Purchase order automation is the method of using an automation platform to execute and automate the purchase order approval process. Centralized software automatically sends purchase requests to the appropriate team members for review and approval. Once approved, purchase orders are automatically created in ERP without data entry. Ultimately, it eliminates the requirement for people to physically route purchase orders through paper or email for review and approval, and simplifies the process.
The purchase order process may look different for many organizations, and it may include many different people and departments. Typically, it includes the following steps:
However, these are required steps. Actually, the manual process involves more steps.
With automated processes, your accounting team can more easily manage incoming invoices, payments, and allow them to focus on higher-value activities. It also enforces procurement processes and rules so your team can take control to protect your business.
Depending on the number of purchase orders created each month, your team may experience significant savings and benefits from implementing an automated solution.
Common Challenges from Manual Processing
Often when processing in a manual, paper-based environment, organizations face many similar challenges. While these may not all the same for you, we see that the below issues are often what drives automation at an organization.
- Lack of efficiency in process
- Paper heavy
- No accountability or visibility into the process
- Security risks
- No process regulations or control
- Time burdensome
Whether your organization is experiencing these or not, there are many benefits that you and your team can take advantage of by leveraging an automation solution to drive your purchase order process.
The Benefits of Purchase Order Automation
If you're dealing with a lot of paper, email, legacy systems, and a lack of security when processing purchase orders, implementing an automated solution will provide you and your team with many benefits. Whether you're a small or large company, organizations of all sizes can take advantage of automation and reduce time spent on low-value activities.
While results vary for each organization, here are the most common benefits companies experience when automating the purchase order process:
- Increase of process efficiency
- Cost Savings
- Reduction of human error
- Visibility into Processes
- Flexibility & Control
Increase of Process Efficiency
Automating the procurement process allows you to reduce processing time and increase process efficiency. From streamlining routine and repetitive tasks to ensuring processes are followed according to established rules and controls, automation enables your teams to have full visibility and confidence.
When manually processing purchase requisitions and orders, steps are duplicated, missed, and time is spent on low-value activities. Often times, they are ignored or purchased twice because they have no control over the process. Automation enables your team to move to real-time processing. There is no longer a delay between PO approval and passing the information to the supplier. This saves a lot of time, and thanks to the full audit trail, no more time is spent tracking down lost orders or documents.
Leveraging automation not only reduces processing time, but also eliminates steps entirely. Below is an example or automated purchase order process. The manual steps required have been greatly reduced, giving team members more time to focus on higher-value activities.
save costs
When organizations process in a manual environment, there are many costs associated with expectations and surprises. While companies estimate the costs associated with paper, ink, time spent processing purchase orders, and overhead, many companies typically do not include costs for undocumented actions and tasks. For example, time spent finding lost documents, seeking approval, processing orders twice, etc.
A study by APQC showed that manually processing purchase orders can cost as much as $506.52 per purchase order. This means that if an organization only processes 10 purchase orders per month, they spend about $60,000 per year on this process. Automation reduces processing time and costs, allowing companies to put more money back in their pockets.
reduce human error
Let's face it, as human beings, we make mistakes all the time. While most of them are harmless, in some cases these mistakes can cost companies thousands, sometimes hundreds of thousands. From mistakenly purchasing 10 items on a purchase order to accidentally ordering 1,000 items, when organizations manually process purchase orders, human error threatens them.
Automated solutions eliminate the need for manual data entry and allow your team to perform balance checks to prevent errors. The system will automatically flag items that are outside the purchase policy and allow you to determine purchase thresholds.
Visibility into the Process
Be honest, when was the last time you asked yourself, “Who has that document?” or “Has this been approved yet?” These are common questions that are asked when processing purchase orders manually. There is no way to identify where things are in the process, who has the PO, and whether or not it has been approved. Too much time is spent on chasing approvals, following up on orders, and figuring out where things are.
By leveraging an automation platform, your team will no longer spend time on searching for information or checking on the status of POs. With instant visibility into where things are in the process, your team is able to immediately determine where things are in the process, who has them, and the status of each PO.
Flexibility & Control
While most organizations process Purchase Orders in similar ways, EVERY company we have worked with has something unique to their process. Whether they require additional levels of approvals based on dollar amount thresholds or are required to do competitive pricing on the item requested, there are always unique exceptions for a company processing POs. In a manual environment, this is challenging to manage and enforce. Things often fall through the cracks and are missed.
When using an automation platform, you can dictate who is able to make decisions, purchases, and more. The system enforces the process that you and your team puts in place so that you can have confidence that the rules and security protocols are being followed. Whether your team has a complex process or a simplified one, automation provides the flexibility and control your team needs to get purchase orders processed efficiently.
When done with the right partner, purchase order automation provides your organization with many benefits and ability to focus on higher value activities. Your team will be able to have insights into types of purchases your team is making, how frequently, and understand your own buying patterns. Purchase order automation is the first step in moving towards an automated accounting department. It’s time to ditch the old way of processing and begin to set a foundation for your company’s growth.
