Complete Guide to Purchase Order Management: Process, Steps & Best Practices

During a B2B purchase, buyers look at 40 value points before passing the purchase order to the seller.

But once the seller agrees on the purchase order, there needs to be a professional system that manages the entire purchase order process.

All the participants involved in the supply chain must match the agreed terms and conditions and focus on smoothly completing the purchase within the requested time.

You must understand professional purchase order management to ensure that your team delivers their assigned results.

So, without further ado, let’s get started.

Understanding Purchase Order Management Fundamentals

Understanding Purchase Order (PO) management fundamentals in the US market is crucial for several reasons, especially for companies, such as manufacturing companies aiming to optimize procurement, manage costs, and ensure smooth operations.

What is a purchase order?

Purchase order is an official document containing information about the buyer’s requirements.

Once the purchase order is sent to the supplier to purchase specific goods or services and the seller approves and delivers the requested material, the entire lifecycle is termed the purchase order process.

Multiple steps are involved in the purchase order process, from the PO creation to the PO closure.

Different teams from the buyer’s and seller’s sides manage their respective assigned work to ensure a smooth purchase order process without hindering the terms and conditions of the agreed purchase order agreement.

What Is Purchase Order Management?

The management of the purchase order process is termed purchase order management. It is a set of established practices and principles that deliver the availability of complete, up-to-date data and information on the purchase order.

The PO management is essential to ensure that the procurement goals are meanwhile maintaining the budget wisely.

You need to define specific privileges and actions for different individuals involved in the supply chain and provide them with specialized tools for effectively communicating and monitoring the purchase order process.

The common ways to manage purchase orders are emails, spreadsheets, and telephonic communication. But these traditional ways are sometimes ineffective, and a minor change in the information can lead to further complications and business losses.

Contractors and businesses should rely on multiple advanced software and digital solutions to bypass these issues in purchase order management.

We’ll discuss the digital solutions for your business more in the latter part, but let’s first highlight the detailed steps involved in the purchase order management process.

Step-by-Step Purchase Order Management Process

Every contractor can have a unique purchase order management process, but here are a few basic and necessary aspects that need to be followed.

1. Creating and submitting purchase orders

Based on the requirement, an employee or a necessary department can issue a purchase order that has the PO number, companies’ details, detailed information about the service or goods required, and the delivery details.

The purchase requisition can be standard, or you can use a professional pre-built template to deliver the desired results. You must ensure that all the vital details are matched to avoid further miscommunication.

2. Approval workflow management

The created purchase order must pass the set PO approval workflow based on the quantity or amount of the purchase. If the order scale is small, the department head will give the approval, but if the purchase scale is large, the core business management team needs to review the purchase order.

If the PO is rejected, then it is returned for review. The rejection can be based on multiple points, if the purchase is not necessary at the moment, if it crosses the limited budget, or if the inventory is stacked with the requested material.

The designated authority must inspect the details or ask the employee for a detailed purchase description. It can help you avoid unnecessary purchases affecting your workflow and maintain your inventory updated.

3. Procurement process

Once the internal team has approved the purchase order, the PO is dispatched to the desired vendor or seller through a defined communication channel. The seller reviews the purchase order and confirms whether they can meet the requirements or not.

There might be a few negotiations on the price or delivery dates based on the seller’s ability to complete the purchase. You must verbally finalize the initial terms and conditions to ensure there are no issues once the purchase order becomes a legally binding contract.

After both parties agree on the terms, the seller confirms accepting the purchase order and agrees to meet the requested demands of the buyers.

4. Order tracking and fulfillment

You can track the material and ensure that the quality of the requested goods or services is matched to the highest standards set during the agreement.

Once the material is delivered within the requested time, you can review the material and review an invoice for the purchase of services or goods from the seller.

If the material received is defective or doesn’t match the requested requirements, you can ask for a replacement or terminate the legal contract.

5. Three-way cross-checking

Your account payable team needs to conduct the three-way cross-checking of the paperwork to finalize the payment process. It involves documents like goods received not, invoices, and the initial purchase order.

The finance team must ensure that all the requirements are matched in the three documents to approve the payment against the total amount, including the shipping charges.

All the documents are stored safely on the cloud server or offline in compliance with the internal company guidelines or legal requirements. You can check these documents in the future purchase process to check the prices or verify other details for different purposes.

The entire process can be swift or might take a while if there are a few delays in any aspect of the purchase order management process.

So during the execution of the purchase order management, you need to follow a few best practices that can help you optimize the process and ensure that you can minimize the risk of errors to avoid delivery delays.

Benefits and ROI of Effective PO Management

Following and integrating a few basic practices in your purchase order workflow can help you to ensure that you can receive your requirement quickly and handle the process with finesse.

1. Customize workflow

Based on your business scale, operation, and industry, you need to customize your business workflow. You need to analyze your existing inventory management practices and spot the inefficiencies and areas of improvement that can help you better the process.

Optimize the bottlenecks that result in purchase order processing and disturb your smooth business workflow. You must design a better and more efficient solution to achieve the desired purchasing results.

Assign different processes to the different departments that can help you increase the efficiencies of purchase orders at a granular level, resulting in overall productivity enhancement.

2. Simplify the system

Assign relevant queries to responsible people that can handle your pressure effectively and deliver the optimized results without causing hindrance in the business workflow.

You need to ensure that the brightest minds in your organization handle the most difficult procurement tasks. Assign designated authorities for different PO workflows that can help you streamline the management operations and remove the inefficiencies from the process.

For example, you don’t want to send the PO to every procurement agent that can be confirmed by a single individual or the department head.

Even if the scale of the purchase increases, directly handle the purchase order approval with your core team and minimize the in-house confirmation terminals to handle the operations simply.

Creating a simplified system for managing your purchase orders can help you minimze the delays or purchasing failures and ensure that your employees have access to the required material or service in the most optimized manner.

3. Analyze suppliers’ KPIs

You can gain insights on supplier performance using professional procurement management software that can optimize your future associations and ensure that you deal with trustworthy vendors and sellers.

Set a few basic requirements or markers that need to be fulfilled by your vendors or sellers during the purchase order processing. Over time, the software can help you gain valuable insights that can help you filter your vendors and get the best results for your business.

Quality data can help you choose the best vendor for each transaction’s different product and service requirements.

4. Implement digital, automated, and integrated solutions

You need to ensure that you ditch the traditional pen and paper approach to handle your purchase order management process. You need to avoid unnecessary complications that may arise from manual processing and extra documentation.

A digital purchase order management software can help you minimize human error and ensure you get a centralized view of the purchase order process. You can implement changes in the purchase order before the goods are delivered to the shipment process.

The software can help you make different purchase orders within a few clicks and can help you minimize the effort to get the purchase order approval quickly.

You can automate the process and ensure you don’t waste your resources, time, and effort manually managing the process. You can channel your resources for more optimized and better core business operations.

The one-time investment in a professional purchase order management software can help you save thousands of dollars worth of business losses over the long term, resulting in inefficient purchase order management.

But with the advancements in technology, the purchase order software industry is expected to reach $9.5 billion globally by 2028.

It has become difficult for contractors and business owners to filter one of the best software based on their business requirements and manage purchase orders.

But we got you covered and filtered the best procurement software that can help you streamline your purchasing process.

InvoiveOwl Can Help You In Purchase Order Creation

InvoiceOwl is the leading estimation and invoicing software for contractors that can provide excellent purchase order creation services. You can ensure you can enhance your efficiency in managing your purchase orders and boost your supply chain management.

You can use professional pre-built purchase order templates that can minimize the time and effort of your employees and ensure that you dispatch a quality purchase order to your supplier for better results.

The powerful purchase order management system enables you to check the history of your purchase orders within a few clicks and provides freedom for effective purchase order management.

It offers features for efficiently managing purchase orders, estimation, invoicing, credit memo journal entry, central vendor database, invoice payment, and stock management.

The smooth and intuitive interface enables your employees to quickly adapt to the new integration in your existing business ecosystem and assists you in improving purchase order management.

Access the FREE trial today and simply the PO process and ensure that you have standard operating procedures while initiating purchase requisitions.