamless.

However, with so many steps, there are plenty of opportunities for bottlenecks to arise during the procurement cycle. These bottlenecks can cause delays and disruptions that affect operational efficiency and eat into cost savings.

Looking at the data, there are common bottlenecks that tend to occur.

For starters, many organizations experience challenges with managing time and resources due to unforeseen disruptions in the supply chain. 

50% of Chief Procurement Officers (CPOs) admit that unknown risks in the supply chain are their biggest challenge. 

In fact, 72% of companies have experienced external disruptions to their manufacturing supply chain. This has meant that nearly half of all organizations have experienced missed, late, or short shipments, and one in five companies have experienced low-quality shipments. 

These struggles have bottlenecked the process of getting goods to the end-user.

A lack of transparent supplier communications and poor supplier relationship management have also added to the issue with supply chain risks, as suppliers are failing to notify companies of potential delays.

As 64% of procurement professionals agree, an inability to gauge your supplier’s performance poses a major risk.

In response to this, 42% of organizations are increasing transparency with suppliers to mitigate supply chain risks that may cause bottlenecks. Plus, 56% of companies say they’re increasing communication with suppliers to spot potential issues early.

A lack of appropriate procurement tools is also a problem. 

Not only does lengthy manual processing bottleneck procurement management, but a lack of tools can also add to the problems with transparency in your procurement system. The same tools can also help mitigate supply chain risks.

In fact, 52% of CPOs agree that the underutilization of automation technologies is a big risk.

That’s why 25% of organizations are using digital solutions or monitoring tools to gain more supply chain visibility and better identify areas of risk.

Lastly, reliance on one supplier can be highly problematic. If your vendor collapses, you’ll see significant delays as you’ll have no supplier to provide you with goods.

As every procurement specialist knows, good strategic sourcing practices require you to find multiple suppliers for each input. This is why 39% of organizations are multi-sourcing products to reduce reliance on any one supplier.

Many of these bottlenecks might seem unavoidable at first. Luckily, that’s not the case. You can eliminate many of those challenges by implementing simple best practices into your procurement strategy.

Procurement Best Practices – 8 Ways To Streamline Purchasing

How well procurement functions in your organization depends on how you weed out inefficiencies and combat potential bottlenecks in your procurement system.

Here are the most impactful ways to reinvigorate your procurement cycle to guarantee sustainable procurement practices that run smoothly.

1. Automate Procurement Processes

Procurement is one of your core business activities, as it affects almost every aspect of your company’s operations and profit margins. Yet, so often, purchasing teams have to work with outdated processes and tools.

How much easier would it be to manage resources if the team didn’t have to complete tedious activities by hand?

Enter procurement automation software.

A third of organizations believe that automating processes is the best way to prevent disruptions and bottlenecks in the procurement process, while 23% of organizations are already evaluating or implementing automation solutions. 

Procurement automation software removes the need for manual processing. Instead, repetitive tasks such as data entry, record updates, approvals, and document hand-offs are automated to speed up processing, boost cost savings, and reduce errors.

Why Implement Procurement Automation?

There are three main reasons to automate procurement:

1. To save time: Think of all those hours your team spends on processing purchase orders, data entry, approval follow-ups, invoice follow-ups, and more. Not only do 42% of business leaders agree that automation can speed up repetitive task completion, but 54% of employees agree that automating menial tasks could save them up to 240 hours per year.
2. To reduce human error: Automation will also reduce the potential for mistakes, even simple ones like miscalculated dollar amounts or mis-entered order numbers. In fact, half of all business leaders and employees agree that automation cuts back on manual errors.
3. To decrease processing costs: CPOs say that cost-effectiveness is a top benefit of the digital procurement processes and 31% of business leaders say business process automation reduces labor costs.

How Hard Is it to Implement Automation?

Actually, it’s not hard at all. Procurement automation software like frevvo features many pre-built purchase order templates that you could start with right away.

You can customize those templates to match your processes with a simple drag-and-drop designer or create specific processes from scratch, such as approval workflows, forms, and so much more.

In fact, the only thing you need to get started is a well-defined workflow that you want to automate. 

You simply build out your dynamic procurement workflow, create digital forms to support the workflow, and add business rules that determine the automation functions.

This creates a streamlined, automated procurement process where forms automatically route through each step to the correct approver at the right time.

By connecting your SQL database to your procurement workflow, you can save time on data entry as digital forms automatically populate and validate. Not only that, but all data will automatically upload to your database to keep records up-to-date.

This is how the technology firm Pivotal streamlined its procurement practice.

Previously, Pivotal had used email for procurement organization, filling out purchase cards and purchase orders manually and sending them via email.

By implementing frevvo, this whole process has become so much faster.

Purchase cards automatically pull cost centers from Google Sheets and conditionally route them to the correct approver.

Now there are no more errors; plus, delays in the process are a thing of the past.

2. Have Well-Defined Processes

Processes should be efficient and create operational efficiency.

The problem is that inefficiency commonly occurs because the company lacks clearly defined processes. 

Without well-defined processes, teams can’t be sure which tasks are essential at any given time or what actions to prioritize to complete the work. 

Plus, employees may struggle to streamline communications and manage project delivery between various stakeholders. 

Most damagingly, poorly defined processes lead to chaotic operations. 

While things still get done with inefficient processes, you’re likely to incur notably higher costs in terms of money, efficiency, productivity, morale, etc.

Without clear procurement processes, duplicated requests amass unnecessary costs, while poor record-keeping results in lost time, delays, and other delivery disruptions. 

To clearly define your procurement processes: 

• Document every step of the purchasing process 
• Identify who is responsible for each task
• Outline how those actions should be performed step-by-step

3. Practice Process Transparency

27% of organizations say that increasing transparency in the supply chain is the most effective way to prevent disruptions and bottlenecks in procurement. 

Transparency in procurement means giving all process stakeholders access to the relevant documentation and information to help them complete their respective parts seamlessly. 

Currently, only 50% of procurement leaders have high or very high visibility into their tier one suppliers. However, the benefits of transparency are clear: organizations with higher visibility were thriving better than those with less.

The benefits of transparency include:

• Faster processing – When everyone knows what they need to do and what standards or processes they must abide by, fewer bottlenecks happen. 
• Cost reductions – Transparent procurement reduces costs by eliminating wasted time on long back-and-forth email chains and confusing requests. Instead, stakeholders can see exactly what they need to do at what time.
• Accountability – Transparency in documentation holds both you and your vendors accountable for each stage of the procurement journey.
• Responsible sourcing practices – Fully transparent processes help companies source products and services more responsibly, abiding by their corporate social responsibility. 

To improve transparency, 47% of procurement professionals are considering new tools or applications.

Procurement automation software like frevvo can help achieve better transparency thanks to automated record-keeping.

4. Have a Centralized Contract and Documentation Hub

22% of companies are worried about contract complications within the supply chain because inconsistencies across contracts, challenges with contract management, and contract errors cause delays.

Most contract issues are a result of one simple problem: not having a centralized destination where employees can find, access, and retrieve contracts and other necessary documentation.

Having all documentation — from operational processes to contract templates — in a single, easily accessible location ensures:

• Consistency of contracts and communications 
• Fewer errors
• Less time wasted dealing with remedial work

Consider building a centralized hub for your contract templates, as well as recent versions of your most commonly-used contracts. 

You can use simple solutions like a template repository within Google Docs or a dedicated contract management software.

5. Use Data to Optimize Inventory

Optimizing inventory is vital since inventory carrying costs can be enormous. Logistics experts place it at 18% to 75% per year, depending on the business type. 

Given the constant push to cut costs and streamline spending, ensuring optimal stock levels is a prime focus. Too much stock, and you’re paying excess logistics fees. Not enough stock, and you won’t meet customer demands/.

That’s where turning to data-driven insights comes in. 

Leverage advanced insights and the power of AI to determine optimal inventory levels at any given time and predict the company’s needs for stock into the future. 

Right now, 39% of procurement professionals are looking to operational analytics to better track business metrics and indicators, while nearly 50% of organizations are looking at tools or applications that improve supply chain tracking. 

Plus, one in 10 organizations is using AI to streamline logistics, while a further one in 10 is using it to optimize inventory management. 

While the process involves implementing additional technological solutions, data gathered in the process will help you accurately predict demand, avoiding either overstocking or undersupplying an item. 

6. Have a Multi-Sourcing Strategy

It’s not smart to rely on one supplier for any element of your supply chain. If you’re only buying goods from one vendor, you risk delays and bottlenecks if that supplier fails to produce these goods on time.

You’ll also run into delays if you have problems with supplier management and the relationship breaks down. If you’ve only got one supplier in the pipeline, you won’t be able to produce your end results until you’ve located a replacement vendor.

This is why 39% of organizations are multi-sourcing products. It reduces their reliance on one supplier, creating resilience in their procurement systems. 

Not only that, but you should also consider selecting suppliers from different geographical regions. Uncontrollable variables such as war, pandemic, geopolitical problems, and climate issues can wipe out suppliers in a whole region.

To handle this potential pitfall, 30% of organizations are planning to diversify their supply chains among multiple geographies. That way, they won’t be blindsided by a regional event that knocks manufacturing out of action. 

7. Build Strong Supplier Relationships

47% of organizations believe that strengthening supplier relationships is the best way to reduce supply chain disruptions and bottlenecks.

This is because top-notch supplier management increases transparency between you and the vendor so that both parties are aware of what’s happening on each end. 

The supplier will let you know of issues and changes ahead of time, and you’ll keep them informed on process alterations or payment problems.

This means you can deal with potential bottlenecks early before they become crisis points. That’s why over half of organizations are boosting their supplier communication strategy. It enables them to identify potential disruptions early.

Not only that, but strong communication helps you to mediate any issues that may arise before the relationship turns sour.

You may also find that a good working relationship with your supplier puts you at the front of the queue. If your supplier is struggling to accommodate all their buyers, they’re more likely to help buyers that they work well with. Make sure that’s you by building firm relationships.

8. Train Your Procurement Team

According to a recent report by Deloitte, “The overall effectiveness of teams and their ability to sustainably deliver on the organization’s biggest priorities, such as cost and risk management, requires CPOs to build and deploy effective talent strategies.” 

In this sense, it’s up to your organization’s procurement leader to ensure that your procurement team is up to snuff on all policies and processes.

A well-trained team is far better equipped to carry out processes effectively and efficiently. Plus, they’ll be in a better position to identify and deal with obstacles that arise before they get out of hand.

That’s why CPOs say that enabling teams is their number one priority in challenging times.

Make sure you provide formal procurement training and clearly communicate any changes to processes as they occur. Centralize procedural documentation so that staff knows where to find training resources.

If you have a well-trained team, you’ll find it easy to hold your procurement staff accountable for any mistakes along the line.

Key Takeaways

To keep your procurement strategy running smoothly, you need well-defined processes that secure relationships between all the stakeholders involved.

Increasing transparency and optimizing operations are vital to this. That’s why it’s smart to digitize and automate your procurement workflows.

That’s where frevvo comes in.

For faster, more effective procurement processes with higher levels of transparency, fewer errors, and speedier outcomes, sign up for frevvo’s free trial today.

The post 8 Procurement Best Practices to Streamline Purchasing appeared first on frevvo Blog.

Sourcing the raw materials, components, products, and outsourced services needed to conduct your business is a core part of any organization’s operations. 

While some business owners would argue that a smaller pool of vendors translates to better terms, service and more personal attention pricing, a growing number of businesses are making a strategic shift away from single-source supplier agreements in response to global events that threaten to disrupt supply lines or raise costs. As a result, multi-sourcing is gaining popularity as a procurement model. 

Driven by organizations that seek to mitigate risk as well as businesses that seek more flexible, innovative and competitive supplier relationships, multi-sourcing offers a number of attractive advantages.

However, multi-sourcing can increase the complexity of managing suppliers. Procurement process automation, where you digitize and replace manual workflows with electronic ones, can make a huge difference in managing this added complexity allowing you to reap the full benefits of multi-sourcing.

Want to jump ahead? Click here:

• What Is Multi-sourcing?
• Why Does Multi-Sourcing Matter?
• Don’t Ignore Supplier Diversity
• Supplier Lifecycle Management Steps
• Automation for Effective Multi-sourced Supplier Management

Why Does Multi-Sourcing Matter?

Let’s take a closer look at the advantages of multisourcing:

• A larger pool of vendors or more segmented outsourcing can reduce the risk of supply shocks (disasters, trade embargos, tariff escalations, resource or component shortages, plant fires, financial setbacks) impacting your operations and prices.
• A more diverse supplier base also means you’re less dependent on any individual supplier and can spur competitive pricing among vendors.
• It can be risky to “put all your eggs in one basket” and your customers may, in turn, find it risky doing business with you if they know that you single-source.
• When using a single vendor for large and complex deals (for instance, IT outsourcing) you find yourself “locked-in” because of specific dependencies, which can make it difficult to negotiate for better prices, affecting your ability to remain competitive.
• A shortage of a single-sourced material might hit you harder than if you deal with multiple suppliers.
• Single-sourcing can cause the dependence balance to shift out of your favor, with you becoming more dependent on your supplier for materials than they are on your business. This puts you at a disadvantage when renegotiating prices and terms.
• Multi-sourcing allows you to monitor which suppliers perform best, allowing you to make better, more informed deals in the future.

Don’t Ignore Supplier Diversity

Making diversity and inclusion one of your key supplier selection criteria has business benefits over and above the social good you do by supporting minority business owners and injecting money into historically disadvantaged and underrepresented communities. 

According to The Hackett Group’s ROI-Related Supplier Diversity report, companies that engage in long-term supplier diversity programs generate a 133% higher ROI than businesses that don’t. Moreover, for every $1 million spent on procurement costs, supplier diversity programs return an additional $3.6 million.

Supplier Lifecycle Management Steps

For all its benefits, multi-sourcing has a drawback: it dramatically increases the complexity of supplier management. As a result, businesses seeking to embrace multisourcing need to rethink which resources they allocate to the critical task of supplier lifecycle management and how they can make this part of their operations more efficient. 

Relying on manual workflows to orchestrate supplier management would be a mistake in a multi-sourcing model. Aside from the vast quantity of data that needs to be managed meticulously, managing the supplier lifecycle manually impairs your ability to analyze data, and bogs your procurement and finance teams down in tasks like approving and paying invoices when they could be focusing on more strategic tasks like relationship management, risk analysis and supplier development.

With automation, you can unlock the full potential of your supplier contracts, build robust vendor qualification, onboarding and evaluation processes, and gain far greater insight into your spending.

Let’s look at the steps involved in a typical supplier lifecycle:

1. Qualification

Qualification is the first step in the supplier management process. In a nutshell, it’s your application process. Even if you approached the supplier and not the other way around, it’s essential that you evaluate whether prospective suppliers live up to your expectations and will be able to deliver the material, product or service you wish to procure at a satisfactory standard. At this stage, you might use an application form to help you with the first round of vetting, and you might apply automation to automatically cull applications that aren’t relevant to your requirements. 

2. Evaluation & Risk Assessment

The evaluation stage is an extension of the qualification stage. Once you have a smaller pool of candidates, you will want to measure them against a number of metrics, including quality, total spend, supply risk, customer reviews, location, profitability, performance, labor practices, innovation, sustainability, diversity and whatever other factors matter to you as an organization. You can assign each supplier a score for each metric to determine which suppliers are the best fit.

3. Selection & Segmentation

During the selection stage, you make your decision and notify the supplier(s) you have chosen that they have met your criteria. Next, you’ll segment/rank your suppliers into categories according to your assessment in the previous stage. This way, if something happens to prevent your first choice from delivering, you’ve got a backup plan—or three. 

4. Onboarding and Information Management

Supplier onboarding is the stage during which you collect all the information and documents you need in order to add a vendor to your approved vendor list (AVL). You can apply workflow automation to help you collect, capture, store and manage all supplier data in a way that makes it easy to conduct your business with them and to run analytics to manage their performance and compare it to that of other vendors.

5. Performance Management

It’s important that you continue to evaluate and monitor your vendor’s performance to determine whether they are meeting the terms of your agreement. Metrics might include quality, price, delivery time, frequency of supply interruptions/late deliveries, customer service and more. 

6. Supplier Development

Truly successful supplier relationships are set apart by a high degree of collaboration.Businesses with strong collaborative relationships with their suppliers grow twice as fast as their counterparts who ignore vendor collaboration. Supplier collaboration includes active process and product/service optimization and development and requires frequent and candid constructive feedback. 

7. Ongoing Risk Management

It’s vital that businesses conduct ongoing risk assessment and risk mitigation for each of their key vendors throughout the supplier relationship to ensure that supply shocks don’t catch them off guard. Having a contingency plan (such as a backup supplier or multi-supplier model) in place is critical to preventing loss of business in the event of a disaster.

8. Relationship Management

Cultivating strong long-term relationships with your key strategic vendors can have significant return on investment. By fostering loyalty among your suppliers, you prepare your organization for the future. You never know when you might need to call in a favor or place an order on short notice, and vendors who know and trust you are far more likely to be obliging. 

Automation for Effective Multi-sourced Supplier Management 

For successful multi-sourcing, you’ll need detailed service level agreements outlining individual suppliers’ responsibilities to ensure that there are no gaps or overlap between vendors. You’ll also need to ensure that contracts are updated regularly to reflect changing business conditions and new service components. With multiple vendors, the various contracts also need to be kept in sync with one another to avoid redundancy and conflicts of interest.

As you’ve seen in the section above, automation can streamline and simplify your supplier lifecycle management considerably, saving you valuable time and money. Let automation do the heavy lifting when it comes to data entry, order management and tracking, freeing up your procurement and finance teams to focus on relationship building and strategy.

Here are some ways procurement automation software like frevvo can help you implement a successful multi-sourcing procurement strategy:

• Using dynamic digital forms speeds up the process of capturing supplier data and reduces data entry requirements. Digital forms can also be linked to SQL databases to automatically update information on the fly and even auto-populate known fields in forms.
• Creating your own custom forms and conditional routing workflows using frevvo’s 100% visual drag-and-drop wizards, you can automate much of your supplier vetting process to align with your policies and priorities.
• Electronic signatures make it easy to sign contracts and manage purchase order approval workflows, and allow managers to sign forms on-the-go using mobile devices.
• Automating your finance processes such as accounts payable makes for better supplier relationships (and allows you to take advantage of early payment discounts).
• Automation gives you access to rich business intelligence data, allowing you to apply AI analyses to your supplier data to identify risks and inefficiencies as well as opportunities.

Ready to simplify your procurement processes and embrace multiple sourcing as a supplier strategy? Try frevvo’s workflow automation software absolutely free of charge for 30 days. Want to learn more about how automation can streamline your procurement processes first? Download our ebook to find out more.

The post Multi-sourcing: How to Make Your Procurement Strategy a Competitive Advantage appeared first on frevvo Blog.

To stay relevant, competitive, and profitable, businesses need to keep pace with new technologies. Procurement is no exception. New technologies facilitate e-procurement, contract repository, supplier performance management, spend analysis, supplier information management, AP automation, business networks, contract authoring, and more.

Today, the kinds of software, hardware, and peripherals available has exploded. It’s not always easy to identify the right technologies in which to invest so you can maximize the ROI for your IT budget.

To get the most out of the latest technologies, you must first understand the top trends that are impacting the procurement process. That will help you select the right tools that meet the needs of your organization.

Want to jump ahead? Click here:

• Top Technology Trends In Procurement
  • Cloud-Based Procurement Software
  • Microservices and Low-Code Platforms
  • Process Automation
  • Data Analytics
  • AI-Driven Technologies
  • Collaboration and Communication Tools
  • Mobile Services
  • Self-Service Portals

Top Technology Trends In Procurement 

Here are some key areas in which technologies are helping organizations increase cost-efficiency while improving customer satisfaction in the procurement process:

1. Cloud-Based Procurement Software

Cloud computing and SaaS products are used to support many business operations and procurement is no different. Organizations can take advantage of the subscription model to access the latest procurement automation software without additional costs.

Cloud-based platforms are allowing companies to lower upfront investment, reduce overhead, and enhance real-time information sharing. Employees can access applications from anywhere and at any time. That helps organizations improve productivity and stay competitive in the global economy.

Many new providers have entered the market with a variety of flexible and scalable Procurement-as-a-Service solutions. Organizations can now incorporate new technologies into their existing processes cost-efficiently.

2. Microservices and Low-Code Platforms

The above-mentioned widespread use of cloud computing makes it cost-effective for companies to leverage APIs (application programming interfaces) and microservices. Organizations can integrate various applications with their current systems. They can facilitate information exchange and automate processes without the need for custom coding.

These low-code workflow automation platforms reduce the need for the IT department’s assistance to implement changes in the system. In turn, that allows business users to have a higher level of flexibility and autonomy. For example, they can use a visual, drag-and-drop interface to manage workflow automation to optimize efficiency. 

Existing all-in-one platforms will evolve to provide more flexibility to users. They’ll have the ability to mix and match various applications. That makes it easier to create a platform customized to the needs of the businesses. Companies will no longer pay for features that they don’t use.

3. Process Automation

A recent poll found that 63% of procurement leaders consider automation a key priority in their digital transformation initiatives. Many of these efforts involve the use of AI-driven technologies such as machine learning and predictive analytics. These technologies help organizations analyze a large amount of data quickly. The resulting insights increase operational cost-efficiencies while responding to market demand in a nimble manner.

Two kinds of automation can be applied to the procurement process. Business process automation (BPA) focuses on the end-to-end process to enable faster and more accurate decision-making. For example, you can streamline operations with purchase order automation or improve customer experience with sales order form automation.

On the other hand, robotic process automation (RPA) facilitates repetitive, manual, and low value-add individual (e.g., data entry). It’s intended to reduce labor cost and minimize human errors.

With the aid of automation technologies, organizations can identify business needs, mitigate risks, eliminate repetitive processes, facilitate suppliers management, track spending, and predict market demand in real-time to improve the bottom line.

4. Data Analytics

Deloitte’s Global Chief Procurement Office Survey indicated that analytics will have the greatest impact on the procurement process. Organizations that participate in the survey plan to use data analytics for cost optimization (50%), process improvement (48%), and management reporting (45%.)

A data-driven approach will help businesses gain insights into and devise innovative solutions for modern challenges. They’ll reduce uncertain decision-making, inefficient use of resources, etc., to demonstrate the value of procurement and drive organizational changes.

The key to leveraging an analytically-driven approach in procurement is to embed analytics into the decision-making process instead of treating it as a separate project. 

5. AI-Driven Technologies

The availability of data means businesses need the ability to process the large amount of information in real-time so they can make accurate data-driven decisions.

For example, AI can be used to source vendors and aid contract management by analyzing key metrics for renewal and performance. Machine learning can be used to facilitate review and approval processes, as well as update catalog or contract data on products, materials, and suppliers to minimize errors. 

IoT devices can be used to monitor the movement of physical assets along the supply chain to optimize operational efficiency. AI-powered chatbots can provide inquirers with instant insights to aid better decision-making and facilitate customers’ purchasing experience.

6. Collaboration and Communication Tools

In order to stand out from their competitors and attract more customers, organizations need to break down internal silos. By using the right collaboration and communication tools, companies can support a customer-centric procurement process that delivers a seamless purchasing experience.

Organizations can drive productivity and increase cost savings by streamlining internal collaboration. They can strengthen supplier relationships and reduce supply chain risks by improving external communication.

Also, many collaboration tools enable real-time information sharing across the entire organization. For example, you can link the “transactional” and “administrative” sides of the procurement process. That lets you increase operational efficiency while reducing errors and delays caused by transferring data and files manually.

7. Mobile Services

Mobile devices, such as smartphones and tablets, are now an integral part of our lives. They have also become indispensable business tools for procurement specialists who often spend a lot of them away from their desks.

Mobile devices and mobile-friendly services allow users to manage the procurement process from anywhere with an Internet connection. It augments the benefits of cloud computing by increasing the accessibility of various digital tools.

As more millennials take on decision-making roles, the demands and expectations for mobile services are only going to rise. In fact, 42% of organizations plan to invest heavily in mobile technologies to support procurement activities. As before, mobile helps improve cost efficiency and productivity.

8. Self-Service Portals

The new generation of procurement system will be user-driven instead of office-controlled. As more buyers prefer to interact with businesses via self-service portals, over 70% of companies are investing in such technology.

Self-service portals help improve customer experience, customer satisfaction, and customer retention. They also allow companies to lower cost and improve efficiency.

In particular, many organizations will focus on using self-service procurement platforms to enable end-users to execute non-critical purchases and manage their account information. This frees up procurement resources and personnel to handle complex transactions. They can deliver a far more personal and effective purchasing experience.

Final Thoughts

The many technologies that are used in various procurement activities today are converging to complement each other’s effectiveness. 

The business world is rife with new technologies – from cloud computing and native mobility to social collaboration and AI-aided decision-making. Organizations need more than transactional tools to effectively manage their increasingly complex procurement workflows.

In turn, organizations can leverage the procurement process as opportunities to add more value to the business. At the same time, they can transform themselves into customer-centric organizations that will thrive in the next decade and beyond.

The post 8 Top Procurement Technology Trends For the 21st Century appeared first on frevvo Blog.

Not only are manual purchasing processes slow and clunky, but they’re also error-prone. This can result in delays in procurement, poor vendor relationships and extra costs.

Purchase order process automation helps counteract these manual processing issues. Faster and more efficient, purchase order automation can streamline your purchasing processes.

But how do you automate the purchase process?

Here’s a step-by-step guide.

Want to jump ahead? Click here:

• What Does The Purchase Order Process Look Like?
• Why Automate Your Purchase Order Process?
• How To Automate Your Purchase Process

What Does The Purchase Order Process Look Like?

A purchase order (PO) is the official document that’s sent from a buyer to a vendor to request an order of goods. 

The purchase order process is part of your overall procurement workflow.

While the procurement workflow refers to the end-to-end process from requesting a purchase to order fulfillment to vendor invoice processing, the purchase order process starts once an employee creates a purchase requisition for approval.

The purchase order process can be as basic or as complex as necessary, but it generally has the same flow. 

Either the purchasing team or the financial department creates a purchase order. A superior staff member approves it. Sometimes this will be approved by other team leaders, especially if it’s a large purchase amount.

(Image Source)

Following approval, the purchase order is sent to the supplier who will supply the goods or services and send over a vendor invoice and payment terms.

After payment processing, you file all relevant documents to keep an up-to-date record.

Why Automate Your PO Process?

To put it plainly, manual purchase orders are clunky.

Not only are they inherently slow, as paperwork is filled out by hand, but delays in approvals can also hold up the whole workflow.

On top of that, manual purchase order processing is prone to error. Whether it’s illegible handwriting or incorrect data entry, mistakes slow everything down even further. Errors can also lead to wrong or duplicate purchases.

These mistakes often result in extra costs that go toward paying for more staff hours in order to remedy these issues.

Purchase order automation can streamline your purchase order system and cut out bottlenecks. This should improve the efficacy and efficiency of your purchasing process. 

Automated purchase order software will speed up repetitive tasks. According to 54% of employees, the automation of menial tasks could save your staff up to 240 hours per year.

What’s more, half of organizations agree that automation decreases manual errors.

Since fewer labor hours are needed for repetitive and remedial work, purchase order automation can cut back on labor costs. 

According to procurement professionals, cost-effectiveness is the number one benefit of switching to digital procurement processes.

Plus, manual processes aren’t as dynamic as automated workflows. 

With manual PO forms, there’s no way to hide information that is irrelevant to certain roles or to customize instructions based on the scenario. For example, internal approvals should not be visible to vendors and suppliers.

With automated purchase order software, you can create dynamic forms that streamline the logistics of the PO process. That way, each party only sees the information and instructions that are relevant to them when it’s appropriate.

You’ll also find that record-keeping is harder with manual processes. 

Not only does manual record-keeping take longer, as there’s lots of data entry, but there’s also a higher chance for errors in the audit trail. That can be problematic when it comes to compliance.

Purchase order software integrates with your record-keeping systems to keep everything up-to-date. As all data in the workflow is automatically validated as you go, you can guarantee that these records are correct.

Technology firm Pivotal modernized its purchase order process with purchase order workflow software.

Previously, Pivotal’s procurement team was manually managing its purchase order approval process through email. 

By implementing frevvo for purchase order management, Pivotal was able to automate its entire purchase order system.

The PO process pulls cost centers from Google Sheets to automatically populate purchase order forms. 

From here, these forms are conditionally routed to the correct approver based on information within the form and finally to the external vendor. All this is done to speed up the purchase approval process.

Not only do purchased goods now arrive on time, but the purchasing department no longer experiences paperwork errors or purchasing process delays.

How To Automate Your PO Process With Frevvo

Automating your PO process with purchase order workflow software brings countless benefits, including speedier processing, enhanced supplier relationships and cost-savings.

Here’s a quick guide on how to automate your PO process with frevvo’s no-code software.

1. Choose a Pre-Built Purchase Order Template

As with most purchase order software, it’s possible to build your digital purchase order from scratch with frevvo.

To make it easier, frevvo provides a full library of pre-built templates for procurement as well as other departments. Choose a pre-built purchase order template based on your unique purchase approval process.

In some cases, you may simply need a basic purchase order process template. If there are no conditions in the approval process, a basic template will suffice.

But, some purchasing processes require complex routing. For example, you may need a conditional approval process based on the cost of purchased goods. In this case, choose a template for a conditional PO process.

Remember, each purchase order template, and approval workflow is customizable.

2. Customize Workflow Routing

Next, customize the workflow so that your purchase order automatically routes through the appropriate steps.

You can add steps or take them away to tailor your purchase order approval process. 

You can also add and customize conditional steps in the workflow that only activate if the conditions are fulfilled. 

For example, you may add a conditional step that only routes your PO to a VP if the amount is over $100,000.

You can also customize information at each step. 

For example, you can assign steps to particular employees or managers. Alternatively, you can alter the wording in the messages and notifications.

At this stage, you can add escalations to prevent delays in the workflow. Escalations help to prevent bottlenecks where one person is holding up the procurement process.

For example, if an approver fails to sign a pending approval, an escalation will pass it on to someone else.

Safety Technology Holdings switched to an automated, complex purchase approval workflow to streamline its purchasing process.

Previously, the technology company had been using a mix of InfoPath, email, and custom-built applications to route purchase orders to either the CFO, VP, or CEO, depending on the invoice amount. Not only was it slow, but it was also error-prone.

Now, Safety Technology Holdings uses frevvo and enjoys complex routing that automatically sends purchase orders to the relevant approvers and suppliers. 

Automatic notifications and reminders that prevent delays and escalations are in place as a safety net.

3. Build a Dynamic PO Form

Build an online purchase order form with dynamic behaviors. 

Using the drag-and-drop menu, you can customize pre-built purchase order template forms or create your own from scratch. 

Add new fields, triggers, and messaging. Set these fields to show up for relevant roles only.

Template forms are already programmed to auto-populate with relevant data when connected to your SQL database. This can both save time and reduce data entry mistakes. Forms will auto-validate to make sure no incorrect data passes through.

Plus, dynamic forms will perform automatic calculations to prevent mathematical errors.

OESJ Central School District is thriving, thanks to frevvo’s digital dynamic purchase order forms.

Before, the PO process used paper and outdated processes. Often, teachers had to hand-deliver paper forms and wait for manual approvals. If there were mistakes, forms would be handed back, causing significant delays.

By switching to frevvo’s digital forms, OESJ easily created a dynamic PO form with the drag-and-drop designer. 

Thanks to frevvo’s complex routing and integration with Google Apps, forms head to the correct location automatically based on the information contained within.

Now that everything is filled in online and approvers can sign electronically, there are far fewer mistakes, and the whole process is much faster.

4. Create Business Rules for Dynamic Behavior

Once you’ve built the look and feel of a form, you need to program dynamic business rules so that your PO form behaves as you want it to.

Set business rules to control what each user sees, how the form routes, and the calculations that occur.

You can add and customize the existing steps as well as adding actions to each step.

5. Generate PDF Documents

Sometimes it’s necessary to generate PDFs for the purchase order process. Often, vendors will want custom PDFs for their records. Equally, you may want to save PDFs to Google Sheets for simple record keeping.

Luckily, dynamic PDF generation is simple with frevvo.

You can either generate PDF documents with information from your workflow or you can upload your own templates.

While PDFs are manually editable, these documents will pull relevant data into the forms automatically to speed up data entry. Calculations will occur automatically to reduce errors and accelerate completion.

Dynamic PDFs fully support electronic signatures to make approvals easier.

6. Set Access Control

Set access control on your workflow so that unauthorized personnel can’t initiate the purchase order process.

You can either set entry so the whole procurement team can access the workflow or delegate access to certain team members only. It’s even possible to assign access by individual or role.

Dynamic controls enable you to assign access to different elements of the workflow depending on the role of the person in your purchasing department.

Assign team members that can start the workflow, view and edit submissions, and access the audit trail. You’ll be able to limit who can edit the design of the process.

7. Integrate With SQL Databases to Auto-Populate Forms

To access the full capacity of automatic purchase order software, you need to connect your SQL database. 

With the Database Connector, forms will automatically pull information from your databases to auto-populate and auto-validate.

Not only does this accelerate data entry significantly, but it also helps reduce data entry errors. 

This is how ONEIL was able to speed up its purchasing process.

Previously, purchase requests and purchase orders had been run through InfoPath. The process was cumbersome, and there were lots of unexplained errors.

By integrating its SQL database with frevvo, ONEIL created dynamic purchase request forms and purchase order forms that pre-populate automatically. 

Thanks to the auto-population and auto-validation features, data entry is now more streamlined, there are fewer errors, and records are kept complete and up-to-date.

8. Create an Automated Audit Trail

To avoid compliance issues, your audit trail should be up-to-date, correct, and complete at all times.

The problem is that if you are updating your records manually, you may miss information, enter incorrect data, or add duplicate records.

Purchase order software like frevvo will automatically integrate with your record-keeping systems to keep your audit trail updated and correct.

Frevvo can post directly to your database or integrate with a number of different document management systems, including Sharepoint and Google Drive. You can also integrate frevvo with your network drive or save records directly to frevvo’s built-in repository.

Conclusion

Now that you know how to automate the purchase order process with frevvo, there’s no excuse for clunky manual purchasing processes.

Instead, improve efficiency, reduce errors, and cut out delays with purchase order workflow software.

Don’t just wonder about the benefits. Automate your purchase order process today with frevvo’s free trial.

The post How to Automate the Purchase Order Process: Step By Step appeared first on frevvo Blog.

Effective procurement processes save costs, aid compliance, ensure you work with reputable suppliers and eliminate delays and mistakes. Procurement also helps modern organizations attain non-financial goals such as sustainability, reduce their environmental footprint and burnish their green credentials.

Digital procurement processes can be measured through mutually agreed upon metrics. The resulting alignment with corporate priorities elevates procurement into a strategic function within the organization.

Want to jump ahead? Click here:

• What exactly is procurement?
• What is a procurement process?
• Steps in the procurement process
• What are the top challenges in procurement?
• How digital procurement helps

What exactly is procurement?

Procurement is an overarching term for a set of steps that an organization performs to acquire goods and services that are essential to its operations. Procurement and purchasing are different even though people use the terms interchangeably but they are different.

To procure items, organizations will identify the internal need, evaluate suitable vendors, negotiate terms, approve an internal purchase requisition, submit a purchase order, receive an invoice and pay it, take delivery of the goods & services and, finally, maintain records for audit purposes.

Procurement is, therefore, an umbrella term that includes several internal processes – part of the so-called Procure to Pay (or Purchase to Pay) cycle.

Obviously, the exact steps vary from one organization to another e.g. a large multinational will have a far more involved set of processes than a small business.

What is a procurement process?

Procurement process, procurement cycle or procurement process flow are generic terms for one of several processes within the organization related to the acquisition of goods and services.

Some examples are:

• Purchase requisition – an internal document that a manager or finance team may review to approve the purchase.
• Purchase order – an external document that the organization sends to its chosen vendor. The PO details the goods and services being purchased, payment terms, delivery dates etc.
• Invoice Management – a request for payment that the organization receives from its supplier.
• Sales or Work Order – while this is not directly part of the procurement cycle, it’s closely related. Suppliers send sales orders to the buyer for situations where the order is fulfilled in stages.

Procurement management is a crucial function, especially for organizations that reach a certain size. Larger organizations will often have a centralized procurement function with its own employees and procedures. For example, Yale University Procurement leverages the purchasing power of the entire institution to get the best price and to facilitate the acquisition of needed goods and services.

Steps in the procurement process

Here is an example of a typical Procure to Pay cycle broken down into 9 steps. Your procurement process flow may include some or all of these steps depending on your unique business context and requirements.

Let’s take a look at each step.

Step 1: Identify the internal need

This starts the procurement process flow within the organization. A department or business unit needs some goods / services to operate. If multiple departments have the same need, procurement will consolidate their requirements to lower costs and increase visibility.

Let’s say our example University’s HR Department needs to upgrade its training software. Procurement will try to take into account the needs of other departments that may have a similar requirement.

Step 2: Evaluate and select a supplier

This step is all about identifying the list of potential suppliers for the required products. The evaluation process varies widely – it could be as simple as a quick web search all the way to a months-long structured RFP or RFI.

The goals of this stage are straightforward – evaluate vendors based on price, quality, reputation, reliability, customer service and any other relevant criteria. For example, our University may require cloud-based software providers to have certain security certifications since the software deals with personally identifiable information.

Procurement selects the best vendor after completing this analysis.

Step 3: Negotiate contracts with the selected vendor.

At this point, the contracting process begins. It could again be very straightforward or may involve significant back-and-forth. In some cases, purchasers may choose to completely skip contracting relying instead on a legally binding purchase order.

For a significant software purchase, the University’s contracts team will look at the End User License Agreement, the payment terms, warranties, any indemnification clauses and other legal aspects. If there are any implementation services as part of the contract, they’ll want to ensure timelines, delivery schedules, scope of work etc. are well-understood upfront.

Step 4: Approve an internal purchase requisition.

This next step essentially boils down to getting the go-ahead from the entity (department or business unit) that will pay for the purchased items.

Our University may use a purchase requisition (PR) for that purpose. They aren’t actually ordering anything at this point; simply getting internal approval to do so. The PR includes relevant details – purchaser and supplier info, list of requested items , prices, and terms – so that the department can approve or reject the purchase.

Step 5: Release a purchase order.

Our University’s procurement (or finance) department will then create and release a purchase order (PO). This is where the actual purchase takes place. They’ll send the PO to the chosen supplier. It contains a PO number, detailed terms & conditions, delivery dates etc.

In the absence of a formal contract, the PO serves as a legally binding document.

Step 6: Receive an invoice.

The supplier will send an invoice with a list of the ordered items along with prices and payment due dates. The invoice usually lists the aforementioned PO number.

At our University, the procurement team will match the invoice with the purchase order to ensure consistency and accuracy.

Depending on the negotiated terms, payment may be made pre- or post-order fulfillment. Partial upfront payment is very common e.g. a 50% deposit for implementation services.

Step 7: Receive and audit delivery.

The supplier will deliver the ordered goods and services according to the terms of the contract. Typically, the receiving organization has a limited amount of time to audit the delivery and notify the supplier of any discrepancies such as missing items or quality issues.

For software, fulfillment could mean that the supplier activates an account and a designated individual in the University’s HR department must login and verify that it is active.

Step 8: Complete payment.

Once the order has been verified, the University’s finance department will send payment according to the terms specified in the contract e.g. net 30 days.

Step 9: Maintain proper records.

Finally, it’s just good business practice to store all documents from the original requisition through invoices in a single centralized location. It helps navigate any future audit. Analysis of this data helps track and optimize spend management.

What are the top challenges in procurement?

Just consider the various procurement steps outlined above and think about the challenges procurement managers face. They must deal with everything from needs identification to supplier selection and management to invoice processing.

Yet, too often, procurement is managed using a hodgepodge of solutions without a serious digital procurement strategy.

This fragmented approach makes it difficult for the procurement team to address the following challenges:

• Tactical vs Strategic Procurement – Procurement has become a strategic area for the business rather than an operational one. Without cohesive procurement processes, it’s hard to even think strategically never mind implement a strategy across multiple functional areas.
• Managing suppliers – Supply chain issues can hinder growth even at technologically advanced companies like Adidas. A piecemeal approach to procurement makes it hard to ensure reliable suppliers who deliver quality goods and services on time.
• Impatient stakeholders – In most cases, when people want to procure something, they need it yesterday. A project is behind schedule or they are facing pressure to deliver products. Inefficient procurement processes cause critical slowdowns, missed project deadlines and stunt growth.
• Unreliable data – Bad data = Bad decisions. Inaccurate procurement negatively affects profitability by creating an over- or under-supply of inventory. Worse, it could lead to senior management making commitments that the company cannot meet. Without quality data, any investments in new technologies like machine learning and AI are doomed to failure.
• Maverick purchasing – When employees are forced to deal with tedious internal procedures, they’re more likely to make purchases outside the normal procurement channel. Not only is this expensive for the business e.g. it’s hard to secure the best price, but the resulting lack of control exposes it to compliance and other unnecessary procurement risks.
• Talent management – Finally, no one likes to spend their work day chasing down mountains of paperwork. Lack of talent is already a problem – a Deloitte survey revealed that over 50% of procurement leaders leaders do not believe that they have the capability in their teams to deliver their procurement strategy.

How digital procurement helps

Procurement leaders need a serious digital strategy if they truly want to address these challenges and move procurement into the 21st century. Automation enables:

• Efficiency – Digital procurement processes are faster, more accurate and ensure business standards cannot be bypassed. That means project managers get needed items on time, employees spend less time deciphering confusing instructions and correcting errors, and maverick purchasing is reduced.
• Data analytics – Digital procurement produces reliable data. With accurate data, it’s easier to optimize inventory levels and immediately have a positive impact on the bottom line. More important, clean digital data opens the door to analytics, machine learning and a host of opportunity e.g. ML could detect demand automatically and requisition deliveries.
• Better use of talent – Ultimately, people are the difference between success and failure. It’s hard to find good people but one thing you can do is to make the best use of those you have. Digital procurement is a direct investment in your team’s job satisfaction since they’re now spending less time on paperwork and more time on the things that matter.
• Lower risk – Automation improves transparency in pricing, supplier relationships and inventory levels. Transparency naturally reduces compliance and supply chain risks as well as corporate risk associated with fraud.
• Strategic procurement – Procurement becomes an effective strategic partner only when aligned with key corporate priorities and when it’s measurable through objective performance metrics. Digital processes are the foundation.

In spite of this, Deloitte’s survey found that the level and speed of digitalisation across procurement functions is abysmally low. Just 18% of procurement leaders have a digital procurement strategy supported by a complete business case.

How can you digitize procurement?

Obviously, any serious digital procurement strategy starts with a plan. That being said, the transactional processes in the Procure to Pay (P2P) cycle are the first place to start. These are the areas that often involve the most repetitive work.

It’s relatively easy to automate business processes like purchase requisitions, purchase orders, and invoicing using a modern procurement automation system like frevvo. frevvo provides purchase order software, invoice approval software, and more, including pre-built templates and easy customization using drag-and-drop designers. All this without requiring any coding. Anyone can use it.

More important, automated processes lay a strong foundation by producing digital data. You can build upon this foundation by deploying technologies like machine learning and AI to predict future demand, snuff out upcoming risk, and monitor sustainability.

Conclusion

Procurement is now a strategic function with wide-ranging business impact. A well-designed and effective set of digital procurement processes is a critical business need.

There’s no need to rely on spreadsheets for purchase requisitions, purchase orders and invoices any more. In fact, using these outmoded techniques is inefficient, slows you down and exposes your business to unnecessary risks.

A digital procurement strategy starts with the foundation of transactional process automation which opens the door to deploying high impact technologies like ML and AI.

Modern procurement process automation tools like frevvo are easy to use and affordable. You don’t need expensive programmers or large budgets. Business users in your finance department – not just coders by trade – can start with pre-built templates and drag-and-drop to create electronic processes in a matter of minutes.

The post Streamline your Procurement Process | A Complete Guide appeared first on frevvo Blog.

Yet many business owners are unfamiliar with each document and their specific roles within the purchasing process. As a result, people either misuse these documents or don’t use them at all.

Let’s break down the basics of the procurement process by exploring the difference between purchase requisitions and purchase orders.

What is a purchase requisition?

A purchase requisition is a document that an employee within your organization creates to request a purchase of goods or services.

When you fill out a purchase requisition, you are not yet purchasing anything. You are merely beginning the process of a purchase by asking for internal permission.

This document is used when an employee in your organization makes an order request if a need arises for certain goods or services.

The employee’s manager – or anyone in charge of purchases at your company – is notified that the employee has made an order request once they receive the requisition.

Purchase requisitions outline the details required before completing a purchase, should it be approved, such as:

• Product description and quantity
• Name of vendor
• Price
• Name and department of purchaser

Purchase requisitions rarely (if ever) leave your organization. Employees use these internal documents to obtain permission. As such, they are not a legally binding document.

Not all companies use purchase requisitions in their procurement process. In other cases, some companies require a purchase requisition for purchases going over a set dollar amount.

Additionally, the accounting department uses this document to plan for future spending. It’s much easier to avoid costly mistakes if you check the budget prior to approving a purchase.

Why do you need purchase requisitions?

Purchase requisitions detail out all the details of an order that your organization needs to make. So why not just skip the purchase requisition and go straight to the purchase order?

1. They help establish a clear procurement process. By rerouting permission to purchase to a common manager using purchase requisition forms, you can streamline your organization’s pipeline. The process is much easier to manage and formalize when there are clear rules for who can purchase what, and when.
2. They help detect and prevent fraud in your organization. The more steps involved in the procurement process, the more likely someone will sniff out a fraudulent purchase if it does happen.
3. They give Finance more direct control over purchasing. If someone from outside of the department needs to purchase something, they can fill out a purchase requisition and submit it to the head of purchases. This way, the same department oversees every purchase your organization makes.

How does a purchase requisition work?

Purchase requisitions are first filled out by an employee who sees the need for a product or a service. The employee fills in all the details, including the price, suggested vendor, and the specifics of the goods or services. The document is then sent to the purchasing department for approval.

Let’s say you are running a manufacturing company. You have a team of mechanics who do routine inspects and fixes on your drills, saws, and other machinery. If one of your mechanics finds out about a new type of equipment that would make their lives easier for routine checkups – equipment that your company has never purchased before – they could fill out a purchase requisition without needing to ask for permission first.

The mechanic files the completed form to the purchasing department. They take care of approving or denying the request for new equipment. Because the equipment is high-end, the head of purchases would check in with the finance department first to make sure this is a feasible demand.

What is a purchase order?

Also known as a PO, the purchase order is a document outlining the details of an actual purchase.

The purchasing department creates the purchase order once a purchase requisition has been approved. If an organization does not use purchase requisitions, other employees may fill in purchase orders for approval as well.

Unlike a purchase requisition, the purchase order is an external document. Purchasing sends it to the vendor as a set of instructions for how to fulfill your order and process your payment.

Note that POs are not the same as invoices — they are not a prompt for payment.

And once a purchase order form has been finalized and approved by the buyer and vendor, it becomes a legally binding document.

POs include everything the vendor needs to know to fulfill the order and everything your company needs to document the purchase:

• Name of your company
• Name of the employee making the order
• Date of PO creation
• Quantity and price of goods
• Payment terms
• Signature of all involved parties

How do purchase orders work?

Your organization creates purchase orders only when it wants to go ahead and officially purchase goods or services. When it has an approved purchase requisition, the purchasing department can create a PO from the information in the requisition. If the PO exceeds a set dollar amount, most companies demand approval of the VP before finalizing the document to send over to the vendor.

Let’s go back to our manufacturing company. Management decides to approve the mechanic’s purchase requisition for new high-end equipment.

From there, an employee from the purchasing department would fill in a PO. However, because the equipment will cost over $10,000, a VP must approve the PO before the purchase can be made.

The VP takes a look at the PO, approves it, and sends it back to the purchasing department, who takes care of sending the PO to the vendor and to their own accounting department.

Once the vendor receives and signs the document, the PO becomes legally binding. Now everyone – the mechanic, the purchasing department, the VP, the accounting department, the vendor – is in the loop and has read the same terms and conditions for a purchase.

So once the company receives their new equipment on a specific date, they’ll be expecting it.

What is the difference between a purchase requisition and purchase order?

Let’s quickly go over how each document differs:

The role of purchase requisitions and purchase orders in an efficient process

Whether you are a vendor or purchaser, your company can benefit from making your procurement process more efficient for all parties involved.

Without set rules and processes in place, employees waste lots of time running after lost information or fixing mistakes caused by misplaced paperwork.

One simple way to do this is by implementing easy to use, electronic purchase requisition and PO templates in your processes using procurement automation software.

Think of it this way – you need to spend your resources in the right place if you want to stand out and grow your business. Today, business process automation tools are readily available to give employees a head start even when they aren’t programmers.

By staying behind and constantly running around like a headless chicken to stay on top of who purchased what and when, you’re wasting a ton of resources. In the meantime, others will catch up to you.

Let’s bring back the manufacturing company as an example. If you’re using old school procurement processes, all of the resources you waste on procurement are resources you’re taking away from creating a positive client experience. Nowadays, there are plenty of modern manufacturing companies that your client can go to if you can’t give them the quality of service they know they can get elsewhere.

Here’s how this relates to another type of process – Netflix is changing the way people consume media content. Now, more and more networks are offering similar streaming services to remain relevant.

The same goes for automation.

Streamline your procurement process

It’s hard to run a business. Challenges will crop up everyday from an unsatisfied customer to an unexpected expense. Instead of chasing paperwork, you want employees to focus on customers and strategic matters.

Global trends strongly favor automation. Automate your everyday procurement processes using things like a purchase order workflow solution – the benefits may surprise you.

Wrapping it Up

From mid-sized companies to giant enterprises, so many businesses need to use purchase requisition forms and PO forms to their advantage to save resources, plan their finances more efficiently, and even protect themselves in cases of financial audits.

Without purchase requisitions and their accompanying POs, it can become a free-for-all in your procurement process – the costs of such mistakes can range from annoyances to major catastrophes.

Does your company have efficient forms in place for its procurement process?

The post Purchase Requisition vs Purchase Order: What’s the Difference? appeared first on frevvo Blog.

But what’s the difference between the two – and when would you use a PO vs an invoice?

And, how can you use workflow automation to streamline invoice processing as well as purchase order as well as invoice processing in your organization through workflow automation?

Read on to find out.

Want to jump ahead? Click here:

• What is a purchase order?
• Why do you need a purchase order?
• How does a purchase order work?
• What is an invoice?
• What is the purpose of an invoice?
• How does an invoice work?
• What is the difference between an invoice and a purchase order?
• Why do you need both documents in the procurement process?
• Streamline your procurement processes

What is a purchase order?

A purchase order (PO) is a document that clearly details the products or services your company plans to purchase from a vendor.

Buyers fill out POs and send them to the vendor, not the other way around.

The document outlines everything both parties need to know about the items being procured, including payment terms. There is no room for interpretation in a proper PO form. It will normally include:

• The PO date and a unique PO number for use by accounting.
• The vendor’s contact information including payment details.
• Line items for each item being procured including unit price, quantity and subtotal and a grand total for the PO.
• Signatures of each company representative as specified by internal business norms.
• Terms and conditions including relevant payment and delivery terms.

A typical purchase order might look like this:

Why do you need a purchase order?

1. They facilitate clear expectations – POs are a formal way of clarifying the procurement process for all parties involved. Expectations are clear for everyone, and when a disagreement occurs, the PO serves as a reference to clear up any miscommunications.
2. They enable companies to control spending – When an employee within an organization sees a need for a product or service, they can fill out a PO by themselves, get approval from their manager, send it over to the vendor, and finally to their accounting department for payment. When this process is automated using invoice approval software, everyone stays in the loop.
3. They help with budgeting – By gaining access to POs, the accounting department can plan accordingly for the future purchases to come – before they get surprised by the arrival of an unexpected invoice.
4. They are legally binding – In case of a disagreement with the supplier or a financial audit, POs provide legal cover. In fact, a federal court ruled in Virginia that purchase orders reflect an enforceable contract between two parties. The purchase order process will have an explicit vendor acceptance step.

How does a purchase order work?

Let’s take the example of a law firm with an office administrator. The office administrator ensures that the firm always has sufficient office supplies.

Afterwards, the administrator files this for approval to their manager. If the manager signs off on the PO, the administrator sends the signed document to Acme Office Supplies to begin the procurement process. The law firm’s accounting department also receives a copy so that they can budget in advance for this purchase.

What is an invoice?

An invoice is a document that requests payment in exchange for a product or service. A formal procurement process may not be required for invoicing – for solo practitioners, a discussion with purchasing might suffice.

Vendors send invoices. They may include:

• Name and price of product or services delivered
• Total amount due
• Payment schedule
• The vendor’s contact information
• Discounts (if applicable)

A typical invoice can look like this:

What is the purpose of an invoice?

1. They let vendors collect payment – The PO itself isn’t a prompt for payment – instead, it informs what the vendor needs to deliver, and thus, what will be shown on the invoice. In most cases, the vendor will not receive payment without first sending an invoice.
2. They help companies manage payments and cash flow – Invoices detail exactly what you are paying for and how much you are paying. With this data, companies can track payments and analyze expenditures in a formal way.
3. They provide legal protection – On its own, an invoice is not a legally binding contract. But, it might be part of a legally binding agreement when the other essential elements of a contract are met.

They provide written documentation for audits – Invoices serve as proof of exactly what your business paid for in case of an audit.

How does an invoice work?

Let’s bring back the example of our law firm that has sent a PO to Acme Office Supplies.

The law firm’s accounting department receives the invoice and pays on the specified date. Because they also received a PO beforehand, they had planned for the arrival of this invoice, they can corroborate it with the original PO, and thus don’t have any budgeting issues to clear the payment.

What is the difference between an invoice and a purchase order?

Here’s a quick recap of both documents:

Why do you need both documents in the procurement process?

Many businesses don’t use POs when a need arises for a product or service. Instead, they discuss a needed service by phone or email, then document the money trail with an invoice.

So why can’t you just use invoices instead of having so many types of documents?

POs ensure that everyone is on the same page before the vendor ships any items or actually performs work and bills the purchaser. It’s a protection blanket for both parties involved.

If a miscommunication happens and this isn’t clarified before the delivery of the service, you can end up goods  with an invoice that wasn’t originally what you thought you signed up for.

Let’s say Acme Office Supplies received a phone call from the law firm’s office administrator stating that they need fifteen crates of paper. As we all know, phone communications can easily get confused. What if Acme Office Supplies understood FIFTY instead of FIFTEEN?

If no PO was created, the law firm might suddenly receive a shipment and an invoice that is nearly four times as high as what they were expecting. And now, they have no written proof of the terms both parties agreed to. It’s a case of he-said-she-said.

In short, purchase orders define the terms of the sale before the sale occurs, and invoices confirm fulfillment of the order and that a payment is due in consequence. Overall, including both POs and invoices are key to avoid conflict and ensure everyone gets their dues.

Streamline your procurement processes

Running a business in itself is already challenging enough. You want your employees to focus on delighting customers and on strategic matters that will directly impact your bottom line. You don’t want them chasing paperwork for  day-to-day activities like procurement.

Every minute that your accounting department employees spend on a badly optimized procurement process is a minute they could be spending on the tasks they do best – the tasks that truly matter for your business.

Global trends strongly favor companies that have embraced automation. Automation of these everyday procurement processes can give you a major advantage in today’s fast-paced business ecosystem.

The Bottom Line

Purchase orders and invoices are crucial documents that are part of every company’s procurement process. It’s important to understand the similarities and differences, and why these documents are both important.

A streamlined and efficient procurement system that utilizes electronic purchase order forms and automates invoice processing can help your business run more smoothly and focus on what you need to do to stay competitive.

With electronic forms, your POs and invoices and work together in a single pipeline that minimizes paperwork and miscommunications.

The post Purchase Orders vs Invoices – What You Need to Know appeared first on frevvo Blog.