“PO”sition Your Business for Success by Optimizing Purchase Order Use
One of the major benefits delivered from a Business Spend Management (BSM) implementation is the ability for the company to move towards pre-approved spend by leveraging purchase orders (POs).
To do this, companies should look at their entire addressable spend and determine who are the key colleagues and departments that are managing the majority of it within the organization, and begin the dialogue early.
When establishing a pre-approved spend strategy, keep in mind these three best practices:
1. Identify Where Purchase Orders Should be Used
At the onset of a BSM implementation project, review the total spend for the organization, and categorize it by a few classifications:
- Spend by department
- Spend by supplier
- Spend by category or commodity
Once it has been categorized, it will be easier to determine which types should be backed by a purchase order. Although, not all spend must be tied to one. For example, it does not make sense to use a purchase order when the amount is variable, such as a tax payment or utilities. A “No PO, No Pay” policy should have exceptions.
An added benefit of the spend review is that you will be able to identify the largest departments and users, which will feed into the stakeholder management, training, and adoption efforts. Those resources should be involved early and often to provide input to the process, policies, and user experience during implementation.
2. Streamline Purchase Order Entry
Creating a simple process for end users to raise purchase orders is critical for adoption of any system. When configuring a BSM tool, teams should consider the user experience:
- Make the forms as simple as possible for the end user to be able to raise a request.
- Strike a balance between proper controls intended to catch inappropriate spend, and onerous approval processes that send buyers looking for loopholes and workarounds.
- Make the data collection standard and repeatable. Don’t request data that isn’t relevant to the purchase, just in case you think you need it.
- Allow multiple resources to provide inputs to a PO. For example, for purchases with an amortization schedule, a workflow should be created to allow the finance/ accounting staff to add in those details, ensuring that it is entered correctly.
3. Manage Execution
It is important to manage the process and look at opportunities to get more spend on purchase orders where possible. Confirm whether one will be needed for the goods or services being provided and establish the invoicing relationship during vendor onboarding.
As part of the vendor management process, establish the best mechanisms to accept PO data in order to foster integrated, two-way communication between you and your suppliers.
Utilize common two-way communication such as vendor portals and notifications, or the preferred cXML or EDI as they will help to automate both PO and invoice data, and reduce mismatches and data errors throughout the Procure-to-Pay (P2P) cycle. This is typically recommended for larger suppliers who have the technical architecture to support cXML.
Supplier portals can provide an easy way to reduce paper invoices, potential for lost data, and enhance communication channels with suppliers. After a one-time setup, vendors can submit invoices and reference existing purchase orders to facilitate easier matching.
Finally, some BSM tools can support electronic notifications that provide an audit trail to vendors when an order has been placed which helps in subsequent invoicing and managing. These suppliers are typically smaller providers who are not technically advanced.
To foster adoption of a new BSM tool, executing on these recommendations will help you successfully manage pre-approved spend through purchase orders and provide the right change management support.
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