Why You Need a PO Acknowledgment Policy

Why You Need a PO Acknowledgment Policy

SourceDay

In the old days of hard copy, purchase order management was a slow, tactical, papercut-ridden line of work. The physical transit times between buyer and seller and then back to the buyer again, could take days or even weeks. In the meantime, the business moved forward under the assumption that all of the parts and materials would be available when they were needed. Until, at least in some cases, they weren’t. Then the process of backtracking would begin, going all the way back to determine whether the supplier had received the PO in the first place.

Why don’t companies always check to make sure that their suppliers receive each PO? Under the paper system, the administrative cost and time required make it impractical to require acknowledgement from each supplier on each PO. Today, however, the fact that we can manage POs digitally allows companies to do just that – instantly and effortlessly – tracing the exact path each PO takes and viewing its precise status at any given moment, starting with acknowledgement by the supplier.

Requiring PO acknowledgement can ward off a whole host of inventory problems and supply chain disruptions before they have the opportunity to disrupt your operation or add costs to your processes. Most importantly, they provide you with the answers to a few key critical questions before you face the need to ask them.

Question #1: Did they get it?
Knowing if a supplier has received your PO is the purchasing equivalent of making sure a device is plugged in and turned on. It is the first thing to check in all circumstances because no progress can be made if it hasn’t happened. In paper copy, confirming acknowledgement quickly becomes an overwhelming administrative nightmare. In electronic form, however, tracking acknowledgement is as quick and easy as opening an email and clicking a link. Better still is the software’s ability to automatically track the acceptance status of digital POs and send reminders to suppliers with outstanding requests – or alerts to buyers.

Question #2: Can they fill it?
Once PO acknowledgement is achieved, the next step is acceptance. Not only does this confirm that goods and services will be delivered as specified and on time, it serves as a legal basis for both parties should anything go awry after this point in the fulfillment process. A supplier will either be able to fill a PO or not. The question from a management standpoint is how soon the company is able to determine this.

Question #3: How much active time did it require?
Companies can check on the status of POs and have exchanges with suppliers about acceptance or required changes. But if these tasks must be handled manually, what is the cost to the business: both in terms of what else procurement could have been working on and how suppliers interpret the additional effort required on their part to respond to the inquiries?

It is critical to the business continuity to identify the POs that get hung up in acknowledgement or acceptance issues quickly. But doing so without the support of enabling technology isn’t worth the effort, given the associated time and cost. Once your PO management process is digital, however, there is no reason not to establish a policy requiring acknowledgement by suppliers.