How to Optimize Your Purchase Order Process?
Whether you are a small business or a large enterprise, your purchase order process plays a pivotal role in your success. A slow procurement process can cost your business a lot more than you think. Not being able to meet the demands of your customers on time can result in them taking their business elsewhere. Optimizing your purchase order process is one of the quickest and most effective ways to grow your business. This article will break down everything you need to know about optimizing your purchase order process.
What is the Purchase Order Process?
Before we dive into how you can optimize your procurement process, let’s look at a typical purchase management process. As easy as it may sound, procurement is not just about placing orders and waiting for shipments to arrive. A good purchase order process must consider your current inventory levels, forecasted demand, lead time management, and costs.
If you are a small business, you may manage all of these activities using good old spreadsheets. However, as your business grows, you may find that you need to turn to software to keep track of your expanded needs. Digitizing your purchase order process gives you better control. It can save you time on the hours you spend tracking data manually and eliminate human errors that may arise in the process.
A typical purchase order cycle involves the following steps:
- Creating a procurement request
- Creating and sending requests for proposal (RFP) to suitable suppliers
- Vendor selection
- Negotiating terms and issuing the PO
- Shipment receipt and quality check
- Matching received items with PO and closing of the PO
How to speed up the purchase order process
Improve vendor information management
The first step to optimizing your purchase order process is to get better at managing vendor information. A good vendor database must include everything your purchasing team needs to make well-informed decisions. Make sure your vendor database key information for every product they supply, including :
- Lead time
- Minimum order quantities
- Payment terms
- Vendor product code
An up-to-date vendor database will help dramatically reduce your internal lead times and speed up the purchase workflow.
Automate the workflow
An efficient purchase order process can save you time and money. Automation is one of the most effective ways to speed up the process and eliminate human errors. Your purchase lead time can vary greatly depending on the type of products, the number of potential suppliers, and your internal approval process. Let’s look at five ways you can speed your purchase order process. If your supply chain involves a large number of suppliers or if your business deals with a large number of products, then automation is your best friend. Imagine your business needs to procure a particular product for which you have several potential suppliers. Identifying vendors, sending out RFPs, tracking proposals, and selecting the best offer becomes significantly quicker and easier if you use automated purchase management software.
As we have seen earlier, the purchase order cycle consists of steps executed in more or less the same sequence every time. Maintaining a link between each step in the purchase order process is critical in speeding up your purchase order process. It not only improves accountability but also makes the process more transparent and traceable. Both traceability and transparency are essential when more than one person manages the purchase process. Make sure you maintain the following links to start with:
- A link between the RFP document and supplier quotes received
- A link between the RFP and the PO
- A link between the goods receipt note and the PO
- A link between the PO and the vendor bill
Of course, this isn’t an easy feat to accomplish if you are doing it manually. A purchase order system can significantly speed your purchase process and communicate with your vendors more efficiently.
Implementing an efficient system for managing your purchase order process is necessary to save your business time and money. A purchase order system helps you keep track of every step in the workflow, reduce lead times through automation and avoid overspending. It also enables you to manage vendor information efficiently and significantly improve accountability and traceability. In essence, optimizing your purchase order process can boost your business overall.