Guide to Purchase Order Management

In business, transactions happen quickly and require accuracy and organization in procurement processes. Purchase order management is key to making sure everything runs smoothly—helping with legal compliance, keeping budgets in check, and ensuring the supply chain operates efficiently.

Handling purchase orders involves several steps, and when done right, it can lead to business success. This article looks at the importance of purchase order management, including how it helps build strong vendor relationships, ensures financial accuracy, and boosts overall efficiency in workflows.

What is order management?

Before diving into purchase order management, let’s examine the fundamental aspects of order management and why it’s crucial for businesses.

Order management is handling and fulfilling customer orders in a business. It involves a series of activities, such as receiving orders, organizing them, tracking inventory, processing payments, and ensuring that products or services are delivered to customers promptly and efficiently. 

The ultimate goal of order management is to streamline the entire order fulfillment process, from when an order is placed to its successful delivery while maintaining accurate records and providing a positive customer experience.

In today’s business landscape, where sales are made across multiple channels, the global market is constantly shifting, and customer expectations are high, ensuring a seamless journey for a product from the warehouse to the customer is challenging. The logistics of managing complex orders and providing excellent customer care require a careful and precise approach, as any slip-ups in operations can be costly.

To overcome these challenges, many businesses are adopting dedicated order management systems to handle intricate and dynamic orders with maximum efficiency. This strategic utilization helps to speed up order processing times and minimize the likelihood of errors. One crucial component of such order management systems is purchase order management, which ensures the timely receipt of the right goods from suppliers. Effective management of purchase orders is essential, as its absence can jeopardize the entire order management process, leading to customer dissatisfaction and poor sales performance.

The purchase order process

The purchase order (PO) process is an essential process for organizations. It facilitates the acquisition of goods and services in a systematic and controlled manner. Let’s go through the key stages of this process, so we can better understand how it contributes to the smooth functioning of businesses.

1. Initiation with purchase requisition

The process starts with a department or individual identifying a need for goods or services. A purchase requisition is created, which outlines the required items, quantities, specifications, and other relevant information. This document serves as the initial request for procurement.

2. Authorization

With the purchase requisition in hand, the next step involves obtaining authorization. Depending on the organization’s structure, this may require approval from various management levels to ensure alignment with budgetary constraints and strategic goals.

3. Creation of purchase order

Once the purchase requisition is approved, a formal purchase order is created. This document includes descriptions of items, quantities, agreed-upon prices, delivery dates, and terms and conditions. The purchase order functions as a formal contract between the buyer and the supplier.

4. Supplier selection

Choosing the right supplier is a crucial aspect of the process. Organizations weigh factors such as cost, quality, reputation, and delivery capabilities when selecting a supplier that aligns with their needs and standards.

5. Sending the purchase order

The purchase order is then sent to the chosen supplier. In the digital age, this can be achieved through traditional means like mail or fax, but it is increasingly common to use email or electronic procurement systems for a more efficient and expedited exchange.

6. Supplier acknowledgment

Upon receiving the purchase order, the supplier reviews its details and acknowledges receipt. This step is essential for ensuring mutual understanding and can highlight any potential discrepancies that need resolution.

7. Order fulfillment

With the supplier on board, the fulfillment stage commences. The supplier prepares and delivers the goods or services according to the specifications outlined in the purchase order, adhering to agreed-upon timelines.

8. Receiving and inspection

The receiving department plays a crucial role in the process by inspecting the delivered goods against the details in the purchase order. This step ensures accuracy, quality, and compliance with the agreed-upon terms.

9. Invoice matching

The finance department then matches the supplier’s invoice with the purchase order and the receiving report. This meticulous process ensures the billing is accurate and aligns with the agreed-upon terms and conditions.

10. Approval and payment

Following the verification process, the invoice undergoes an approval process. Once approved, payment is processed based on the agreed-upon payment terms, completing the financial aspect of the transaction.

11. Record keeping

A vital component of a robust procurement process is meticulous record-keeping. All relevant documents, including the purchase requisition, purchase order, receiving report, and invoice, are systematically filed for future reference and auditing purposes.

12. Vendor performance evaluation

Post-transaction, organizations often evaluate their suppliers. Factors such as delivery time, product quality, and overall performance are assessed, contributing to informed decisions in future procurement endeavors.

Why is purchase order management important?

The process of purchase order management is not just a regular administrative task. Instead, it is a crucial aspect of effective order management that plays a pivotal role in the overall success of businesses. We will explore why the purchase order process is so crucial and how it significantly impacts various aspects of business operations.

Here are the six ways in which a well-managed purchase order process can help businesses:

1. Avoiding stock imbalances and holding costs

Maintaining optimal stock levels is essential for businesses, and effective purchase order management helps achieve that. Poorly managed purchase orders can result in either excess or insufficient stock, leading to increased holding costs or missed sales opportunities. By streamlining the purchase order process, businesses can achieve better inventory control, ensuring that goods are available when needed without incurring unnecessary holding costs.

2. Building and nurturing supplier relationships

The purchase order process plays an essential role in communication between buyers and suppliers. Clear and detailed purchase orders establish expectations regarding order quantities, delivery times, and payment terms. This clarity is instrumental in fostering strong and collaborative relationships with suppliers. When both parties have a shared understanding of expectations, the likelihood of order fulfillment issues decreases, contributing to smoother operations and customer satisfaction.

3. Enhancing budgeting accuracy

Purchase orders provide a detailed breakdown of costs associated with procurement. This information is invaluable for businesses when creating accurate budgets. By having a transparent record of expenditures, organizations can make informed financial decisions, allocate resources efficiently, and identify potential areas for cost savings.

4. Streamlining quality assurance

The purchase order process plays a crucial role in quality assurance. Both buyers and suppliers can use the information in the purchase order to ensure that orders are fulfilled accurately and meet the specified standards. This not only helps in maintaining product quality but also contributes to customer satisfaction by delivering products that align with expectations.

5. Papertrail for financial audits

A well-maintained purchase order system acts as a comprehensive paper trail in the event of a financial audit. Purchase orders serve as concrete evidence of where money is being spent, providing details of incoming goods and outgoing payments. This transparency not only facilitates audits but also demonstrates financial accountability and compliance.

6. Contractual protection

A purchase order forms a legally binding agreement between the buyer and the supplier. It serves as a crucial document offering contractual protection in the absence of a formal business contract. Should any issues arise during the order fulfillment process, the purchase order provides a clear framework for resolution, protecting the interests of both parties.

Qoblex for your purchase order management 

Qoblex is designed to help businesses streamline their purchase order management processes.

Qoblex’s purchase order features enable businesses to:

• Create and edit purchase orders independently or directly from a Sales Order.
• Receive purchase orders.
• Email purchase orders to your suppliers.
• Mark the purchase order as received or partially received.
• Receive and authorize bills for purchase orders.
• Add payment to purchase orders.
• Complete purchase order workflow.

Every purchase order created in Qoblex displays one of the following statuses:

Draft

When you create a purchase order, it will be assigned the Draft status automatically. During this stage, the order is not yet final and does not affect your stock levels. You can modify the purchase order as needed and save any changes you make.

Once you are ready to proceed with the order, you can approve it to change its status to Approved.

Approved

You can start receiving goods from your purchase order during the Approved status. You have the option to partially receive or receive all the goods. You can also include landed costs in your delivery if required.

At this stage, you can modify various aspects of the order, such as adjusting the quantity of stock received (either partially or in full) or adding landed costs. You can also choose to receive the Bills attached to your purchase order.

Received

All ordered items are received in the Received stage, and stock levels increase. Note that the PO is non-editable at this stage.

Qoblex not only offers efficient purchase order management but also empowers you to oversee, integrate, and automate various facets of your entire business from a centralized hub. This includes handling inventory, orders, accounting, fulfillment, and more.

By providing a comprehensive solution, Qoblex alleviates you from the operational hurdles associated with business development, allowing you to concentrate on your passion and core strengths. This enables you to channel your energy into what you love and do best—creating remarkable businesses.

Process Time

45-60 minutes per PO