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    How to Select a Simple Purchase Order Management Software for Your Business

    • By ProcureDesk
    • December 17,2023
    • 10 min read

    How to Select a Simple Purchase Order Management Software for Your Business

    purchase order management

    Having a messy, inefficient, and error-prone purchase order management process is no fun at all.

    Not only do you waste time and resources, but also suffer increased costs, lack of control and visibility over your spending, and even cost you your relationships with your suppliers.

    To solve all of this, you need an efficient purchase order management strategy to help you out.

    In this blog, we’re going to talk about:
    1. Why is a purchase order management important?
    2. How does a purchase order management benefit your business?
    3. How do you choose the right purchase order management system for you?

    If you’re ready to improve your procurement processes, check out how our tool, ProcureDesk, can be the solution you need. Our team of experts is here to guide you through its features Click here to see it in action

    Let’s dive in!

    What Is A Purchase Order Management?

    Purchase order management is about efficiently controlling how your business handles purchasing goods and services.

    It covers everything from start to finish of the purchase order management process, from creating purchase orders (POs) for needed items to sending them to suppliers, tracking deliveries and invoices, and finally making payments.

    To make this process clearer for you, here’s a breakdown of the key aspects of purchase order management:

    Creating And Sending Purchase Orders

    Purchase order management involves being specific with the items ordered. In this aspect, your procurement team needs the correct information, such as quantities, prices, delivery dates, payment terms, and other important information.

    Purchase orders usually go through an approval workflow before being sent to vendors.

    Tracking Purchase Orders And Deliveries

    When an order is sent out, your purchase order management system will keep track of the status. This includes updates such as if it’s already been accepted by the vendor, when it’s expected to arrive, and other potential delays that may come along the way.

    Matching Invoices And Payments

    Once the item arrives, these are checked against the PO. This makes sure that all information matches. Invoices are processed and verified before payment is made. This is to ensure accuracy and prevent overspending.

    Reporting And Analysis

    Did you know that a good purchase order management system can provide you with insights? For example, buying habits.

    Data like these will help your procurement team identify cost-saving opportunities, make better negotiations with vendors, and help you manage your inventory levels better.

    Why Is Purchase Order Management Important?

    No matter the size of your business, you need to have solid purchase order management in place for your business.

    Let’s briefly discuss how purchase order management can build a more effective purchase process for your organization:

    • It streamlines your procurement process: Purchase orders act as official documents to ensure everyone involved in the transaction agrees on all the information (items, quantities, prices, delivery timelines.) With good purchase order management, you can automate workflows and set up a dedicated system to avoid the usual errors a manual purchase would make.
    • It helps you control costs and boost budget management: A digital purchase is more monitored with procurement software and purchase order management in place.Your system can track orders and costs, giving your team real-time insights into spending patterns. As a result, it becomes easier for you to forecast your future expenses.
    • It improves relationships with your supplier: Clear and accurate purchase order management builds trust with your suppliers, as you can keep the transparency and communication with them. Certainly, timely orders and payments will always foster trust and positive relationships with your vendors.
    • It helps your business scale and grow better: As your business grows, so do the volume and complexities of the orders you handle. But with a digital solution by your side, it becomes easier to monitor orders and operate your supply chain.

    How Does Purchase Order Management Work?

    Do you know that there’s a process for purchase order management?

    Typically, it follows a cyclical process that involves key steps. Remember that these may vary depending on the complexity and size of your business.

    Let’s cover the general overview of how purchase order management works.

    Identify The Need To Generate A Purchase Requisition

    Employees in your company’s department should identify the goods and services they need.

    Once the needs are identified, a formal purchase requisition (PR) is created, showing the required items’ details, estimated costs, and the reason for purchase.

    Get An Approval, Select Vendors

    The PR is then sent for approval, which may involve managers or finance teams within your company.

    Once approved, your purchasing department researches options and compares quotes from various vendors.

    Create And Send Purchase Orders

    Once the vendor has been chosen, a formal purchase order (PO) is made. The PO should indicate important details such as:

    • Item description and quantities
    • Unit prices and total cost
    • Delivery timeline and location
    • Payment terms and conditions
    • Contact information for both parties

    Track Orders And Deliveries

    Your purchase order system then tracks the status of the order, including updates on the following:

    • Vendor acceptance or rejection
    • Production and shipping progress
    • Estimated delivery date

    Receive Goods And Matching Invoices

    Once the goods arrive, it’s inspected to make sure they match the PO specifications (quantity, condition, etc.)

    But what if there are any discrepancies documented?

    If this happens, your team should communicate with the vendor to resolve this issue.

    This step matches the vendor’s invoice against the PO to ensure accuracy before payment is processed.

    Payment And Record-Keeping

    In this step, your company pays your vendor based on the terms seen in the PO.

    Documents related to the PO, which includes PR, vendor quotes, and any communication records, should be archived and kept for future audits.

    Reporting And Analytics

    Lastly, purchase order data is analyzed for insights into spending patterns, supplier performance, and inventory levels.

    You can use this information to identify areas for cost savings, negotiate better deals with vendors, and improve your overall procurement efficiency.

    What Is Purchase Order Management Software?

    Purchase order management software is a tool that automates and manages the complete PO life cycle.

    This can automate the manual tasks of creating and approving purchase orders.

    How does it do it?

    Well, it simply automates the purchase order process by providing an easy way for employees to make purchase order requests, route the request for approval, and easily dispatch the purchase order to the vendor.

    A purchase order management system makes automating your company’s procurement activities easier!

    What Are The Benefits Of A Purchase Order Management System?

    We use Software and System interchangeably, but they mean the same thing in 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 into 3 areas.

    Cost Control

    As companies start growing, a common concern among CFOs and owners is that they lack a cost control framework. They are often concerned about going over budget.

    A common mechanism deployed to prevent over budget is having 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.

    Better Spend Visibility

    Spend visibility means having granular insights into your Spend. If you have better spending visibility, you will make better investment decisions.

    For example, you did a quick General ledger analysis and noticed you are spending $1M monthly on marketing.

    Is this $1M on ads, content creation, and agency fees?

    Let’s say 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.

    Purchasing Process Automation

    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 understanding who approved the purchase and who should approve the invoice.

    So, the objective should be automating the end-to-end purchase-to-pay process to have an integrated purchase and invoicing process.

    Best Practices for Optimizing the Purchase Order Management Process

    You can implement many ways to optimize your purchase order management processes the right way.

    Once you do, you’re company will be well on your way to enjoying benefits like cost savings, better efficiency, and stronger supplier relationships.

    Here are some best practices that you need to consider:

    Centralize And Automate Your Processes

    One good way to optimize your purchase order management process is by implementing a dedicated purchase order management system (PO system) in your company.

    Manual processes and spreadsheets won’t do you good. With an automated system, you can automate many manual tasks and even reduce common human errors.

    If you want to explore a software solution, you might want to check out our tool, ProcureDesk. Our team of experts can walk you through how our tool works. Click here to see it in action

    Standardize And Streamline

    For your purchase order management to be successful, you must stay consistent.

    Have clear purchase order templates and define your approval workflows. When you set clear and efficient approval processes, it becomes easier to manage your supply chain.

    Take Advantage Of Technology And Data

    We live in a digital age filled with digital solutions that can help improve how you do things in your company.

    Why not take advantage of it?

    Using technology, you can:

    • Automate sending and receiving PO’s
    • Track and analyze purchase order data to see trends and cost-saving opportunities
    • Get deeper insights into your company’s spending patterns

    Doing this makes it easier to make impactful decisions for your procurement in the long run.

    Improve Communication Within Your Team

    Communication is key in any team. You need to ensure everyone in your procurement department is on the same page regarding your procurement process.

    People need to understand the steps to your procurement processes and even the role they play in the process.

    Purchase Order Software Or Procure To Pay Automation

    Based on the objectives you have defined above, the purchase order software can fall into two categories.

    We will interchangeably use purchase order software, purchase order management software, and purchasing software.

    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.

    Purchase Order Software

    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 are approved 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 must follow up with the stakeholders to approve their requisitions.

    Pros

    1. This approach is simple to implement, takes less time, and costs 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.

    Cons

    1. Invoices need to be manually entered in the ERP or accounting system.

    2. You must still 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

    Procure-to-pay software allows you to automate the purchasing process and helps you streamline the supplier invoice process.

    With procure-to-pay software, you get an integrated purchase order and invoicing process in one system, increasing the efficiency of the end-to-end purchasing cycle.

    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 time to enter invoices in your accounting system.

    Pros

    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.

    Cons

    1. Takes more time to implement since you need to automate the whole process.

    2. The decision time might increase if the involvement of stakeholders increases.

    3. It could cost more because of the added procure-to-pay features.

    Key Features To Look For In A Purchase Order Management Software

    You defined your key objectives and decided whether to purchase order automation or procure to pay automation.

    Now, let’s look at some of the critical features of each software category.

    Purchase Request

    Purchase requisitions allow an employee to request a product or service.

    Employees create a request from catalogs or 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 a purchase order gets issued to the vendor once approved.

    In our experience, a purchase requisition only makes sense in the following scenarios.

    • A procurement team needs to review the requisition and decide whether to get additional quotes before purchase.
    • The finance team must review the purchase for accounting and other budget details.

    If you don’t have a procurement team, you are probably better off 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 significantly reducing the cycle time. You don’t have the additional step of converting a requisition into a purchase order.

    Related: Purchase Order Vs. Invoice: Understanding The Key Differences

    Catalogs For Repeat Purchase

    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 repeatedly, why not create a catalog of these items so that it is easier to create requisitions or purchase orders for repeat purchases?

    Supplier catalog

    Catalogs are not only helpful for reducing the time spent on creating requisitions, but they also have some additional benefits.

    1. Since the items are in the catalog, it is easy for the users to find the product they want to purchase. So, if you have a preferred vendor for specific categories, catalogs would help you route more Spending through preferred vendors.
    2. It provides a user-friendly interface, an experience similar to online shopping.
    3. Since the items are purchased from preferred vendors and at the preferred price, you could automate the workflow for certain small items. For example, all office supplies orders under $100 don’t need approval.

    Punchout Catalogs

    Punchout-catalog

    Catalogs are helpful, but one of the biggest drawbacks is that you still need to maintain vendor catalogs.

    Now, if you have many 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 changing.

    That is where Punchout catalogs make more sense.

    A punchout is a catalog that the supplier manages. 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 you don’t have to maintain the catalog.

    The added advantage is that all purchases are routed for internal approvals before placing the order with the supplier.

    So you get the best of both worlds: an awesome purchasing experience and added purchase compliance.

    Purchase Order Workflow And Approvals

    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 to be authorized before you place the order with the supplier.

    approval_workflow_purchase_order

    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 are not becoming a bottleneck. You should be able to set up different approval limits for different user groups.

    Common examples of the purchase approval process include.

    1. Purchase authorization is based on the dollar amount.
    2. Purchase authorization based on the purchase category. For example, Information Technology.
    3. Purchase authorization based on the department and business units.
    4. Purchase authorization by the owner of the budget if the items exceed a certain threshold.

    Don’t worry about handling 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 approval workflows but keep it simple.

    It should be easy to explain and easy to follow.

    There are two types when it comes to purchase orders:

    Standard and Blanket purchase orders. Blanket orders are recommended for service 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.

    Purchase Order Creation And Dispatch

    Once the requisition is approved, a purchase order must be sent to the supplier. So, this functionality focuses on converting a requisition into a purchase order.

    If you are using requisitions, the purchase order doesn’t need additional approvals.

    You could have a fully automated process where the purchase requisition is automatically converted into a purchase order template without 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 to 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

    1. EDI – Electronic Data Interchange
    2. cXML – Common Extensible Markup Language
    3. Emails

    As we mentioned earlier, if you are a small team, then you might as well use purchase order functionality directly without creating requisitions.

    Related: Purchase Requisition Vs Purchase Ordere

    Tracking Orders

    The most common question of employees to buyers is when their order will be delivered.

    So, it is essential to have order-tracking capabilities within the 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. 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.

    Receipt Tracking For Purchase Orders

    AP 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 to know when the product has been received and invoiced is ready to pay.

    The challenge is that most end users hate to create receipts; they receive the product, which is the end of the transaction.

    So, to ensure that the users are creating the receipts, the system should

    1. Generate a request for a receipt when the order is delivered. For example, if you have an order tracking number and the status of the order changed to “Delivered” then that could be a trigger to generate the receipt.
    2. Make it easy so that the receipts can be created by answering a simple confirmation email.
    3. Send reminder emails if the receipt is not created in the first request.

    Reporting

    Reporting is important for two reasons

    1. It gives you visibility into the current process.
    2. It provides you with better Spending information, enabling better decision-making.

    Your purchasing system should be able to provide standard reports. Some of the common reports are discussed below.

    1. Supplier, category, department, etc, break down total spending.
    2. Ability to review line-level data and do a unit cost analysis.
    3. Reports for tracking orders that are not approved so that you can accrue the expenses correctly.
    4. Orders that are placed and have not been received so that you can follow up with the vendor.

    Inventory Management

    With inventory management, you can keep an accurate stock of what you have in your warehouse.

    Effective warehouse management allows you to track stock at multiple locations and easily release stocked items to employees.

    Typical functionality includes maintaining min-max levels to maintain adequate stock levels. You should also be able to track on-hand inventory levels across different locations.

    Key Features For Procure-To-Pay Software

    As mentioned above, you could implement purchase order automation software or procure-to-pay software based on your objectives. In Procure to Pay (P2P), we will cover the additional features you need from an AP team perspective.

    Invoice Capture

    The first thing you need is to capture supplier invoices and import them into the system. Your goal should be to achieve a complete paperless invoicing environment.

    Finding your optimum Supplier-Channel fit would be best to get the most out of the invoice capture.

    In other words, please find the best method 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

    1. Supplier portal where suppliers can log in to a company web portal and submit the invoices against the purchase orders.
    2. Email invoice capture by setting up a centralized email, for example, invoices@yourcompany.com
    3. Electronic data interchange (EDI) or cXML. This method is ideal for large-volume vendors like Amazon.com.

    Exception Matching Engine/ 3-Way Match

    Accounts Payable (AP) teams often match invoices with their respective purchase orders (assuming you have one).

    So, the next thing you 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, you match the purchase order, invoice, and receipt to identify any discrepancies in this process. If the invoice matches the quantity and price and has been received, the system automatically marks the invoice as “Approved for Payment.”
    • 2-way match – If you purchase a service, you are not physically receiving a product. In this case, you match the purchase order and invoice; the process is called a “2-way match”.

    In both cases, you want 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.

    Approval Workflow For Exception Management

    Next, you would need the capability to route exceptions for approval. In most systems, the AP team reviews the invoice and then sends it to the right person for approval.

    However, if this is a manual, you still spend 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

    1. If the unit price doesn’t match, send it to the buyer for resolution.
    2. If the quantity exceeds the receipt quantity, send it to the supplier for review.
    3. For cases where a receipt is not available, please send it to the buyer to create the receipt.

    Again, these are just examples of exception reviews. The goal should be to automate as much as possible and reduce manual effort.

    Reporting

    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 calculate expense accruals. Generally, the invoice is not posted if a receipt is unavailable, hence the need for accrual.

    On-going Changes And Support

    One of the important factors in selecting a purchase order system is understanding the need for ongoing maintenance.

    A cloud-based solution is easy to manage because the vendor manages and supports it.

    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 needing a help manual?

    2. Can you make the configuration changes independently 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 does the vendor release 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 and 5 is the highest.

    Integration With QuickBooks Or Any Other System

    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 connect with your accounting system seamlessly.

    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 purchase orders and invoices with the accounting system? That allows you to implement the purchase order automation or the entire purchase-to-pay process.

    2. Is the integration process seamless, or 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

    The Bottomline

    Even though multiple options are 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 need based on the scope.

    4. Shortlist 2-3 vendors and use the feature map to evaluate those vendors.

    5. Finally, review the vendor’s support and ongoing innovation 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.

    1. Claim your Free Strategy Session. If you’d like to work with us to implement a process to control spending, and spend less time matching invoices, claim your Free Strategy Session. One of our process experts will understand your current purchasing situation and then suggest practical strategies to reduce the purchase order approval cycle.
    2. If you’d like to know the maturity of your purchasing process, download our purchasing process grader and identify exactly what you should be working on next to improve your purchasing and AP process.
    3. If you’d like to enhance your knowledge about the purchasing process, check out our blog or Resources section.
    4. If you know another professional who’d enjoy reading this page, share it with them via email, Linkedin, Twitter.