Purchase order management is crucial for getting a good deal and guaranteeing your products’ quality. Read on to learn how to manage this process.
Last updated: 19.01.2023
12 mins read
Every business must purchase materials, products, or services to keep business operations running. And every purchase comes with the need to create and track a purchase order. Purchase order management is creating, sending, and tracking purchase orders.
This article looks into the purchase order management process, from how to manage, automate, and optimize your PO management.
Purchase order management software
Thousands of manufacturers are already using Katana manufacturing software to automate their purchase order management processes.
Organizations use purchase orders (POs) to streamline their internal procurement processes and ensure that each purchase is necessary, justified, and optimized for costs.
PO management is the set of policies and procedures used to generate, track, and approve POs. An effective PO management system can help an organization save money by preventing duplicate or unnecessary purchases, reducing supplier prices through negotiations, and improving inventory management. Additionally, a well-run purchase order system can improve communication between buyers and suppliers, leading to better relationships and improved customer service.
Several purchasing management systems can automate various aspects of the PO management process, from creating and issuing POs to tracking deliveries and payments.
Some organizations even outsource PO management to third-party service providers.
If you’re considering implementing or outsourcing PO management for your organization, it’s important to understand the different types of purchase orders and how they are used.
There are three primary types of POs:
Standard purchase orders (SPOs)
SPOs are issued for routine, small-dollar purchases that have been pre-approved by the organization. SPOs typically do not require competitive bidding or extensive negotiations with suppliers.
Blanket purchase orders (BPOs)
BPOs are issued for recurring purchases of goods or services from a specific supplier. BPOs can be open-ended, meaning they do not have a set expiration date, or they can be valid for a particular period.
Contract purchase orders (CPOs)
CPOs are issued for large or complex purchases that require competitive bidding and extensive supplier collaboration. CPOs typically have strict terms and conditions that the supplier must meet, and they may include provisions for liquidated damages if the supplier fails to meet its obligations.
Each type of PO has its advantages and disadvantages, so choosing the right type for each purchase is important for your business.
For example, SPOs are generally the easiest and fastest way to procure goods or services, but they may not be the best price for the organization. On the other hand, CPOs can take longer to process but often result in better prices due to the competitive bidding process. When choosing a PO management system, selecting one that will meet your organization’s specific needs is important.
There is no one-size-fits-all solution, so you’ll need to consider:
The types of purchases your organization makes
The frequency of purchases
The number of suppliers you work with
You’ll also want to ensure that the system you choose is compatible with your existing accounting and inventory management software.
What are accounts payable (AP)?
Accounts payable (AP) are debts that a company owes to its creditors or suppliers. The money owed is typically for goods or services that have been received but not yet paid for. Accounts payable are considered short-term debt since they are typically due within 30 days.
Companies keep track of their accounts payable using an account in their general ledger. When a payment is made, the amount is debited from the accounts payable account and credited to cash.
If you’re running a business, keeping your accounts payable is important. You need to make sure that you’re paying your creditors on time, but you also need to make sure that you’re not paying more than you need to. Negotiating favorable payment terms with your creditors can help you save money and improve your cash flow.
How does the purchase order process work?
The purchase order management process is a business’s system to track inventory and orders.
It begins when a customer places an order with a business. The business then creates a purchase order sent to the supplier. The supplier then fills the order and sends it back to the business.
Once the business receives the shipment, they update the purchase order accordingly and send it back to the customer — thus completing the purchase order management process.
Businesses use purchase orders to keep track of their inventory and ensure that orders are filled promptly. This system helps businesses run smoothly and efficiently.
If you’re a business owner, it’s essential to understand the purchase order process to keep track of your inventory and fulfill orders promptly — understanding how the purchase order process works allows you to keep your business running smoothly and efficiently.
How to manage your purchase orders
As your business grows, you’ll need to get a handle on PO processing. Here are four ways to do it:
1. Use an automated system
Many purchasing management systems are available that can help you automate the purchase order process, saving you time and effort in tracking down information and keeping everything organized.
2. Delegate responsibility
If you have employees, delegate responsibility for managing purchase orders to one or more of them. This will take some of the burdens off your shoulders and help ensure that things are handled efficiently.
3. Stay organized
Keep all of your purchase orders in one place, whether it’s in a physical file or an electronic database. This will help you track what’s been ordered and what still needs to be processed.
4. Follow up
When it comes to supplier management, make sure to follow up with suppliers promptly to ensure that your orders are filled correctly and on time. This will help avoid any delays or issues down the road.
Following these tips, you can master the art of PO processing.
Best practices for purchase order management
If you’re looking to optimize your purchase order management workflow, here are six best practices being used by others in the manufacturing industry:
1. Define your PO process and workflows
The first step to streamlining your purchase order management process is to define the various steps involved and who is responsible for each task. This will help ensure that everyone knows their role and promptly completes tasks.
2. Set up an electronic PO system
An electronic purchase order system can save time and hassle by automating many tasks involved in managing purchase orders. This includes creating and sending POs, tracking approvals, and monitoring delivery status.
3. Use purchase order templates
Creating purchase order management templates for commonly ordered items can save time and ensure accuracy when creating new POs. This is especially helpful if you have many SKUs to manage.
4. Implement PO approval workflow
A PO approval workflow will help ensure that all POs are reviewed and approved by the appropriate parties before being sent to the supplier. This can help avoid errors and delays in the ordering process.
5. Monitor delivery status
Once a PO is placed, it’s important to monitor the delivery status to ensure that goods are received on time. This information can be used to follow up with suppliers if there are any delivery issues.
6. Manage supplier performance
Monitoring supplier performance is an important part of purchase order management. This includes:
Tracking on-time delivery
Quality of products
Responsiveness to requests
This information can be used to identify issues early and improve supplier relationships.
Following these best practices can help streamline and automate the purchase order management process, saving time and ensuring accuracy.
How to automate your purchase order process in your business
If you’re like most businesses, your purchase order management is probably a manual process.
That means it’s subject to errors, duplicate orders, and other inefficiencies that can cost your company time and money. Fortunately, there’s a better way of managing this task. By automating your purchase order management, you can streamline procurement, cut out errors, and reduce costs.
1. Implement an electronic purchase order system
Instead of using paper POs, switch to an electronic purchase order (ePO) system or eProcurement software, as inefficient spreadsheets are rife with issues.
Allowing you to manage purchase orders in one place, ensuring that orders are placed correctly. An electronic purchase order system streamlines the procure-to-pay process by automating your manual process and integrating it with other business systems. This provides a single source of truth for:
In addition, an automated system can provide visibility into spending, helping procurement teams negotiate better deals with suppliers — for easy eProcurement.
And because it’s all digital, businesses can take advantage of early payment discounts and save on paper and postage costs. It’s no secret that the purchasing process can be time-consuming and costly. However, businesses can improve efficiency and accuracy by automating purchase orders while reducing expenses.
2. Set up vendor portals
Vendor portals give your vendors a secure online space to view their POs and submit invoices — helping to streamline communication and reduce the chance of errors.
It’s important to set up vendor portals for a number of reasons:
They can help streamline the procurement process by automating many of the tasks involved — cutting down on errors and saving time and money
Vendor portals can provide a central repository for all your vendor information — making it easier to keep track of contracts, invoices, and other important documents
Vendor portals can help build better relationships with your vendors — providing a space for communication and collaboration
3. Automate PO approvals
Approving POs can be time-consuming, but it doesn’t have to be.
You can save yourself valuable time and ensure that orders are approved quickly and efficiently by automating purchase order management. One of the most important aspects of any business is procurement, which is acquiring goods or services. An essential part of procurement is creating and approving purchase orders (POs).
POs are legal documents that define the terms of a transaction between a buyer and a seller.
While manually creating and approving POs can be done, it is often error-prone and time-consuming.
There are several benefits to automating PO approvals:
Cut out errors
Better decision making
Automating PO approvals streamlines procurement, cuts out errors, and reduces costs when it’s implemented correctly.
4. Use a purchase management system
A purchase management system can help you keep track of all your PO management in one place, automate repetitive tasks, and make it easier to find and fix errors.
Look for a purchasing management system that integrates with your existing accounting and business tools for maximum efficiency.
When it comes to procurement, using purchase order software can help streamline the process, cut out errors, and reduce costs. By automating the purchase order process, businesses can avoid many common mistakes that can lead to overspending or delays in receiving goods. In addition, purchasing management system can provide valuable insights into spending patterns and allow businesses to negotiate better prices with suppliers.
When used correctly, purchase order software can be a powerful tool for procurement professionals.
By automating creating, sending, and tracking purchase orders, businesses can avoid many errors when manual processes are used. In addition, automation can help to speed up the procurement process, allowing businesses to get goods and services faster. Automation can also help businesses track spending patterns and supplier prices, valuable information when negotiating contracts.
While there are many benefits to using purchase order software, it is important to use the purchasing software correctly to maximize its potential.
When creating purchase orders, businesses should include all relevant information, such as:
In addition, businesses should track their purchase orders carefully and monitor for any changes in supplier prices or delivery schedules.
By following these best practices, businesses can ensure they get the most out of their purchase order software.
5. Train your employees
Make sure your employees are trained in using your new purchase order system.
The more comfortable they are with the system, the more likely they will use it correctly and avoid errors.
By following these tips, you can automate your purchase order process and improve your business’s bottom line. Purchasing automation is a smart investment for any business that wants to save time and money. It is important to train your employees in purchase order management because it can help streamline procurement, cut out errors, and reduce costs.
By automating the purchase order process, you can ensure that all orders are accurate and that no items are mistakenly ordered.
This can save your company time and money by reducing the need for returns or replacements.
In addition, automated systems can also provide real-time tracking of inventory levels so that you can keep tabs on what is available and where it is located.
This information can be beneficial when planning future purchases. Overall, automating the purchase order process can help make your business more efficient and save you money.
What are purchase order management systems?
Purchase order management systems (POMS) are tools that automate the process of creating and approving purchase orders.
They streamline the approval process, reduce paper waste, and ensure that all POs are compliant with company guidelines.
Organizations of all sizes can use purchasing management systems to manage their purchasing processes. Large organizations may have complex purchasing management systems that integrate with other enterprise manufacturing software. Smaller organizations may use simpler, stand-alone POMS solutions.
POMS typically includes the following features:
Users can create POs using an online form or interface. The PO is then routed to the appropriate approvers for approval.
POMS systems include built-in approval workflows that route POs to the correct approvers. This ensures that all POs are reviewed and approved on time.
POMS systems support electronic signatures, allowing users to approve POs without printing them out. This reduces paper waste and speeds up the approval process.
POMS systems keep track of all changes made to a PO. This audit trail can be used to review purchase history or investigate potential fraud.
POMS systems can help organizations save time and money by streamlining the PO creation and approval process. They can also improve compliance with company guidelines and reduce paper waste.
Purchase order management software
Thousands of manufacturers are already using Katana manufacturing software to automate their purchase order management processes.
Finding an ERP system with purchase order management features
ERP systems are designed to help companies streamline their business operations.
They offer a variety of features and modules that can be customized to fit specific needs. One important module that an ERP system can offer is purchase order management.
Purchase order management is a critical part of your business operations. It helps businesses keep track of their purchases, ensures that all orders are fulfilled, and helps manage the finances associated with purchases. An ERP system with purchase order management features can help businesses save time and money by streamlining their purchase processes.
If you are looking for a system with purchase order management features, you should keep a few things in mind. First, make sure that the system you choose offers the features you need. If you do not need them, there is no point in paying for a system with purchase order management features.
Second, make sure that the system you choose is easy to use. The last thing you want is to spend hours figuring out how to use the purchase order management module. Choose a system that is designed to be user-friendly and easy to navigate.
Third, ensure that your chosen system integrates seamlessly with your existing business processes. You don’t want to change your current processes when using the new purchase order management solution. Choose a system that will integrate smoothly with your existing business operations.
Finally, make sure that the system you choose is affordable. If you cannot afford it, there is no point in paying for a system with purchase order management features. Choose a system that fits your budget and offers the features you need at a price you can afford.
When choosing a new system, purchase order management is an important consideration. Make sure that you choose a system that offers the features you need and is easy to use. Choose a system that integrates seamlessly with your existing business processes. And make sure that the system you choose is affordable.
With these considerations in mind, you can be sure to find a tool that meets your needs and helps your business run smoothly.
Get started on your path to finding an ERP system with Katana. Manage your sales, manufacturing, and purchasing, all from one platform — and best of all, you can get started for free. Sign up for Katana’s 14-day free trial and see why 1000s of other manufacturers are already using it to grow their business.
Senior Content Manager
James Humphreys has a background in creative writing and has been writing about the manufacturing industry for 3+ years.
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Getting your supplies delivered on time is crucial for inventory and production management. You can use this article as a complete guide to understanding your purchase management processes to optimize your business.