by ProcureDeskLast Updated : Jan-12-2023
By implementing an Electronic purchase order, you can cut the time spent on processing purchase orders by up to 50%.
Here are the typical results of our clients who have moved from a paper-based purchase order process to an Electronic purchase order system:
In this article, we are going to show you a step-by-step process on how to implement an electronic purchase order system. Specifically as a buyer:
But before you get started
And then, follow along to see how to use this checklist to implement an electronic purchase order system.
An electronic purchase order system automates the time-consuming purchasing process.
The purchasing process starts from a requisition or request for purchase to issuing the purchase order to the vendor.
A digital purchase order system automates your manual purchasing process. It provides you with a better process for purchase order management. Aside from that, it only uses electronic documents to ensure your transactions are paperless.
If you use emails and spreadsheet templates to create purchase orders, an electronic purchase order can significantly reduce the time it takes to issue a purchase order.
An electronic or digital purchase order system generally covers the following processes:
Wondering why you need a purchase order system?
By investing in a purchase order system, our clients have seen the following benefits:
If you are concerned about controlling costs, then a purchase order system provides a mechanism to proactively give you complete control of your cost within the organization.
With a purchase order system:
A purchase order system reduces the overall cycle time because it gives conditional formatting tailored fit for your business compared to a traditional purchase.
Our clients who utilize purchase order automation software achieve an average approval cycle of 30 minutes.
This cycle time assumes the total time it takes for the purchasing team to approve the requisition.
Because the purchase order system makes it easier to approve the purchase order request and even gain vendor details, the request gets approved faster.
We have worked with clients where it used to take days to get the request approved.
It was simply a case of employees assigned to core purchasing operations getting too many emails daily and the approval requests getting lost in the sea of emails.
The average cost of issuing a purchase order can easily go up to $500 per purchase order.
The cost generally includes the following
Our studies found the purchase order cost to be close to $60/purchase order.
So if you send 100 purchase orders a month, that is an average cost of $6,000.
You can reduce this cost to $3,000/month with an automated purchase order process.
A purchase order system helps you see all your spending in a bird’s eye view in a central location. Thus, bringing your company better cash flow planning.
Take note that the greatest advantage from a cash flow perspective is the ability of your team to review your data and even negotiate terms with your suppliers. that work best for your business
For example, if you are paying invoices on receipt, you could ask for payment terms like Net 30 or Net 60 and reduce the cash flow needed at any time.
Ready to implement an electronic purchase order system?
Great, read on for a step-by-step process for purchase order automation.
And yes, you can do that in 7.5 business days!
There is no fun in finding an awesome product to automate the purchase order system and later having it shot down by your Boss!
Unless you are the Boss 🙂
So we recommend that you build a business case for automation before you invest time in finding the best solution for your purchase order needs.
Here is a simple process to build a business case for implementing a purchasing order system:
All you need to know is the average purchase order volume.
Let’s say you create around 100 purchase orders monthly that is 1200 per year.
Total POs per year: 1200
Cost per PO: $60
If you want to calculate your own cost, here is the detailed process for calculating the purchase order cost.
The total annual cost for purchase orders: $60 x 1200 = $72,000.
Now let’s say that you can reduce the cost by half by implementing a purchase order
So the new annual cost is $36,000 or $36,000 annual cost savings.
Cost of the purchase order system:
The purchase order system costs $500/month or $6,000/year.
So with an investment of $6,000, you can save $36,000 per year.
Return on Investment = $36,000/$6,000 = 600%
You can make this more complicated, but if you are a small company, that is all the math you need to build a business case for procurement automation.
The next step is to find the best purchase order system with the best user interface and key features that will fit your organization.
You don’t need 10 demos from 10 different vendors. But list the top 3-4 solutions you would like to see.
If you are curious if ProcureDesk is the right solution, Just click here to schedule the demo.
I would suggest documenting high-level use cases so that they easily screen solutions. Here are some sample use cases for an electronic purchase order system:
Now you have selected a system, let’s talk about the basic configurations of your centralized access. We will use ProcureDesk as an example, but you can follow this process with any system you choose.
The first thing to do is to connect your purchase order system to your accounting system so that you can pull all the master data required while creating transactions. This will give you quick access to your audit trail.
For example: Let’s say you use QuickBooks as your accounting system and use ProcureDesk for an electronic purchase order system.
You can connect to QuickBooks Online or QuickBooks Enterprise in a few clicks.
Here is an example of how easy it is to connect to QuickBooks:
After you have connected the purchasing system, import the following or the equivalent of the following data from your accounting system
Once this data is available, you can move to the next step.
For most organizations, a key objective for setting up an electronic purchase order system, besides improving supplier relationships and boosting supplier management, is controlling spending.
To control spending, you must define who can approve up to what amount in your organization.
Here is a sample approval matrix:
There are two different strategic initiatives for setting up an approval matrix.
You either set it for maximum accountability or you set it up for maximum control to implement user-specific permissions. Here is what we mean here:
If the senior management wants to see every step in the process, then the approval matrix is set for maximum control. More accountability will be set for your mid-management level if they have more authority in the approval process.
You have shifted the accountability within this processing time down to the managers instead of control being with one person.
Our recommendation is always to shift the accountability to mid-management. Leverage the 80-20 principle to focus on only large transactions contributing up to 80% of spending.
Next, let’s set up the workflow.
You can now decide how your approvals will work based on the combination of your approval matrix and other factors.
For example, if you want to send it to the manager for approval, then here is a simple workflow:
However, if you want to set up approvals based on the amount and then route them to different individuals, then the workflow could look something like this:
Next, configure the PO template so that you can control what gets printed on the purchase order and what the purchase order would look like.
The idea is not to ensure that all data you need to send to the supplier is printed on the purchase order.
For example, Item name, description, Unit price, etc.
Here is an example of a purchase order template:
This is one of many pre-configured templates available with ProcureDesk, so you can choose the best templates.
Catalogs make the purchasing process easier.
To see the step-by-step process, read more vendor catalogs here.
When it comes to deciding on your catalog strategy, there are two things to consider:
Internal catalogs are catalogs that are set up and managed by you.
Internal catalogs make sense when you only purchase a limited set of items from a vendor, and the pricing is fixed for a certain amount of time. For example, the price is revised every 6 months.
Here is an example of how the internal catalog works:
With a punchout catalog, the vendor provides you with a link to their website. The website account is unique to you because that is how the vendor recognizes your special pricing.
Ensure that your purchase order system partner supports you in getting these vendors onboarded. Otherwise, it could be quite a cumbersome process.
With a punchout catalog, your employees get the online shopping experience without the need for you to manage catalogs.
Here is an example of how an Amazon punchout would work:
It is the same experience as you would use Amazon.com for your purchases. The only noticeable difference is that it now has a “Submit for Approval” button.
This allows the request to be approved before Amazon processes the purchase order.
Punchouts are very effective for large vendors because you don’t have to worry about managing the catalog and dealing with pricing changes.
Even if you have automated the purchase order process, the Accounts payable team still needs to match the invoices with the purchase orders.
That could be quite a cumbersome online workflow.
We will not detail the complete accounts payable process here. Still, if you would like to reduce the time spent on processing invoices, you should consider implementing an integrated purchase order and invoice process.
With an integrated purchasing and invoicing system, you can automatically match the invoices with the purchase orders, skip Paper-Based Systems, identify any issues and then route it for approval.
If you are interested in learning more about the invoice match process and decreasing the risks of human errors, you can read more about it here:
By implementing an Accounts payable automation tool, a purchase order system, and digital forms, you can reduce the time spent on processing invoices by up to 35%.
You have set up the approval chain and catalogs. The next step is to test the system and then go live.
Here is what we recommend:
Before you roll out the product to the entire procurement team, test the key scenarios.
Are all workflow scenarios configured properly?
Or Does all levels of the approval tasks are being triggered as per the defined conditions?
You also want to test if the pricing on punch-out catalogs is correct. If the vendor provides discounted pricing, that should also be available on the punch out.
If you are building internal catalogs, check all the pricing and other relevant information.
And last but not least, make sure that supplier contacts are correctly loaded in the system.
One of the advantages of a purchase order system is that it can automatically send purchase orders to the vendors.
For that, you need to have the correct supplier information.
This step might only be applicable if you are rolling this to a large team. This step is not required if you are only a team of 3-4 people.
The idea of an authorized user champion is to ensure that you have representation of users in the design’s entire purchasing process.
That way, you don’t have to wait till you go live to figure out user issues. You can get real-time feedback, which can greatly help with adoption.
Next, conduct user training and go live with the product.
A few points on training:
The best purchase order system will not help if you don’t track adoption.
By tracking adoption, you can determine whether you would get the ROI from this solution.
Tracking metrics doesn’t need to be complicated; it can be as simple as the following:
So there you have it, a complete step-by-step process for implementing an electronic purchase order system.
By implementing an electronic purchase order system, our clients have seen the following benefits:
You can now build an electronic purchase order system using these steps for your financial processes or implement ProcureDesk, a purchase order software designed to help you automate the manual purchasing process. If you are curious how ProcureDesk can help you eliminate the manual purchase process, click here to schedule a demo with one of the product experts.
What you should do now
Whenever you’re ready… here are 4 ways we can help you scale your purchasing and Accounts payable process.