Wasted dollars in AP often begin with inefficiencies in Purchase Order management. The longer the problems persist, the greater the risk to the company.
If your PO process is manual, one thing is certain: you have errors. Without knowing your company or your PO process, one can safely assume there have been mistakes made, things missed, and communications have suffered. Each mistake causes ripple effects throughout the entire company – in AP and perhaps other areas, such as manufacturing, distribution, and supplier relationships.
Don’t Wait until There’s A Problem
If you had to rate how well your accounts payable process is going, what would you say? AP is in a tough spot. Their job is to pay invoices, not analyze purchase orders and receiving transactions. Unfortunately, in the real world, invoices rarely match purchase orders or packing slips cause major delays for AP teams. This is a somewhat hidden hole that sucks not only dollars but time from the company.
By the time the suppliers invoice gets to AP, it’s hard to figure out where the discrepancy may be. It takes manhours to figure out where the error occurred. You don’t want to wait until the invoice makes its way all the way to AP. By then, the damage has been done and resources are being wasted.
Related: Study Shows Cost Cutting Is The No. 1 Reason for Switching to Purchase Order Automation
Where are the PO errors most frequent? According to an academic report from Northwestern University’s Department of Industrial Engineering and Management Sciences:
These errors can cause quite a headache in your AP department and significantly impact revenue and customer satisfaction. Here are 5 reasons why automating the PO process make a difference
- Purchase Orders Can Be Complex
Purchase orders can contain dozens of lines of orders, even pages worth. With each supplier and order, there are specifications, quantities, pricing, dates, and other details that can get complicated. The supplier may not have the needed materials, may not acknowledge the PO right away, or may have delays on their end. Managing all of these moving parts takes time – lots of it. There are risks for errors, missed items and deadlines, and AP errors.Many buyers and sellers rely on email, fax, and phones to communicate delivery, receipt, and acceptance of the POs. While these modes of communication may work, they aren’t exactly efficient. Emails quickly pile up and there’s no easy way to search for what you’re looking for. Faxes create mounds of paperwork and phones don’t leave a paper trail that may be critical when something goes awry.The relationship between buyers and suppliers is critical, yet too many are depending on manual management of POs. When the process is automated, the risk for errors decreases dramatically. Suppliers are more accountable and deadlines are less frequently missed.Related: Technology Aside, Vendor Management Is A Relationship
- Purchase Orders Can Be Wrong
With all of the detail on a PO, there is a good chance something on the PO is incorrect – a spec, quantities, delivery dates, pricing. Multiply that by every supplier and every single line item and you get the picture.One report found that typical error rates for manual data entry are about one error for every 300 keystrokes. Do companies really want to rely on someone catching a mistake before it gets too far down the line? One missed error can mean wrong deliveries that delay manufacturing, which delays product development and customer delivery which impacts customer satisfaction, which harms brand reputation. It’s a chain reaction that is difficult to halt once it begins.When the PO process is automated, however, these mistakes are much easier to spot. Many orders are repetitive, making automation a no-brainer. Using modern PO management software, manufacturers and distributors have greater visibility into every PO and every line item. Automation also brings clarity as to where the problem is, something spreadsheets and desktop tools are unable to locate.
- Purchase Orders Can Create A Ton of Paperwork
Every order generates paperwork. Every acknowledgment, every acceptance, every accounts payable. One order can require countless emails, faxes, and back and forths until the order is received and paid for. All of this paperwork must be tracked and managed, creating an administrative nightmare.Just as with banking, utilities, and virtually all of our personal and business accounts, automation can change how buyers and suppliers do business. It’s no longer sustainable or necessary to conduct operations using reams of documents and files. PO management software eliminates the paper without wiping out the paper trail. Every document and every buyer/supplier interaction is not only recorded and stored indefinitely without taking up a single square inch of office space, but they are easily accessible with the click of a mouse.
- Purchase Orders Can Be Lost, Damaged or Ignored
When there is paper, there is always the risk for damage or loss. Paper can be misplaced. Paper can get buried and ignored. When a supplier, for instance, receives a PO via fax, it’s up to them to retrieve it, respond, and store that document. Keep in mind the supplier is likely receiving dozens, if not hundreds, of similar documents everyday. How confident are you that your specific PO is being handled with care and getting the attention it needs so you can deliver on time?Digital documents are indefinitely accessible and stored in a cloud so there is never a risk for loss. Even better, PO management software enables buyers to track where their PO is at all times so they know if the PO has been received by the supplier. They know when the supplier viewed the PO and if the PO hasn’t been acknowledged, the buyer is alerted. The buyer can have the software send an automated reminder to the supplier that there is an outstanding PO that needs acknowledgment. All without a single email, phone call, or paperwork.
- Purchase Orders Are Only The Beginning
While POs are vital to both the buyer and the supplier, the most important element of the relationship is communication. The two parties must be in constant communication yet this isn’t always easy. Playing phone tag or sending emails back and forth is no way to operate. It wastes time and resources.Automating the PO process means automating communications as well. The best PO management software places communication front and center, making it easier to connect without the use of email or phone. Both buyer and supplier can use the software to send and receive messages, update dates and statuses, send reminders, and check on progress. When communications are streamlined and documented throughout the process, there is less room for error and “he said, she said.” Relationships are stronger because there is no risk for miscommunication or avoidance.The PO process will never be simple, but thankfully, there is now software available to make it as easy as possible to manage the highly complex nature of manufacturing and distribution. Automating the PO process enables companies to better track expenses, gain visibility into spending and supplier performance, and optimize supplier management and communications. If you are still relying on phones, faxes, emails and paper to manage your business, it’s time to digitize. See what automation can do to modernize your business.