by ProcureDeskLast Updated : Jan-10-2020
Looking for purchase order management software?
There are 100’s of options to choose from.
So what purchase order system is right for you?
Are you confused about what system is right for you?
If you are a small business, you have a limited budget and resources, so not all solutions will fit the bill, and you probably don’t have time to evaluate all available options.
This article will provide a step-by-step process to help you select a simple purchase order software for your business. Read this before you start requesting demos from vendors.
This article is for financial leaders at the small business, so if you are an enterprise company (>500 employees), the principle applies to you. Still, the selection process would look very different.
Curious, if ProcureDesk is the best purchase order management software for your small business? Well, schedule a demo and find out in 30 minutes or less.
Table of Contents
A purchase order management software automates and manager the complete PO life-cycle. It automates the manual tasks of creating and approving purchase orders.
It automates the purchase order process by providing an easy way for employees to create purchase order requests, route the request for approvals and then dispatch the purchase order to the vendor.
In a nutshell, purchase order management software automates procurement activities.
We use the words Software and System interchangeable, but they mean the same thing for this context.
Before we move forward with defining the scope of the automation of your purchasing process, let’s look at the key objectives and benefits of automation. It is important to identify the objectives because that would drive the requirements and help you justify the investment in automation.
ProcureDesk has worked with hundreds of companies, and the objectives for automation generally fall in 3 areas.
As companies start growing, a common concern among CFO’s and owners is that is they lack a cost control framework. They are often concerned about going over budget.
A common mechanism deployed to prevent going over budget is to have senior management approve all purchase requisitions. That is not feasible because it takes a lot of senior management time.
Nobody likes to spend a considerable amount of their daily hours approving requisitions!
Another common scenario is that 80%+ of your purchases are on credit cards. There is no pre-authorization of Spend, and that leads to budget surprises.
So if you are struggling with cost control, your objective should be to implement a cost control framework that frees up management time and drives accountability for mid-management.
Spend visibility means having granular insights into your Spend. If you have better spend visibility, you will make better investment decisions.
For example, you did a quick General ledger analysis and noticed that you are spending $1M per month on marketing.
Is this $1M on ads, content creation, agency fees?
Let’s say if you knew that out of $1M, $200K is on online ads. Then you can ask specific questions on how online ads contribute to lead generation goals.
Sometimes it is not a decision-making question; you probably don’t want to wait for the invoice to show up for accruing the expenses.
So if you have advance visibility into purchase requests, that data can be used for accruing expenses.
This is probably the most common objective for the automation of the process. As companies grow, they realize the pain of disjointed purchase authorization and the invoice reconciliation process.
This results in a lot of back on forth in trying to understand who approved the purchase and who should approve the invoice.
So the objective should be the automation of the end-to-end purchase-to-pay process so that you have an integrated purchase and invoicing process.
Based on the objectives you have defined above, the purchase order software can fall into two categories.
We will use purchase order software, purchase order management software, and purchasing software interchangeably.
Purchase order management software or procure-to-pay (a.k.a P2P) automation?
Let’s look at a high-level difference between the two categories.
The purchase order software focuses on automating the purchasing process.
The basic assumption in this scenario is that the invoicing and matching process is in the ERP/ Accounting system.
So, for example, if you are using QuickBooks for accounting, employees would create purchase orders in the purchasing system, but the AP team would still key the invoices in the A/P system.
What to expect?
With purchase order software, your end state would look something like this:
1. Users can create requisitions with ease. They can either create requisitions by entering data or simply with a few clicks using catalogs (more on this later.)
2. You have complete Spend control, and all purchase requests get approved as per your purchasing policy. No more month-end surprises!
3. Your approvers can approve requisitions on the go using a mobile app. End users are not frustrated because they have to follow up with the stakeholders to approve their requisitions.
1. This approach is simple to implement, takes less time, and costs you less money.
2. You need to work with fewer stakeholders to get buy-in because the scope is limited to purchasing.
3. The training is more straightforward because you train fewer people for the new purchase order management process.
1. Invoices still need to be entered manually in the ERP or accounting system.
2. You still need to match the invoices manually with the Purchase order system.
3. The invoice approval workflow needs to be managed manually or implement a different process for managing invoice exceptions and approvals.
Procure-to-pay software allows you to automate the purchasing process and helps you with streamlining the supplier invoice process.
With procure-to-pay software, you get an integrated purchase order and invoicing process in one single system, increasing the end-to-end purchasing cycle efficiency.
The procure-to-pay system would then send the invoice to the accounting system for booking the cost and paying the vendors.
What to expect?
In addition to the efficiency gains we mentioned above, you can expect the following additional benefits:
1. The supplier invoices are captured using different channels. You finally achieved the paperless invoicing goal!
2. The invoices get matched with the Purchase orders and receipts. You have peace of mind because there is no compliance risk.
3. Invoice exceptions are routed to the different stakeholders. The AP team doesn’t have to chase approvers to get invoices approved.
4. Bills get created in your accounting system automatically. The AP team doesn’t have to spend time entering invoices in your accounting system.
1. You gain better efficiencies because the entire purchase-to-pay process is automated.
2. There is less compliance risk because an automated process drives compliance.
3. You can process invoices faster and capture more early payment discounts.
1. Takes more time to implement since you need to automate the whole process.
2. The decision time might increase if the number of stakeholders involved in decision-making increases.
3. It could cost more because of the added procure-to-pay features.
You defined your key objectives and decided on whether you needed to purchase order automation or procure to pay automation.
Now let’s look at some of the critical features of each software category.
Purchase requisitions allow an employee to request a product or service.
Employees create a request from catalogs or just type in what they are looking for and then submit the request for approval.
The typical flow is that a requisition gets routed for approval, and once it is approved, a purchase order gets issued to the vendor.
In our experience, a purchase requisition only makes sense in the following scenarios.
If you don’t have a procurement team, you are probably better off just implementing the purchase order process. You can still set up different workflow conditions to meet your compliance requirements.
The main benefit of directly using purchase orders is that it significantly reduces the cycle time. You don’t have the additional step of converting a requisition into a purchase order.
If you review your purchase transactions, you will notice that 40-50% of items are repeat purchases.
So instead of having the users enter the data, again and again, why not create a catalog of these items so that it is easier to create requisitions or purchase orders for repeat purchases.
Catalogs are not only helpful for reducing the time spent on creating requisitions, but it also has some additional benefits.
Catalogs are helpful but one of the biggest drawbacks is that you still need to maintain vendor catalogs.
Now if you have a large spread of items being purchased, this could be full-time work for buyers. Let’s say you want to build a catalog for Amazon.com purchases – first, the number of items is huge, and then the price keeps on changing.
That is where Punchout catalogs make more sense.
A punchout is a catalog that is managed by the supplier. So instead of maintaining the catalog yourself, the purchasing system links to the catalog and pulls the items and pricing as needed.
Let’s continue with the Amazon.com example. ProcureDesk supports integration with Amazon.com so that you don’t have to maintain the catalog yourself.
The added advantage is that all purchases are still routed for internal approvals before the order is placed with the supplier.
So you get the best of both worlds, an awesome purchasing experience, and an added compliance for purchases.
If your main objective of purchasing automation is cost control, then purchase order approval is a key feature.
With purchase approval, you can easily route the requisitions for approval so that they are authorized before you place the order with the supplier.
Setting up cost controls is easier than you think. Schedule a demo and find out in 30 minutes or less.
For cost control, you want to design a purchase approval process so that you can control the majority of spend but you are not becoming a bottleneck for the process. You should be able to set up different approval limits for different user groups.
Common examples of the purchase approval process include.
Don’t worry about handling each and every scenario – Focus on 80% of the spend which should be covered by not more than 20% of the transactions.
Avoid setting up complex purchasing workflows for approvals. The system should support custom rules or custom approval workflows but try to keep it simple.
It should be easy to explain and easy to follow.
There are two types of purchase orders.
Standard and Blanket purchase orders. Blanket orders are recommended for service purchases or bulk purchases where the quantity for each order is not known in advance.
To make the approval process easier, we recommend that for repeat purchases, you can create blanket orders.
5. Purchase order creation and dispatch
Once the requisition is approved, a purchase order needs to be sent to the supplier. So this functionality focuses on converting a requisition into a purchase order.
If you are using requisitions, then the purchase order doesn’t need any additional approvals.
You could have a fully automated process where the purchase requisition is automatically converted into a purchase order template without any further review or approval.
The PO system should be flexible to support different PO templates. With custom PO templates you can customize the look and feel of the purchase order.
Alternatively, you could have a review process whereby each requisition is reviewed and then manually converted into a purchase order.
Your purchasing system should support multiple PO transmission methods so that you can achieve maximum efficiency.
Each supplier might have a different PO process requirement based on the sophistication of their sales order process. Some of the common ways to send the PO to the supplier are
As we mentioned earlier, if you are a small team then you might as well use purchase order functionality directly without creating requisitions.
The most common question of employees to buyers is that when their order would be delivered.
So it is essential to have order tracking capabilities within the purchasing tool so that the requesters can track their orders without calling people.
From an order tracking standpoint, the following functionality is important
1. Ability to see order acknowledgment from the vendors.
2. Of course, that means that the vendors should be able to self-acknowledge the order without calling the requester.
3. When the order ships, the user should be able to get a notification of the order along with tracking information.
Accounts payable teams spend considerable time chasing people to know whether the material has been received so that they can post the invoice. No one likes chasing invoice approvals.
The solution is easy, you can request a receipt to be created in the system so that you know when the product has been received and invoiced is ready to pay.
The challenge is most end users hate to create receipts, they receive the product and that is the end of the transaction for them.
So to ensure that the users are creating the receipts, the system should
Reporting is important for two reasons
Your purchasing system should be able to provide standard reports. Some of the common reports are discussed below
With inventory management, you can keep an accurate stock of what you have in your warehouse.
With effective warehouse management, you can track stock at multiple locations and easily release stocked items to employees.
Typical functionality includes maintaining min-max levels so that you can maintain adequate stock levels You should also be able to track on-hand inventory levels across different locations.
As we mentioned above that based on your objectives you could implement purchase order automation software or a procure to pay software. In Procure to Pay (P2P), we will cover the additional features you would need from an AP team perspective.
The first thing you need is the ability to capture supplier invoices and have them imported into the system. Your goal should be to achieve a complete paperless invoicing environment.
To get the most of the invoice capture, you need to find your optimum Supplier-Channel fit.
In other words, find the method which works best for your supplier and then use that to accept electronic invoices from them.
Some of the common channels for capturing the invoices are as follows
Accounts Payable (AP) teams spend a lot of time matching invoices with their respective purchase orders (assuming you have one).
So the next thing you would need is an exception matching process that identifies the exceptions, decides how to route the invoice for review, and routes it for approval.
There are two types of invoice matching process
3-way match – As the name suggests, in this process, you match the purchase order, invoice, and receipt to identify any discrepancies. If the invoice matches the quantity and price and it has been received then the system automatically marks the invoice as “Approved for Payment”.
2-way match – If you are purchasing a service, then you are not physically receiving a product. In this case, you are matching the purchase order and invoice and hence the process is called “2-way match”.
In both cases, you want to have the flexibility to define a range in which the invoice exception should be auto accepted by the system so that every exception is not routed for approval.
Next, you would need the capability to route exceptions for approval. Most systems have the ability for the AP team to review the invoice and then send it to the right person for approval.
However, if this is a manual process, then you still spending time routing exceptions.
An alternative approach is to define a workflow and let the system automatically route the exceptions for approval.
Here are some examples of possible rules which can help you simplify the exception review process
Again, these are just examples of exception reviews. The goal should be to automate as much as possible and reduce manual effort.
Your chosen system should be able to report on the invoices so that you understand the efficiency and effectiveness of the process.
Some common reports are as follows
1. A report which lists all invoices that are in exception review. You can then use this report to follow up with the respective individuals.
2. Received but not invoiced – this report is very helpful from an accounting accruals perspective.
3. Invoiced but not received – Similar to the above report, this report helps the accounting team in calculating the accruals for expenses. Generally, if a receipt is not available, the invoice is not posted and hence the need for accrual.
One of the important factors in selecting a purchase order system is to understand the need for ongoing maintenance.
A cloud-based solution is easy to manage because it is managed and supported by the vendor.
The ongoing maintenance and support considerations are as follows
1. How easy is the system for both end-users and administrators? Can users complete a standard requisition or purchase order without the need for a help manual?
2. Can you make the configuration changes on your own without raising a support ticket?
3. If you have to raise a support ticket, how responsive is the support team?
4. How long does it take for the support ticket to be resolved?
5. How the vendor gathers customer feedback and incorporates that into the product roadmap.
6. Is the vendor transparent about its product roadmap?
7. How often the vendor releases new features. Ask for the release schedule. Is the release monthly, weekly, or every quarter.
We recommend that you rate your shortlisted vendors based on the above parameters. A simple scale of 1-5 can be used where 1 is the lowest rating and 5 is the highest rating.
The next consideration in the evaluation process is the ease of integration with your accounting system.
Whether you use QuickBooks, Sage, or Netsuite – the system should be able to seamlessly connect with your accounting system.
We also see our customers use Bill.com or similar payment platforms for invoice payments. So your selected system should integrate with the payment platforms too.
Some considerations on integration
1. Does the system allow you to integrate both the purchase orders and invoices with the accounting system? That gives you the flexibility to implement just the purchase order automation or the entire purchase-to-pay process.
2. Is the integration process seamless or there is a manual setup or development process required? You don’t want to maintain custom integrations because that increases the workload for your team.
3. How well does the system integrate with other payment platforms? If it is easier to implement, then that gives you the flexibility to design your processes
Even though there are multiple options available in the market, you can easily find the best purchase order management software by following these simple steps
1. Identify the objectives for automation. That drives scoping and features requirements.
2. Create a high-level scope for automation. For example, purchase order automation or purchase order and invoice automation.
3. Create a shortlist of features you would need based on the scope.
4. Shortlist 2-3 vendors and use the feature map to evaluate those vendors.
5. Finally, review support and ongoing innovation vendor is providing to ensure that the vendor remains viable in the long term.
What you should do now
Whenever you’re ready… here are 4 ways we can help you scale your purchasing and Accounts payable process.