Purchase Order Management Software: Why You Need It and How to Get Started

Gone are the days when a business relied on verbal agreements (or even handshakes) to make decisions about purchasing goods and services.

Today, they are leveraging advanced technology and tools to streamline the purchasing process and keep track of organizational spend. This is vital as different functions within an enterprise make several purchases from vendors to meet their work-related requirements.

The volume of purchases varies according to the size of business, with a small business likely making a handful of purchases, while a medium or large enterprise business making thousands of purchases from external vendors.

At times, multiple orders are placed with a vendor by different internal teams for the same goods and services.

The same vendor often deals with different functions within an enterprise. This creates confusion as duplicate orders are placed. It also complicates payment as the vendor may issue duplicate invoices.

To overcome this confusion and standardize the entire purchasing process, the buyer issues a purchase order to the supplier that includes detailed information about the goods ordered with their quantities, pricing and delivery.

Once the seller accepts the order and signs it, the purchase order becomes a legally binding document for both parties. The seller agrees to supply the items mentioned in the purchase order, while the buyer agrees to pay the amount mentioned.

The order is then processed, delivered and finally paid as per the terms and conditions of the purchase order.

The key objective here is to increase transparency in the purchase process and route all purchases via a centralized procurement function. This ensures that the business can keep track of what has been ordered and from whom.

But with thousands of items being purchased by internal teams, how can procurement efficiently manage these purchase orders, ensure timely payments and build strong relationships with suppliers at the same time?

Managing purchase orders manually presents a huge challenge, especially as organizations grow and their purchase requirements increase substantially. Traditional methods, such as paper orders and forms and email exchanges, cannot meet the need for swift and efficient processes. Additionally, manual purchase order processes are complex and prone to errors.

This is why procurement needs purchase order management software.

How to Choose the Right Purchase Order Management Software

Here are a few things to consider while selecting a purchase order management software:

• Customization: This helps to tailor the appearance of purchase orders to modify data fields, match branding needs, enhance user experience and minimize processing errors.

• Supplier acceptance: This ensures seamless connectivity with the source-to-pay (S2P) platform for record updates, RFX responses and participation in bidding events.

• Guided buying: This tool simplifies the purchase experience by guiding users to preferred suppliers and buying channels, which in turn boosts compliance.

• Contract utilization: This ensures that hard-negotiated contracts are optimally utilized and deliver the value and savings promised.

• Role-based access: The software should offer role-based access, thereby restricting access to specific parts of the process workflow based on the user’s role in the business.

• Automated reconciliation: This feature helps create a well-structured workflow to expedite issue resolution with automated routing, review and approval.

• Optical character recognition: This technology can automatically extract and convert text from scanned paper invoices or PDF files into machine-readable documents.

• Multi-way matching: This helps to validate invoices against original purchase orders and negotiated prices with adjustable tolerances and matching rules.

How Purchase Order Management Software Works

As discussed above, purchase order management software is designed to standardize the purchasing process and increase transparency. With the creation of a purchase order, the buyer and seller have a formal agreement in place, with both parties agreeing to the terms and conditions.

As everything is visible throughout the process, buyers can track the status of their orders at any given time and do not need to follow up with the seller.

Similarly, the seller does not need to follow up with internal teams or send repeated reminders for payment. Everything is visible and trackable for internal as well as external stakeholders. This reduces the possibility of error and improves processing time. It also helps teams keep a check on maverick spending.

From requisitioning to invoicing, the software automates several tasks in the procure-to-pay (P2P) cycle, streamlining workflows and approvals. Unlike a manual process where teams often have to follow-up for approvals, purchase order software expedites the process by automatically channeling approvals through the right people and getting questions answered quickly.

Buyers can track the status of their requisitions right from submission through multi-stage approvals, creation of a purchase order and acknowledgement by the supplier to advanced shipping notice and finally invoice receiving and payment.

Additionally, electronic purchase orders expedite the procurement process, saving time for creating and sending paper-based purchase orders. The system can also track the accuracy of delivered goods against the original purchase order.

Analysis of Purchase Data Provides Useful Insights

Powered by artificial intelligence, purchase order management software analyzes purchase trends with each supplier and provides actionable insights. It can also recommend consolidation of multiple purchases into a single blanket order to negotiate buying terms.

Users can access these blanket agreements from the central repository and initiate a purchase from any department at any location. Robust approvals and workflows help teams improve purchasing efficiency and shorten lead times. This, in turn, leads to leaner operations and improved inventory management.

Additionally, the software continuously monitors every blanket purchase order in the system. It matches the order with spend data to ensure compliance and mitigates the risk of overspending. It also tracks contract utilization and ensures hard-negotiated contracts deliver optimal value and savings.

Also Read: The AI-Powered Evolution of Software for Purchase Order

A Sustainable Choice

Purchase order management software isn’t merely needed for business purposes, it is also needed to meet the growing ESG and sustainability requirements.

By automating P2P processes and replacing manual, paper-based purchase orders with their digital versions, businesses can showcase their commitment to environmental concerns and align procurement processes with long-term strategic goals.

Learn about GEP’s AI-powered purchase order solution.