Purchase Order Best Practices

Types of purchase orders

At a hardware-intensive startup, growth can happen quickly. With a growing team comes the need for more efficient ways to order supplies and track spending. That's where purchase orders come in.

But with so many moving parts, it can be easy to let things slip through the cracks. That's why it's important to master some purchase order best practices.

With purchase order best practices, you can be sure that your team is getting the materials they need to do their job and that you're not overspending on unnecessary items. Plus, having these practices in place will keep your engineering team organized and on track.

So what are some purchase order best practices? Keep reading to find out.

Have Clear Procurement Guidelines

You should take the time to create a procurement handbook outlining the policies and rules that the procurement team should adhere to during the purchasing process. While the guidelines can differ from company to company, they can include the following:

  • The approval process for purchase orders
  • A list of preferred vendors
  • Instructions for how to request a purchase order
  • The maximum amount that a department can spend on a purchase

Clear procurement guidelines will streamline the purchasing process and ensure everyone is on the same page. The guidelines will also improve your PO management by ensuring that the correct people approve all POs.

Coming up with the guidelines isn't enough. You should ensure that everyone involved in the purchase order process understands and adheres to the guidelines. You can do this by holding training sessions or by creating an easily accessible document outlining the guidelines.

Automate Using Purchase Order Software

With purchase order software, you can automate the creation and approval of POs. This means you'll spend less time chasing down approvals and more time focusing on other aspects of your business. Automating your PO process will also ensure that POs are always accurate and up-to-date.

Most PO software will improve inventory management by integrating with your enterprise resource planning (ERP) system. The integration will allow you to see how much inventory you have on hand at all times. A PO solution that allows for AP automation will also streamline your invoicing process.

There are several different purchase order software programs on the market. When choosing a program, select one that integrates with your accounting software. This will make it easy to keep track of your spending and avoid duplication of effort.

Use Blanket Purchase Orders

Use blanket purchase orders when you know that you'll be making several small purchases from the same vendor over time. A blanket purchase order is an order for a large quantity of materials that can be used over a period of time. A blanket PO allows you to pre-approve a set amount of money for the vendor.

You won't have to create a new PO every time you need to order materials or go through the approval process for each purchase.

Using a blanket purchase order can save you a lot of time, especially if you're making frequent purchases from the same vendor. Blanket purchase orders can also improve your cash flow by allowing you to make payments in batches.

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Maintain an Up-to-Date Vendor Database

An up-to-date vendor database will make it easier to find vendors when you need to purchase materials. You should include the following information in your vendor database:

  • The name of the vendor
  • Contact information
  • The products or services that the vendor offers
  • Payment terms

This information will come in handy when you need to purchase materials quickly. You won't waste time making phone calls or browsing your data archives to find suppliers' details.

You should also include information on your preferred vendors in your database. These are the vendors you've had good experiences with in the past and that offer quality products or services.

Set a Budget for Different Expenses Categories

When creating your budget, be sure to set aside money for different categories of expenses. This will help you keep track of your spending and ensure that you don't overspend in any area.

For a hardware startup, you can have expense categories such as:

  • Materials and components
  • Tooling and machinery
  • Shipping and logistics
  • Packaging
  • Operational expenses

By having a budget for each category, you'll be able to see where most of your money is being spent. You can use this information to negotiate better prices with suppliers or to find ways to reduce your spending. You'll see at a glance how much money you have to spend in each area.

Embrace Purchase Order Best Practices

Utilizing purchase order best practices, enhanced by effective purchasing software, can yield time and cost savings. Automating your purchase order process, keeping your vendor database current, and establishing budgets for various expense categories all contribute to enhancing your purchasing capabilities. When executed effectively, these practices serve to streamline your operations and enhance your bottom line.

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