A slow purchase order process can cripple businesses. Manual systems and archaic tools can have adverse effects on the productivity and bottom-line of any organization no matter how efficient they may seem. So it’s no surprise that multinational businesses have dedicated employees to manage a network of suppliers, review and release purchase requisitions, expedite purchase orders, resolve issues, determine new stock quantities and reduce excess inventory.

That may seem unattainable and even ‘overkill’ for many SMBs. In fact, until you get to around $100k in turnover, a spreadsheet may be adequate enough for your simple inventory needs. But many SMBs between $100k and $100 million in turnover do find that their inventory complexity is alleviated with a more powerful tool.

When it comes to purchase order management: With a great tool comes great responsibility.  But can SMBs wield the same power as large enterprises?

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Before we do, let’s review what a typical purchase management process looks like.

  • Aligning inventory and customer sales across sales channels
  • Managing shipping and freight
  • Tracking fulfillment
  • Reporting and analyzing generated data

Purchase order management (or procurement management) is quite a task to do manually – it can lead to employee burnout and customer attrition. So most turn to an order management system to deal with the volume of work as efficiently as possible, speeding order processing times and reducing errors.

This is vital in offering consumers a great experience. With many options for buying online, the customer journey right up to the point of receiving the item is an important piece of the puzzle to get right.

Related Blog: 7 questions to ask when choosing an inventory management system

What is the purchase order cycle?

Purchase order cycle time is a key measure of procurement cycle time. This measure is calculated as cycle time in hours from the receipt of a purchase requisition line item to the purchase order transmission to the vendor/supplier.

Such a calculation should include all activities associated with processing a purchase order as well as data input, time taken to confirm receipt by supplier, and time taken to respond with confirmation of pricing and delivery.

The ability to turn employee requisitions into purchase orders is critical for financial control, running an agile business, and employee satisfaction. In 2006, APCQ conducted a study which put the cost of manual cost orders between $35.88 and $506.52.

These are very real costs associated with manually processing purchase orders.

Speeding up purchase order cycles requires a strategy that leverages technology and extending trust to your employees.

How to speed up your PO cycle time

1. Automate, automate, automate
Automation speeds up the purchase requisition by giving both users and approvers instant access to any request/order in the system. Technology can generate instant reports as well, allowing you to track, monitor and analyze your business costs on the fly.

But most important, technology can provide you and your team with greater visibility and control over cycles and approvals.

An automated process provides:

  • Cost savings: your company and employees can save time (and sanity) by avoiding manual, menial tasks. Instead they focus on more value-adding activities. Back in 2014, the overall average processing cost was $411 according to CAPS Research.
  • Greater visibility: having visible spending will go a long way, allowing businesses to manage its cash flow effectively.
  • Better control: those requesting payment will only be presented with approved cost centers and accounts, giving your finance heads greater control.
  • Increased accuracy: you eliminate opportunities for errors such as double-entry. In addition, rules within the tech platform can prevent routine mistakes.
  • Compliance: the workflow can be configured to your business rules and amenable to your purchase order and supplier / vendor policies.

Some examples on how to leverage technology to shorten approval chains and gain control over your process:

  • Initiate contracts with suppliers for specific items so they’re “pre-approved”.
  • Set budgets to be visible to employees, and see how different teams and departments are going against the budget.
  • Add 2-3 more people to the process as watchers instead of approvers. That way, no one is holding up the process, and watchers can jump in when a problem is present.
  • Set-up workflows

2. Supply Chain Optimization
Nowadays, the supply chain is a complex ecosystem of people, processes and technologies.

Before, big businesses and enterprises would want to consolidate their supplier base, negotiate stronger contractual discounts, and encourage employees to purchase from this preferred shortlist of vendors. But with highly volatile fluctuations for products, supplier consolidation might not be best. Instead you’ll want supplier diversity.

Optimization, however, requires analysis of supplier spend, capabilities and performance, while still maintaining quality.  Review your core strengths and outsource all other activities to your specialized supplier partners.

Improve fulfillment rates and product availability at point of purchase and ensure a lean supply chain improving margins and profitability. Today, technology allows for collaborations and real-time responses.

A good order management system helps with:

  • Processing orders and payments in any currency, through any sales channel;
  • Sending order details to the warehouse or 3PL;
  • Matching the nearest warehouse to the product’s destination;
  • Updating inventory across all sales channels instantly;
  • Tracking order progress so that both the customer and the company can see it;
  • Forecasting demand and stock levels to create an alert when restocking is needed;
  • Integrating with other apps and platforms to connect administration functions like accounting, invoicing and payment processing.

Purchase orders are an everyday aspect of any business. But if poorly managed, it can cause delays, late deliveries, overspending, leaving all parties frustrated.

Our cloud-based platform frees founders from the operational challenges (especially as PO management) of building businesses and enables them to focus on what they love and do best - create amazing businesses.

With TradeGecko, SMBs can gain greater visibility, lower organizational expenses, remove human interventions that lead to errors and bottlenecks, and speed up overall processes.

See what a purchase order lifecycle looks like in TradeGecko and let us know how we can help.

Related eBook: The SMB’s Guide to Purchase Order Management

 

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