When it comes to a Purchase order system and its features, it is a buyers market.
Just do a quick search on google or see the listing on Capterra and so would see that there are 100’s of systems which are categorized in the purchasing system category. Each system provides a different set of functionality and of course, they are at a different price point.
So we are covering a list of must-have features for purchase order systems. We hope that this will help you decide on what systems and features are applicable in your scenario
There are a lot of steps involved in the purchase to pay process ( starting from requisition to paying the vendor) and depending upon your procure to pay use case, you probably would need a different set of capabilities.
To make things simple, we are providing this purchasing system features checklist so that you can check what applies to you and what system would be a good fit for you.
For each feature, we have described what it means and why you might need it. If you have a simple purchasing system use case, you might not need all the features.
Also, we haven’t covered the Invoicing features here since we consider that Accounts payable functionality.
What is a purchase order system?
A purchase order system automates the process of approval of purchase requisitions and the creation of the purchase order.
A purchase order is a commercial document which is a legal binding between a buyer and supplier. The document list what is being purchased, and the key terms for purchase which includes
• List of products purchased
• Price and quantity information.
• Key dates like delivery dates, order dates.
• Key commercial and legal terms.
At a very basic level, the purchase order system is helping you with the creation of a purchase order document.
A sample purchase order looks like the following
Even though a purchase order document is the final outcome of the purchasing process, there are multiple steps before and after the purchase order.
These steps are as follows
a) Creating a requisition for purchase
b) Requesting quotes from different suppliers.
c) Approval of the purchase requisition.
d) Submission of the order to the supplier.
Now let’s look at each individual feature of the purchase order system
1. Request & quote
In an ideal scenario, you have a preferred vendor for every product or service you purchase but that is not always the case.
So what happens when your employees need a certain product or service for which there is no preferred supplier?
Do your users go to the internet, find a vendor and place the order?
Or they reach out to a procurement team/buyer to ask for help on the purchase?
A request and quote module help you simplify the process for your end of users to request a new product and service and for the purchasing team to route the spend to the preferred vendors.
Here is what you should have in a request and quote module
1. The ability for the end users to request a new product or service. The basic assumption here is that users have the ability to easily search existing suppliers and the products or services they provide.
2. Users should be able to specify the details of what they are requesting, the more details they can enter, the easier it is for buyers to reach out to the vendors and get the quotes.
3. Employees should be able to submit a request with or without the supplier information.
4. Buyers should be able to send the request for a quote out to the suppliers.
5. Buyers should be able to compare the quotes and identify the preferred vendors.
6. In the end, when you have selected a preferred vendor, employees should be able to convert that quote into a purchase order.
Spend authorization or also commonly called purchase approvals allows companies to route the spend to the appropriate person for approval. This is called Spend authorization because it is approved before the spend actually happens.
For example, In the case of credit cards – that is not the case because the spend has already happened and it is approved post that through expense reports.
The purchasing tool should support a flexible workflow so that it is easier to route the spend to appropriate authorities.
A typical workflow should be based on the following factors
1. The most common scenario is the ability to route requisitions based on the amount of the purchase.
2. In some cases, the approval might also need to come from the finance team, so the system should have the flexibility to route the requisitions to the appropriate finance team.
3. In some cases, a category based approval workflow is more preferable. For example, all IT purchases must be reviewed by IT for compliance with standards, especially software purchase.
So in this case, you have two approvals – managerial approval which gives OK to approve spend and IT approval to ensure that the hardware or software is as per company standards.
Most of the companies want to enable an online shopping experience for corporate purchasing and catalogs is one way to provide that experience.
With the help of catalogs, the procurement team can provide an easy way for the employees to order commonly purchased items, for example, IT or office supplies.
Some companies are now actively using catalogs for services to make service purchasing easier for employees.
Catalogs are generally of two types
a ) Internally managed catalogs
As the name suggests, internally managed catalogs are managed by the purchasing team. The purchasing system should have an easier interface for creating catalogs. You should be able to easily edit existing items or create new items in the system.
Internal catalogs are ideal for suppliers where the spread of the items is limited to a few items.
b) Hosted by the suppliers
Hosted catalogs are managed by the suppliers. Hosted suppliers are also called Punchouts. The supplier manages the catalog for you with your preferred pricing.
The only challenge with hosted catalogs is your ability to audit price changes since the catalog is managed by the supplier.
The purchasing tool should support an easy configuration of the hosted catalogs and it should be easier to add new suppliers.
A budget module allows companies to keep a track of their spending but more importantly ensure that companies are not spending over the budget.
The budget module in your purchasing system should allow you to set up budgets and allow transactions to be tagged to purchases.
Ideally, the budgeting module should allow you to do the following
1. Easily setup budgets and define clear ownership of the budgets. The budget owners should be reviewing and approving the requisitions or orders which are tied to that budget.
2. The purchasing system should easily allow the budgets to tied to the chart of accounts.
3. There should be notifications so that the budget owners are notified when the budget consumption reaches a pre-defined limit. For example, notify the budget owners when the budget reaches 80% consumption limit.
This allows budget owners to review the remaining budget and decide on the follow on action.
The purchasing system should allow easy reporting on the budget consumption so that it is easier to track all purchases made against a specific budget.
The receipt process allows companies to track whether the product has been delivered by the supplier or not.
Having a receipt in the system, allows the Accounts Payables team to efficiently process the invoices by matching the invoice to what is delivered and what was ordered.
This is also called a 3-way match process and it is very important from a control standpoint. Without a 3-way match process, the A/P team might be spending a lot of time chasing employees to know the status of the product or service delivery.
Few things to consider for receipt management features
1. The purchasing system should support both desktop receiving and centralized receiving. For central receiving, a central warehouse team is responsible for receiving the product and then distributing it internally.
2. Not many users like to create receipts!
Of course, that should not be news to procurement professionals. So the system should have a way to nudge the users for creating receipts on time.
3. There should be a process to manage under or over receipt of products. For example, in case of over receipt, there should be further approval required before the receipt can be marked approved.
4. The system should support the ability to attach supporting documents.
5. The system should support tagging assets with asset tags so it is easy to manage assets.
When it comes to establishing internal controls from a SOX perspective or in general best practices from a process hygiene perspective – automation of purchasing process helps with the automation.
However, auditors should also be easily able to audit the approval workflows and access rights so that they can certify that the controls are working as designed.
So a good purchasing system should provide an ability to support the audit trail requirements from an auditor perspective. Some of the key requirements around audit trails are
1. Ability to store and display detailed audit trail information in the system.
2. The ability for auditors to query the data and collect a sample for audit purpose. For example, provide an audit trail of all purchases where the order amount is greater than $100,000 and the order dates are from January 2018 to December 2018.
Supplier management is a large area since it encompasses many disciplines including performance management, supplier development.
But here we are focussed primarily from the supplier data management perspective and what features the purchasing system should support
1. The purchasing system should allow for storing the basic supplier profile. For example EIN, W-9 forms, Payment terms as well as delivery and remit locations.
2. The system should support storing document exchange preferences for the suppliers, for example, all purchase orders must be submitted using email or CXML.
3. In some cases, you might want to use the supplier management as the master source for all the vendor master records. In that case, the purchasing system should support the following functions
a) The purchasing system should allow for workflow process so that the request for new supplier setup or changes to existing suppliers can be vetted by the respective teams. For example, all new vendor request needs to be approved by Accounts payable team, that way they can vet whether the vendor has the right credentials and it is a valid vendor.
b) The purchasing system should allow for data import and export capabilities so that it is easier to import the supplier data from other systems as well as export the data to the downstream systems.
Contract management functionality allows you to store and manage all vendor contracts. Contract management tools come in many varieties and a lot of great functionality. Here our focus on contract management is with respect to the purchasing transaction.
Contract management features can help you drive compliance and drive more spend towards your preferred vendors.
From a purchasing system standpoint, you would need the following capabilities
1. Ability to store contracts in the system along with the contractual data.
2. Ability to link contracts with purchase order to track on contract spending.
3. Route users to contracted vendors so that there is no savings leakage.
4. Ability to track key renewal dates so that you are not paying for unwanted renewals.
There are many more features to the contract management system but in our view, these are the must-have features for purchasing management.
When it comes to building strong internal controls to meet your compliance requirements, you must have strong access management in your purchasing system, so no one user has the ability to manage the end to end transaction.
The purchasing system should have strong access management controls so that you can easily configure what each user can do in the system.
Some scenarios which your purchasing system should be able to easily configure
1. A user should not have the access to create suppliers, create purchase orders and then submit invoices against those purchase orders. That is a sure short receipt for fraud. We are not suggesting that it will happen but the intent of controls is to pre-emptive rather than reacting to a fraud situation.
2. You should be easily able to configure whether all users can see the overall Spend report. We are all in favor of complete transparency, but you should be able to easily control that.
3. You should be easily controlled which users can see what transactions in the system. For example – Buyers needs to see all purchase orders but individual users can only see their own purchase orders.
One of the benefits of purchasing automation is the increased efficiency of the whole purchasing process.
That leads to overall lower cycle time and hence lower overall cost to process a purchase order.
However, by having all the purchasing data at one single place, management, and budget owners have complete visibility into the purchasing process.
With a spend dashboard, finance teams and budget owners should easily be able to
a ) Understand key spend patterns and Cashflow visibility.
b) Identify top vendors and partners with whom the company is spending money.
c) Identify top departments who are spending money. This helps to relate the spend to the output of the department.
d) Link chart of accounts to granular category level information. For example – a detailed view of what is being purchased under a specific chart of account.
Spend dashboard is great for management visibility and providing a summary of the spend. However, sometimes your users need granular data for further analysis or importing that data into their backend ERP system.
The reporting functionality in the purchasing system should have the following features
1. Ability to report on the line item level of purchasing transactions, for example – see all purchases in the last 12 months or see all Purchase orders by vendors.
2. The user should be able to export the reports to a spreadsheet for further analysis.
3. The reports should be configurable so that it is easier to create new reports as well as modify existing reports.
No vendor says that their tool is not easy to use!
However, how do you measure ease of use and how to do you ensure tool adoption over a longer period of time?
The easiest way, of course, is to test the system in real life and evaluate whether the users can use the system without any support.
With that said, you will always have a certain set of users who probably would have challenges with system adoption. The system should support the following
1. Real-time support where the users can ask questions.
2. An interactive user guides which provide self-help to users. By interactive we mean we interactive media and not the large documents who nobody reads anyway.
This might or might not be a requirement for your company depending on the implementation use case of the purchasing system.
However, it is always advisable to set up the integration with downstream systems so that the data can be automatically synched with the downstream systems.
For example, most of our customers integrate ProcureDesk with systems like Quickbooks so that once the order is created it is automatically created in your accounting system.
The purchasing system should provide a flexible infrastructure which allows integration with different upstream and downstream systems.
Also in case you are using a third party service for accepting invoices from vendors, then the system should support that integration scenario
So there you have it, hopefully, this list would help you in selecting your next purchasing system.
If you would like to see how ProcureDesk can help you gain better efficiencies in your purchasing process, Sign up for a demo by clicking on the demo button below.
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