There has been remarkable progress in procurement practices over the last decades. The previous years’ back-office spend centers have blossomed into a supplemental, strategic business practice that prioritizes cost savings, process improvements, client satisfaction, and better experiences.
Savvy procurement leaders are advancing this positive shift by seeking additional cycle times enhancements in their business partners’ best interests. This is critical because reduced cycle time can considerably boost turnaround time and lower your procurement function’s overall cost. It also enables procurement teams to spend more time on strategic activities.
But to make the best out of your company's PO lifecycle, you need to know what it entails, the different steps, and how you can optimize it to get rid of redundancies, delays, and data loss. Fortunately, this detailed guide has all you need to know.
What Is the Purchase Order Cycle?
In essence, the PO lifecycle refers to the procurement process, from creating a purchase order to concluding it with closure. It measures the entire duration to move from requisition to delivery to complete payment.
The process is a subset of the larger procurement cycle and is among the leading KPIs (key performance indicators) you can use to determine your procurement team’s efficiency and productivity.
Purchase Order Cycle Steps
Below are the main steps involved in a typical PO lifecycle:
Purchase Order Creation
The PO (purchase order) lifecycle’s first step involves creating the purchase order (PO) and assigning it a unique PO number. Once the purchase request is confirmed to be in line with the approval and authorization criteria, it’ll change to be a purchase order (PO). If the request involves multiple line items, each must be moved to a new purchase order (PO).
Employees can raise purchase requests, but it’s only your organization’s procurement team that’s allowed to create purchase orders (PO). In the case of small or medium-sized entities, this authority may be in the hands of the CEO/business owner or the finance head.
The Significance of Purchase Orders Template in Streamlining Procurement
Harnessing the efficiency of purchase orders templates is akin to setting a foundational pillar for your hardware startup's procurement processes. A well-structured template provides a standardized format and ensures consistency in capturing vital order details. With the dynamism that hardware startups usually display, any tool that fosters streamlined, repeatable, and error-free operations is invaluable. When embedded within an automated purchase order system, such templates become the bedrock for speed, accuracy, and scalability. While automation is the engine driving the procurement car, the purchase orders template is the blueprint, ensuring the vehicle is built to perfection.
Budget Check and RFP (Requests for Proposal)
After the procurement department creates the purchase request, it’ll be the finance team’s turn to conduct the budget check. Afterward, they’ll carry out a standard search to identify existing purchase contracts. If they find one, they’ll send the order to the respective vendor.
But if such a contract doesn’t exist, the team must send RFPs to prospective suppliers. This is done to elicit quotations for the required service or product.
Supplier Qualification and Selection
After the procurement team has received commercial quotes from vendors, the members will place the company’s requirements against the supplier proposal. At this stage, you want to settle for a unified selection decision that prioritizes the organization’s best interests. Therefore, your team will thoroughly investigate the circumstances and seek views and insights from the appropriate stakeholders.
Negotiation and Purchase Order Dispatch
After you’ve settled on a particular vendor, the next stage will be contract negotiations. At this stage, buyers and suppliers will hold discussions and address any issues that could complicate the partnership. The main goal is to foster a great business relationship.
Usually, procurement negotiations cover the following primary elements:
- Delivery expectations
- Any requirements changes
- Dispute resolution
- Quality threshold
- Time constraints
- Potential risks and liabilities
- Purchase confidentiality
- Terms of payment
After successful negotiations, the procurement department will forward the purchase order to the vendor. The supplier’s acknowledgment and approval will activate a contract that legally binds the vendor and the company.
Delivery and Quality Assessment
Vendors typically send advance shipment notices to their customers after shipping the order. The statement includes crucial details like shipping date, tracking number, agency details, invoice and PO copy, etc.
So after you’ve received the service or product, you’ll check the PO information and packaging slip before acknowledging the receipt. Once done, you’ll conduct a standard quality check and then notify the supplier or reject the delivered item if it had a defect or was damaged.
Purchasing Order Matching and Closure
At this final step, you’ll line up three crucial purchasing documents–the vendor invoice, purchase order, and purchase requisition–and assess them to ensure there’re no discrepancies and the information is accurate. In the spectrum of procurement, understanding the nuances between purchase requisition vs purchase order is crucial.
Essentially, a purchase requisition is an internal request for goods or services, indicating a need and often seeking internal approval. Once approved, this leads to the creation of a purchase order, which is the formal external document sent to vendors detailing the specifics of the intended purchase. Recognizing the significance of this sequential and distinct relationship ensures that the entire procurement process remains transparent and accurate.
Any inconsistencies should be handled based on the dispute resolutions defined in the purchasing contract.
Challenges of Manual Purchase Order Cycle
A manual PO cycle relies on human resources, and most company operations that depend on human efforts are prone to bias and inaccuracies. You already understand how cumbersome and tedious manual PO processing can be.
The apparent issues that companies face when they rely on a manual purchase order cycle include:
- Repetitive tasks – Manual procurement functions comprise numerous operations that employees must repeat for different procurement events. Examples of such tasks include but aren’t limited to internal approval of procurement documents, multiple phone calls to negotiate with suppliers, creating similar files at various times, and many more.
- Time wastage – Repetitive tasks are among the greatest time consumers for procurement teams. Reaching out to the same approval staff repeatedly throughout the day, always counting on their availability, spending more than five minutes on a phone call with a single supplier, addressing errors that are hard to fix on paper, and repeating the approval process take relatively more time.
- Process delay – Organizations that rely on manual procurement processes find it hard to perform urgent purchasing. Dependency on different departments, time consumption, and slow supplier or approver responses usually reduce the urgency for a while.
- Added costs – Manual processes take time, requiring the procurement department to acquire more resources. Delayed purchases usually affect numerous business processes of different departments, especially those that are wholly dependent on the purchased items.
- Reporting hurdles – Manual procurement relies on human effort to create all relevant reports. This makes it challenging to complete the data entry for each process, and it’ll also be hard to use the multiple approaches and deliver the required results.
- Error handling – Day-to-day operations are likely to yield errors made by the respective parties involved in the PO lifecycle. It’s not easy to detect and handle such mistakes if you rely on the manual PO approach, forcing processes to start over instead of beginning from where the actual error was committed.
- Visibility – Manual procurement usually involves many groups, including suppliers, procurement departments, end-users, finance departments, and approvers. With this complicated network, it’s easy to lose visibility and control of the entire process.
- Document control – Manual procurement also comes with the stress of controlling massive chunks of paper-based documents. It’s complicated to track archived files, older documents get lost easily, and it’s harder to follow up on the currently open ones.
- Miscommunication – This approach makes it difficult to determine who’s responsible for what, who contacted who, and which team member is contacting a vendor. These could present an immense burden due to lost data and process disagreements.
Automating the PO Cycle Can Help You Beat the Hurdles
As your company grows, the PO lifecycle will become more complicated and require more resources, time, and talent. As you’ve already realized, running the cycle using the manual approach isn’t productive or cost-effective.
Fortunately, you can make up for the inefficiencies of the manual PO lifecycle by transferring your company’s purchase order workflow to a reliable software solution. Doing this will benefit you in the following ways:
Besides getting rid of delays and inaccuracies, automation will make your procurement department more productive by cutting out repetitions and redundancies.
Employees will dedicate more time, resources, and efforts to meaningful project activities than tedious and repetitive administrative work.
- Automating the purchase order approval process can eliminate delays and bottlenecks at this critical stage.
- It ensures complete adherence to company policy terms and compliance regulations.
- Vendor payouts are handled efficiently and with minimal errors attributed to human intervention.
- An automated workflow ensures data recording and documentation are updated and accurate.
- Excellent documentation culminates in transparent and smooth auditing.
- Automation also ensures that each purchase order cross-connects with relevant documentation.
Get a Reliable Solution to Enhance Your PO Lifecycle
The purchase order lifecycle is critical for the critical functions of your organization. Making it efficient will save resources, time, and money. Organizations that leverage manual approaches suffer losses resulting from higher operational costs and data inaccuracy.
Leveraging a well-devised, automated purchase order process can address this hurdle, helping you boost your efficiency and profitability.
Fortunately, you can count on ControlHub to automate your PO lifecycle, track your spending, and offer straightforward approvals. So reach out to us.
Frequently Asked Questions
What is the purchase order lifecycle?
The purchase order lifecycle refers to the journey that a procurement process takes, from the creation of a purchase order to its successful completion. It includes steps such as purchase order creation, budget check, RFP (Request for Proposal), supplier qualification and selection, negotiation, purchase order dispatch, delivery and quality assessment, and purchase order matching and closure.
Why is optimizing the purchase order lifecycle important?
Optimizing the purchase order lifecycle is crucial for businesses because it:
1. Reduces cycle time: Streamlining the process saves time, enhances efficiency, and improves turnaround times.
2. Saves costs: A well-optimized process minimizes delays, eliminates redundancies, and reduces unnecessary expenses.
3. Enhances productivity: By automating repetitive tasks and eliminating bottlenecks, you free up time for strategic activities that drive business growth.
4. Ensures compliance: An optimized process ensures adherence to company policies and compliance regulations, reducing the risk of errors and non-compliance.
5. Improves supplier relationships: Efficient procurement processes lead to smoother interactions with suppliers, enhancing collaboration and fostering mutually beneficial partnerships.
How can automation improve the purchase order lifecycle?
Automation plays a crucial role in improving the purchase order lifecycle by:
1. Eliminating manual tasks: Automation reduces repetitive tasks, such as data entry, saving time and reducing the risk of errors.
2. Streamlining approval processes: With automation, approvals flow seamlessly, ensuring compliance with company policies and accelerating the procurement cycle.
3. Enhancing accuracy and data integrity: Automated workflows minimize human errors, ensuring accurate data and documentation.
4. Improving transparency and visibility: Automation provides real-time insights and comprehensive tracking, promoting transparency and visibility throughout the procurement process.
5. Simplifying documentation and record-keeping: Automated systems organize and store purchase order-related documents, making them easily accessible and simplifying audits.
What are the benefits of using ControlHub for purchase order automation?
ControlHub offers several benefits for automating the purchase order lifecycle, including:
1. Streamlined workflows: ControlHub automates the creation, approval, and tracking of purchase orders, saving time and eliminating manual effort.
2. Spend management: The software tracks spending, allowing you to monitor and control procurement expenses more effectively.
3. Simplified approvals: ControlHub streamlines the approval process, ensuring compliance with company policies and improving efficiency.
4. Increased accuracy: With minimal manual intervention, ControlHub reduces the risk of errors and ensures accurate data and documentation.
5. Improved visibility: The software provides real-time insights and comprehensive tracking, enhancing transparency and visibility into the purchase order lifecycle.
6. Documentation management: ControlHub organizes and stores purchase order-related documents, making them easily accessible and simplifying record-keeping.
How can I get started with ControlHub for purchase order automation?
Getting started with ControlHub is simple:
1. Reach out to the ControlHub team for a consultation to discuss your specific requirements and how the software can benefit your business.
2. Once you've decided to proceed, the ControlHub team will guide you through the implementation process, including software setup and configuration.
3. Train your team on how to use ControlHub effectively, ensuring a smooth transition to the automated purchase order workflow.
4. Import existing purchase order data into ControlHub to kickstart your automated process.
5. Continuously evaluate and optimize your usage of ControlHub, leveraging its features to enhance your procurement practices and drive efficiency.
How does ControlHub help improve profitability?
ControlHub improves profitability by enhancing efficiency, reducing costs, and enabling better financial management:
1. Increased efficiency: By automating the purchase order lifecycle, ControlHub saves time and eliminates manual tasks, enabling your team to focus on strategic activities that drive profitability.
2. Cost control: ControlHub helps you monitor and track spending, ensuring better control over procurement expenses and reducing unnecessary costs.
3. Minimized errors and delays: With automation, the risk of errors and delays is significantly reduced, preventing financial losses associated with discrepancies or missed opportunities.
4. Enhanced financial visibility: ControlHub provides real-time insights into procurement activities, allowing you to make data-driven decisions and optimize financial management.
5. Improved supplier relationships: Efficient procurement practices foster better supplier relationships, leading to favorable terms, discounts, and cost savings.
Can ControlHub integrate with other systems?
Yes, ControlHub can integrate with other systems, such as accounting software, enterprise resource planning (ERP) systems, and other relevant tools. Integration enables seamless data flow between different systems, improving efficiency and data accuracy. ControlHub's integration capabilities help create a unified ecosystem, allowing you to leverage existing software investments and streamline your overall procurement process.
