How’s your PO management? Start with the basics before moving on to AI

This content does not express the views or opinions of Spend Matters

Given the persistent economic uncertainty and inflation-induced price increases, reducing purchasing costs remains a priority for most procurement stakeholders in 2024, followed by ensuring supply continuity and combating rising prices. To guarantee that the business receives the necessary goods and services at the best quality-price ratio, procurement professionals strive to streamline purchase order management practices and introduce purchase order software like Precoro.

Business stakeholders who stay sharp and promptly utilize emerging technological solutions, can significantly decrease PO processing costs and increase supply chain diversity. While customary ways to manage purchase orders include spreadsheets and emails, the market has witnessed exponential growth in the number of organizations adopting purchase order software in the last decade. PO automation has provided companies with instant access to complete and up-to-date purchasing information. Recently, another trend has also caught the eye of the procurement world — the possibility of implementing artificial intelligence technologies to streamline PO management.

It would be safe to say that procurement is a race of companies competing to get the best deal without sacrificing product quality and customer loyalty. It is no wonder that artificial intelligence, which promises to revolutionize procurement, has become a “hot topic” among business stakeholders.

There is especially strong hope for AI’s role in processing purchase orders. Artificial intelligence is expected to sift through immense volumes of data almost instantly and provide data-backed insights for smarter PO management strategies, daily work optimizations, and KPI improvements. There are also high hopes for AI to predict supplier performance, shifts in demand, or supply chain disruptions. By accessing open-source supplier data and combining it with the company’s internal know-how, AI is also expected to help optimize the PO costs by crafting efficient negotiation strategies.

However, implementing artificial intelligence in procurement is a long-distance race — let’s call it a marathon — that starts with establishing a high-quality purchase order management process. AI is here to enhance purchasing practices, not to fix the flaws in the underlying PO workflow. If the foundational order management process isn’t solid, adding artificial intelligence on top of it might do more harm than good.

Purchase order is the backbone of any procurement process. To see the orders fulfilled smoothly, managers strive to ensure the absolute accuracy of PO information and clear approval workflows, establish transparent communication with suppliers, and set up PO tracking practices.

These basics should be covered before layering up any advanced technologies like AI. Since artificial intelligence tools process available data and recreate established workflows, applying AI to the flawed PO process would only amplify existing inefficiencies. It’s imperative to be clear about what one expects AI to process. If the current PO workflow is prone to errors, AI will likely magnify and multiply them.

For every business that considers using AI to enhance purchase order processing, it will pay off to primarily make sure their PO management practices are already solid. Here are several tips on what to focus on for efficient purchase order management.

Standards for each process – Seeing the PO through — from its creation and approval to payment and archiving — should involve several well-orchestrated steps. Each PO-related action should happen according to the predefined guidelines, in alignment with the cost thresholds and budget limitations, and in compliance with the company’s ESG standards. To optimize the PO creation process, managers prefill as much information as possible — for instance, vendor information and item details in catalogs. This helps take down the time for placing a PO to a few minutes. For recurring purchases, an organization can choose to use blanket POs and avoid placing new identical orders repeatedly altogether.

Custom and simple workflows – A PO is designed to fulfill a specific need of the department or employee, so a procurement manager routes the order through the approval flow based on the company roles and purchase cost thresholds. It’s a good practice to customize approval workflows but still keep them simple and only address those employees who need to have a say — such as a department leader or a finance manager — without overwhelming others.

Focus on high-quality data – Access to accurate data is crucial for effective purchase order management. Procurement managers who introduce strong data governance principles and consistently record PO-related information can then easily extrapolate necessary data and rely on it in the decision-making process. And, of course, clean data is a must-have later on, when the company decides to implement AI.

Leveraging software capabilities – Procurement professionals streamline PO management by leveraging procurement software for automation capabilities and readily available analytics. Automation tools are also indispensable for tracking real-time PO statuses. In addition to this, modern software solutions also support direct communication with suppliers.

Comprehensive integrated systems – By integrating purchase order software with accounting tools or ERPs, organizations can see a dramatic increase in the productivity of PO processing. Employees can save hours of work and avoid numerous mistakes that would otherwise happen during manual transfers of purchase orders and invoice information between different tools.

Understanding supplier KPIs – Part of the PO management process is tracking how successfully suppliers deliver the orders and following their financial health. Procurement managers track various supplier KPIs on a regular basis to select the most reliable procurement partner and avoid the risk of placing an order with a supplier who won’t be able to deliver under anticipated conditions.

Investing in the team – Procurement managers who think big picture continuously invest in team training to equip employees with the skills and knowledge necessary for catching up with the newest developments in the procurement field. Consistent investment in employee competency can save the company a pretty dime later — for instance, in lower costs of the optimized and error-proof PO processing.

While artificial intelligence is surely a game-changer for doing business, in procurement, AI is only as good as the process it supports. Successful procurement is built on professional purchase order management, so establishing one has always been and still is a priority.

FEATURED COMPANY

Precoro

Learn More