What Is Purchase Order Management & What Are Its Benefits?

Purchasing and procurement are important parts of the business. For that reason, it should not be done with the pen-paper technique. Manual mistakes and errors can cause the company a huge loss. It shall be done in an organized and automated way. Purchase order management can be used to avoid these issues but first, let us cover a few basics!

What Is Procurement?

The act of obtaining goods or services from external sources (vendors) is known as procurement. This activity is done for business purposes. In this process, the clients look for several aspects such as quality, quantity, time, etc.

The procurement process allows companies to avoid any kind of scam or fraud. The procurement process makes the purchasing of a product done in the right way.

Procurement activities can be divided into 2 categories:

1. Direct Procurement - It is Production related procurement; it is the part of the finished product such as raw material. It can affect supply chain management.
2. Indirect Procurement - It is non-production related procurement, it considers parts such as standardized office supplies, servicing heavy equipment.

According to Statista, “The procurement software application market will bring in an estimated 5.59 billion U.S. dollars in total revenue in 2020. The market is projected to experience a slow but steady expansion in the coming years, with a constant annual growth rate of 2.6 percent.”

What Is a Purchase Order?

It is an official document from buyer to seller. When the current stock is about to finish or if new stock is required or any specific item is required then a purchase order is generated.

It includes details such as product or service they require and quantity (if applicable) & when it will be delivered and location! Purchasing is an essential part of the business. It allows organizations to get products earlier and payment can be done later.

With the automated purchasing requisition software, you can create or modify purchase orders. It also analyzes cost and purchase order history.

Other than this you can also see a complete summary and details of the software. Moreover, the status of each work order can be seen in this software. Furthermore, you can delete those orders which are unwanted or not required anymore!

What Is the Purchase Order Process?

Where purchase requisition ends, it's the beginning of the purchase order! The purchase order process begins with purchase order creation and after that purchase, approval is sent to the manager to see if there are any last-minute changes. In this process, budget and quality are checked.

Then the purchase order is accepted by the supplier and this purchase order document is referred to when any of the parties have any issues.

Below we have mentioned the steps of the purchase order process:

1. Purchase Order Creation

The purchase order is sent to the vendor & the vendor gets the details from the purchase order document. It is also helpful to the vendor for creating an invoice.

2. Vendor Approval

If the vendor is ok with the purchase order then the vendor will send an acknowledgment to the client. If the vendor wants to make some changes in the purchase order then the vendor will communicate with the client and then acknowledge it.

3. Purchase Recorded & PO Dispatch

When the vendor & client agree on a term that is known as a binding contract. After that, the vendor will dispatch the purchase order. Both parties will record the data.

4. Payment Approval

When a product is received then a Good Received Note (GRN) is sent to the vendor. At last, payment is done to the vendor.

What Is Purchase Order Management?

Purchase order management is an internal process of an organization for managing purchase orders. It ensures that the only required purchase is done, not unnecessary. It makes employees productive and ensures that the cost is justified. Several organizations have a well-designed and established department for the same.

However, the steps of the purchase order process that are shown above might vary from one organization to another organization.

How Does Purchase Order Management Software Help?

Purchase Order Management Software Provides Several Benefits:

1. Real-Time Monitoring

With Purchase Order Management, You Can Have a Look at Progress in Real-Time. This Feature Helps in Streamlining Purchase Orders. It Keeps Track of Purchasing and Alerts Whenever Any Update Occurs.

2. Purchase Order Management

From Tracking Purchase Requisition to Creating Purchasing Orders. This Software Has an Automated Form and Saves the Time of Employees as They Don't Have to Search Form Online. This Software Simplifies the Process and Keeps the Important Person in the Loop. The Manager Can Keep Track of Each Purchase Order.

3. Invoice & Bill Management

To Increase the Speed of the Procedure There Are Templates Provided. More Importantly, It Decreases the Usage of Paper Methods Which Are Prone to Human Error. This Software Also Keeps Track of Payment & Billing So It Notifies in Advance About the Same.

4. Vendor Management

This Software Can Integrate All the Information and Documentation Related to the Supplier. This Software Allows You to See the Performance of the Vendor. You Can Also See Reviews & Ratings of the Vendor.

5. Data Security

This Software Is Cloud-Based So You Do Not Have to Worry About Data Security. All You Have to Know Data Security Is Not Your Responsibility. It Does Not Matter How Sensitive & Classified Your Data Is, It Will Be Secured and Kept in an Encrypted Way.

Conclusion

It is important to keep track of expenses and this software helps control expenses. It eliminates the manual process so it reduces the fraud probability. Procurement & purchase order is mostly ignored by employees and nobody notices.

But they are significant for the organization and they are not cared for properly otherwise it can impact the bottom line of the organization. Asset management software can handle the procurement and purchase order process.

Frequently Asked Questions (FAQs)

What is a purchase requisition?‍

A purchase requisition is a document where an employee or department has some request to do office work. Then the employee sends the request to a manager then the manager approves then the request moves to the requisitioning department once they approve, the purchasing process begins.  

What are the 3 main documents used in the purchasing process?‍

The 3 main documents used in the purchasing process are Request for Information (RFI), Request for Proposal (RFP), and Request for Quotation (RFQ). Each one of them has a different aim.  

What is GRN?‍

GRN stands for Good Received Note. It means that goods have been received from the supplier. GRN is important for the procurement department.