The purchase order (PO) procedure is a critical part of any organization’s procurement process. It ensures that the right products or services are purchased from vendors at the negotiated prices and terms. Having a streamlined PO procedure not only enables getting the maximum value out of every dollar spent, but also helps build trusting relationships with suppliers.
As organizations adopt source-to-contract (S2C) solutions to automate and optimize their procurement workflows, establishing the right purchase order procedure becomes even more vital. This blog discusses key aspects to consider while designing the PO procedure under an S2C framework.
Accurate Requirements Gathering
The first step to create a PO is identifying what needs to be procured accurately. The concerned department raising the purchase requisition must provide complete details around technical specifications, quantity, delivery timelines, special shipping/handling needs, expected unit costs etc. Any gaps in requirements gathering will result in delays down the line.
Having a standard template for capture of requirements that is integrated into the S2C software ensures consistency across the organization. The automated workflow facilitates entering complete information into the system rather than relying on informal channels like emails or phone calls for conveying needs.
Vendor Selection and Evaluation
The next element is selecting the right vendor to fulfill the specified requirements in the optimal way. The process needs to take into account factors like quality, reliability, technological capabilities, financial strength, previous track record of working with the vendor etc.
Instead of manual evaluation, the S2C solution should allow creating a database of pre-qualified suppliers mapped to specific spending categories. This enables quick identification of the best matching vendor for any purchase order directly from the system. Periodic evaluation of vendor performance also needs to be an integral part of the S2C workflow.
Pricing and Contract Alignment
The prices and commercial terms in the PO should align with existing contracts or pricing agreements maintained within the S2C system. If volume discounts or specialized pricing applies based on total spend through the contract, the workflow should automatically apply those in the POs raised under that contract.
Any deviations should route for appropriate approvals before creating the PO. If pricing contract negotiations are underway in parallel, the system should hold creation of linked POs until the updated pricing schema is available. This prevents revenue leakages as well as conflicts during vendor reconciliation.
Approval Workflow
The PO procedure needs to have an authorization matrix for requisite approvals before the PO gets issued to the supplier. Different approval tiers should apply based on the nature of purchase, its value as well as the department raising the requisition.
The automated workflow configurations within the S2C system can route the PO document through the appropriate hierarchy for review and approvals based on its attributes. For instance, capital purchases above a certain value may require finance department sign-off before getting converted to active PO.
Standardized Documentation
Every PO should generate a consistent set of documents consisting of the items/services requested, quantities required, agreed pricing, delivery addresses, invoice messaging, terms and conditions etc. Relying on informal channels for conveying this information leads to miscommunication and errors.
The S2C system allows creation of master templates for PO documents that incorporate all necessary details. Any authorized user can generate a complete, error-free PO pack at the click of a button by selecting the appropriate template. This pack gets transmitted to the supplier to acknowledge the purchase.
Seamless Integration
The PO workflow needs integration touchpoints with upstream as well as downstream systems for seamless processing. For instance, the PO creation process needs to be triggered based on inventory levels from the ERP system automatically entering requisitions into the S2C.
Similarly when the PO gets fulfilled, the invoice and payment release procedure managed in the Finance system should get initiated. Tight integration between the underlying systems enables straight-through processing without any manual intervention.
Visibility and Reporting
The S2C system should provide full visibility into the end-to-end workflow associated with any PO – right from requisition creation to invoice reconciliation. In-built reporting dashboards can offer insights like PO conversion ratios, cycle times, spending analysis by supplier or department etc.
Embedding analytics into the PO procedure rather than separate reporting streams allows identification and rectification of bottlenecks proactively. Historical performance data also enables better decision making for future purchases and streamlining workflows.
Continuous Improvement
The PO procedure should have mechanisms for continual improvement by learning from past performance. Some examples include risk mitigation protocols to manage unforeseen scenarios, checklists that standardize processes for complex purchases, and playbooks to drive consistency across PO approvers.
As the S2C platform accumulates organization-wide procurement data over time, new improvement opportunities can be identified through analysis. Periodic internal audits as well as assessments during vendor renewals also feed critical inputs towards enhancing the PO procedure.
Managing Purchase Order Amendments
It is not uncommon for purchase orders to undergo amendments due to changes in requirements during the procurement process. There could be alterations to quantities based on revised demand plans, modification of technical specifications owing to product upgrades, inclusion of additional line items missed earlier etc.
Having a clear procedure for processing PO amendments ensures the changes are captured accurately without leading to disputes. The S2C system should allow authorized users to initiate change requests, route for approvals if required, and communicate confirmed modifications electronically to suppliers. Automated version control of PO revisions also enables easy tracking and auditing at a later stage.
Conclusion
The purchase order process forms the core of procurement software workflows in any enterprise. It sets the tone for subsequent supplier and invoice management processes. The PO procedure also needs optimization alongside technologies like S2C that are transforming legacy procurement models.
Rather than just digitizing existing manual processes, the guidelines around PO creation must institutionalize best practices gained from years of cross-industry experience. The dimensions discussed in this blog serve as a broad framework to assess and upgrade PO protocols. Adoption of these recommendations will lead to higher operational efficiency, cost savings and better relationships across the procurement ecosystem.
