Procurement 101

Why Use Purchase Orders?

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5 minute read

Written by

Majdi Sleimen

Why Use Purchase Orders?

Companies are always positioning themselves to get ahead.

That's why many businesses use a digital PO system to cut their operating costs.

Many businesses neglect their purchasing process, but after today yours won’t be one of them.

This article will reveal why the purchase order (PO) is the secret to making smarter business decisions and increasing productivity.

Not sure what a purchase order is?

A purchase order is a document used to indicate an intent to buy from a supplier.

Here’s a full explanation of how a purchase order works in business.

A variant term, “LPO” (local purchase order) indicates a PO being sent to a local-region supplier.

Sometimes, a purchase order letter is also included with the PO for complicated orders.

What’s a purchase order system?

A purchase order system is a digital software program used to manage the creation and communication process of purchase order documents with suppliers.

Here’s an example purchase order workflow on a cloud-based software platform.

These systems are used to facilitate and support the creation of purchase orders by connecting them with other documents and approval controls.

But why do you need to care about purchase order management?

So you know what POs are, and that systems exist for managing them.

But why should you care?

There are two main reasons why successful business owners use digital purchase order systems:

Time and money.

Think about it.

Paperwork costs businesses much more than they often realise.

How long does it take your company to order something?

Let’s say a computer breaks (by mechanical breakdown and not by panda vandalism).

Your staff are now spending company time asking these questions:

  • What brand should the replacement be?
  • Where should it be ordered from?
  • How much should it cost?
  • Do other devices need to be replaced?

Your team reaches a consensus. Now for more time-wasting questions:

  • Is raising a purchase order necessary?
  • Who will create the purchase order?
  • Who’s approving this purchase?
  • Who will manage the transaction with the supplier?

Maybe the PO lands on your desk.

Maybe it lands on your accountant’s desk.

Maybe your staff just order the computer without a purchase order.

Maybe a $3,500 high-performance gaming PC appears in the office.

The problem will not fix itself, especially as your business scales.

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Free ways you can improve your purchase order procedure as a small business today

I know what you’re thinking. Everyone’s go-to solution on a budget.

“Google Sheets!” “Excel!”

But these tools alone don’t address the real problem!

Time is still being wasted on how the purchasing process is managed.

This process is also sometimes referred to as the purchase to pay process.

There are many different ways for your business to refine this process over time.

But there’s one key component to building a successful purchasing system right now.

You guessed it - the secret is how you manage POs to drive the process.

Here are some effective ways to address how purchasing is managed in your business for free:

Good purchasing practices scale with your business - place them at the heart of your startup or small/medium business (SMB)!

Advantages offered by using a digital purchase order system

Traditional paper based purchasing processes are still used by many organisations.

But sometimes companies are so busy that they forget how inefficient paper really is:

  • How long does it take to pass papers around the office?
  • How long does it take to reference and confirm budgets during the process?
  • How long does it take to send and receive a supplier response?
  • How long does it take to confirm and document invoices and delivery information?
  • How is communication managed to ensure confusion doesn’t waste time?

There’s a better way to stop your business from losing value when purchasing.

Creating and sending digital purchase orders has gained tremendous popularity.

The reason behind digital adoption are the many direct performance enhancements it provides.

Here’s a list of twenty unique benefits gained by leveraging an e-procurement process.

Imagine an online purchasing process compared to the outdated paper-based one:

  • Documents are routed instantly.
  • Budgets are outlined and enforced automatically.
  • Supplier response times are more agile.
  • Automatic documentation of invoices and delivery info secures peace of mind.
  • Communication is streamlined on one platform for simplicity.

The competitive software as a service market has also made digital purchasing very accessible.

Digital PO systems can be used for free through some providers, like Tradogram:

This platform is unique as a digital PO service provider - there’s no time limit on the free account.

Tips for advanced purchase order management

Proper purchase order management isn’t just about using purchase orders.

It’s also about knowing when not to use them!

That’s right!

Sometimes raising a purchase order, even with a proper system, is not the most efficient option.

The operational cost of raising a PO is a hot topic of conversation in procurement.

Often times a simple expense record is used to bypass the processing cost of raising a PO.

But there are many other types of documents.

Each of these documents support the function of the purchase order:

There are many digital purchase management systems available on the market.

Some of these systems offer many different document creation tools, while others do not.

Mentioned earlier, Tradogram is one provider that offers all of the listed tools on the system.

Choosing the right digital purchase order system to manage your process

Companies within every industry operate differently, and yours is no exception.

Finding a platform that’s right for you can be time consuming if you don’t know where to look.

Here’s one of many lists of top rated purchasing solution providers.

As you review the different purchasing solutions that are available, ask yourself these questions:

  • Does it have all of the features that my team needs?
  • Are modules priced separately, or are they all-inclusive?
  • How simple is it to configure and use?
  • What integrations does it offer?
  • Can we try it before we buy it?
  • How much does it cost right now?
  • Will it scale well as our team grows?

Expert advice for selecting your purchasing system:

It's always important to do your own research. For convenience, here's some advice from a procurement expert to consider while evaluating different options for your digital purchase order system (but seriously, do your own research as well to find a solution that will work best for your particular industry and business!):

Tips from Karthik Rama aka "The Procurement Doctor"

Procurement Doctor

Karthik has over 12 years of procurement experience from work across a variety of industries and regions.

Visit Karthik on LinkedIn | Twitter | YouTube

What’s the most important aspect of a digital purchase order management system to you?

"User experience and integration are the most important aspects to me. If the user experience is bad, teams won't adopt the software, and then there's no point in using the system. Without integration, or if the integration is implemented poorly, it will only cost you more time and produce data that's a mess to work with."

If someone was choosing a digital PO system, what advice would you give to them?

"First do a thorough discovery session before choosing a PO System. Do take a look at your current process, policies, procedures, and last year's audit gaps. Don't miss out on the opportunity to involve all of your relevant stakeholders in the decision making process."

What’s your number one tip or insight for aspiring purchasing managers?

"Don't aspire to focus on operational or tactical procurement. Instead, consider mastering strategic procurement and sourcing. Always be ready to adapt to change, utilise new technologies, and work with diverse sets of data."

(Read more about the differences between strategic, tactical, and operational procurement.)

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Take the first step with a risk-free purchasing solution

Don’t let another week go by while your business continues to lose value with outdated practices.

You can go digital right away with a free forever online cloud purchase order system:

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