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Procurement 101
Reading time:
5 minute read
Written by
Majdi Sleimen
Companies are always positioning themselves to get ahead.
That's why many businesses use a purchase order 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.
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 purchase order for complicated orders.
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.
So you know what purchase orders are, and that systems exist for managing them.
But why should you care?
There are two main reasons why successful business owners use 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 team reaches a consensus. Now for more time-wasting questions:
Maybe the purchase order 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.
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 purchase orders to drive the process.
Good purchasing practices scale with your business - place them at the heart of your startup or small/medium business (SMB)!
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:
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:
The competitive software as a service market has also made digital purchasing very accessible.
This platform is unique as a PO service provider - there’s no time limit on the free account.
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 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.
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:
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 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!):
Karthik has over 12 years of procurement experience from work across a variety of industries and regions.
Visit Karthik on LinkedIn | Twitter | YouTube
"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."
"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."
"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.)
Don’t let another week go by while your business continues to lose value with outdated practices.
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