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How to Make Time for Value-Add Activities by Controlling High-Volume, Low-Dollar PO Spend

05/17/2018 By

Editor’s note: This is part of the Ask Spend Matters series, where readers send in their burning questions about procurement and supply chain.

A reader recently wrote in asking for ideas on controlling high-volume, low-dollar PO spend on readily available commodity items in order to free up time for value-add activity.

The conventional wisdom is that purchase orders act as a point of reference and an insurance of sorts against fraud or unintentional errors related to invoicing, pricing, duplicates and wrong products. POs essentially come in handy in any scenario where the received order is not quite what the buyer had in mind.

Yet POs can undoubtedly be a pain for buyers to draft, not to mention that all of the paperwork lengthens and slows down the entire purchasing process.

There are two main options here to consider. One is to use automation to streamline the PO process; the other is to decrease or eliminate the usage of POs altogether.

Go Digital

If your procurement organization is still handling purchase orders manually, using paper for record-keeping, automation will decrease the risk for error and save your organization considerable time, freeing up precious hours to pursue more strategic activities.

In terms of the ordering process, key components of an e-procurement solution include support for PO creation; PO processing (both buy-side and supply-side); PO analytics; buyer-supplier order collaboration; services procurement integration; and the capability to handle different languages and currencies.

For readers who are weighing the pros and cons of various e-procurement and procure-to-pay solution providers, we encourage you to check out the guide to our Q1 2018 SolutionMap, which dynamically ranks providers through buying personas to reflect specific organizational needs, scored based on by both analyst and customer input.

Go PO-Free (or Almost) 

If you’ve already moved on beyond manual processes, you may want to consider cutting down or eliminating POs altogether.

Depending on the type of spend, a PO may not make sense. According to Spend Matters analyst Pierre Mitchell, the idea that companies should abide by a “no PO, no pay” rule is a common procurement misconception.

Utilities payments, for instance, are a good candidate for recurring invoices. As Mitchell put it, “If you need budget approval to keep the lights on and water flowing, you have bigger issues.”

Alternatively, there is also an enticing argument for doing away with the PO completely.

“This is a daring concept in theory, provided an organization has the right processes and systems to control internal purchasing and buying activities and to protect against mistakes,” Spend Matters founder Jason Busch wrote.

“It’s easy to see that a PO is in fact a crutch for poor contract management processes and programs in the first place,” Busch continued. “[But] most procurement and legal organizations aren’t yet at the level from a contracting perspective to enable a no-PO environment successfully with all of the contract controls required to be effective.”

Procurement organizations that want to pursue a no-PO policy ought to consider the following actions, Busch advised:

  • Build a contract management system that acts as more than a repository, with the ability to match invoices and other documents against contract terms
  • Enable purchasing controls within ERP, an e-procurement application, a vendor management system or another workflow system for pre-approvals
  • Adopt an e-invoicing approach that allows suppliers to submit detailed invoices that can be automatically matched against contract terms and conditions

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