What Is Purchase Order Software?

When it comes to making purchases, getting the right approvals, and working with suppliers, a proper purchase order management system (PO system) should be in place.

Without one, the lifeline of a procurement or finance team can get clogged up. Choking a purchasing process and starving it of timely approval flows that are essential to health and resilience can be disadvantageous. For both large and small businesses, a purchase order is needed to operate and maintain an organized system.

What is a Purchase Order?

A purchase order, or PO, is a legal document that buyers send to suppliers. It outlines the terms of the transaction, types, amounts, and prices for products and services rendered. POs help buyers track what they’ve purchased, provide clear instructions to vendors, and secure a paper trail if anything goes wrong.

Is a purchase order a contract?

Yes, they’re legally binding contracts. Once you issue a PO to your supplier, you must pay them. POs also enable buyers to purchase items on credit, which is especially helpful if you’re growing your business.

Purchase Order System

A purchase order system, also known as a purchase order management system, is a software tool that helps an organization manage and improve the purchase order process.

PO systems improve procurement efficiency by automating regular purchase order workflows, such as approval, creation, document management, tracking, and delivery.

How Do Purchase Order Systems Work?

Purchase order systems centralize procurement processes into a single dashboard, with clearly defined workflows and simple controls to make life easier for staff.

From this central system, you can act and perform key purchase order management tasks. The system will automate manual processes like data entry and reordering to speed up the entire purchase order process.

Types of Purchase Order Systems

Purchase orders act as a security blanket that helps track purchases and enforces payment terms in cases of a dispute.

1. Manual purchase order systems:

We can split manual purchase order systems into three categories: Ad-hoc systems (Purchase orders are manually created as they’re needed and are only tracked in the purchaser’s (fallible) memory.), Pen-and-paper systems (Purchase orders are created and tracked on paper, often stored in a filing cabinet for record-keeping purposes.), Spreadsheet-based systems (Simple software like Microsoft Excel is used to create POs and track purchase order history.)

2. Automated purchase order system:

An automated purchase order system, also known as cloud-based purchase order software, is a digital solution that speeds up the purchase order process while reducing the risk of errors. It can be synced with your live inventory records to optimize when and how goods are reordered. Automated purchase order systems can streamline many key processes, including Data entry, Stakeholder communication, Purchase order creation and population, Supplier communication, PO status updates

3. Purchase order inventory management system:

A purchase order inventory management system is another type of automated purchase order software that further increases efficiency by integrating purchasing with inventory management. Unique features of purchase order inventory systems include Real-time inventory tracking, Barcode scanning integration, Cost tracking, Demand forecasting, Production management, Automatic reordering, Multichannel order management

4. ERP system with purchase ordering module:

Enterprise resource planning (ERP) software refers to dynamic business management systems that offer functionality for multiple aspects of a company’s operations. These tools are typically best suited to large enterprises or companies with unique and complex requirements. Some ERP systems offer modules or features for purchase order management.

Processes Where a Purchase Order System Can Help

There are five processes where a Purchase Order System helps. They are as following

1. Needs identification and requisition approval

As employees identify the need for new supplies, they can create a purchase requisition. This can be checked and approved online, then converted into a purchase order in seconds.

2. Purchase order generation

The purchase order system allows you to generate purchase orders directly within the platform. Much of the information can be auto-populated by setting up supplier and product details in advance.

3. Purchase cost tracking

The costs associated with purchasing can be tracked in your purchase order system each time you raise a new PO. These costs can automatically be logged into your cost of goods sold for each inventory item, ensuring you maintain accurate records of your profit margins and product costs.

4. Supplier management

Your purchase order system can be used to communicate with suppliers. By tracking key procurement KPIs such as supplier lead time, on-time in-full rate, and order accuracy – you can assess the quality of your suppliers and leverage data when renegotiating supplier contracts.

5. Receiving

Once a purchase order has been sent to your supplier, the purchase order system can help you track the progress of that order from approval right through to delivery.

Features of Purchase Order Software

While there are many different levels of complexity in PO management software solutions, they all contain the same basic features:

• PO generation
• Workflows for approvals
• Reporting
• Track orders
• Create audit trails

The Benefits of PO Software

Although purchase orders might feel like excessive paperwork, using POs is a business best practice, especially as your business grows.

1. Instead of creating, processing, and tracking every document for every business transaction, PO software digitizes the process and enables you to develop PO templates with your company’s logo, legal terms, and order items for each vendor. It also centralizes your paperwork for a virtual audit trail, removing the need for you to track down files for every purchase.
2. Set up recurring POs for one less item to think about as you keep your business running. This secures regular supply and enables you to maintain a consistent budget.
3. As you keep your POs and associated paperwork centralized and updated, your business will have an accurate picture of average monthly expenses and trends. This full picture sets up easier, more accurate budgeting that helps your business grow and thrive.
4. An effective purchase order system will save your company time and money while ensuring you replenish inventory at the right time and in optimal quantities.

What to Consider When Looking for PO Software?

When you are researching the best PO management software for your business, ask yourself these questions:

• Does it offer all the basic features you need for successful PO management? Does it have advanced features that will either be helpful or a hindrance to you?
• Take stock of your current tech stack and find a solution that integrates well.
• Will it be simple and quick for your team to learn to use and implement in your current workflows?
• The best software solutions allow you to add and remove fields, create your document workflows, and create templates with your business branding.
• Look for solutions that offer advanced security options like data encryption and user access controls.
• Know what kind of support is available to you when issues arise.

How to Create and Customize Your PO System?

Steps to customize your purchase order system include:

1. Define PO system goals, desired features, and automation through a key user and stakeholder task force.
2. Compare and identify automated purchase order system software with your PO system goals and select the ideal system that fits your company’s budget.
3. Flowchart purchase requisition and purchase order processes and triggers, including PO approval processes, and identify authorized approvers.
4. Customize PR and PO forms from purchase requisition and purchase order templates.
5. Communicate the new PO system’s planned adoption and start date to all employees.
6. Identify users, set up role permissions, and train employees using the system.
7. Write a post-adoption PO system review to document system implementation insights, benefits gained, and lessons learned.

Optimize Your Procurement Process

A well-implemented purchase order system is essential for any business looking to streamline procurement processes, enhance organization, and improve supplier relationships. By automating key workflows, purchase order software simplifies the purchasing process, reduces errors, and provides valuable insights into spending and budgeting.

Whether you choose a simple manual system or a comprehensive ERP solution, aligning the software with your company’s unique needs will maximize efficiency and ensure smoother operations, empowering your organization to grow sustainably. Learn how TEU Global can help streamline your procurement process. This will help your businesses to make informed decisions and maintain communication with suppliers.