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    Blog Image

    7 Steps for Successful Purchase Order Processing (And How Can AI Help)

    • The 7-step process for successful purchase order processing ensures efficiency, from identifying needed items to reconciling goods upon delivery. 
    • Technology enhances the process by providing real-time visibility, reducing follow-up emails and automating workflows to save time and reduce errors. 
    • Automated systems offer detailed reports on contract utilization, supplier compliance and purchasing activity—enabling better decision-making.

    November 18, 2024 | Procurement Strategy

    Purchasing is a substantial cost center for organizations, with indirect spending accounting for 20-30% of revenue. Procurement processing can involve hundreds or even thousands of purchases each month. With so many components required to maintain efficient procurement operations, having an effective purchase order process is crucial for ensuring the success and cost-efficiency of your business. 

    What Is Purchase Order Processing? 

    Purchase order processing is the method an accounting team or purchasing department uses to select, authorize, order, fulfill, and track supply and service orders from vendors. It involves verifying that the product or service requested for purchase is available, allocating funds to buy the products or services, communicating needs with the vendor and checking that the correct items arrive. 

    What Is the Difference Between Purchase Order Processing and Purchase Requisition? 

    Although often used interchangeably, purchase requisitions and purchase orders are separate but equally important documents in the procurement process. 

    Aspect

    Purchase Requisition

    Purchase Order

    PurposeInternal request to purchase products or servicesExternal document confirming the purchase with a supplier
    Document TypeInternal documentLegally binding contract
    Role in ProcurementSeeks approval from management before the purchaseInitiates the official purchase and agreement with supplier
    Approval ProcessSigned off by division manager and procurement teamSent directly to the supplier after internal approvals
    Details IncludedGeneral request for items or servicesDetailed terms including price, quantity, delivery date, and payment terms
    LegalityNot legally bindingLegally binding agreement between buyer and supplier

    7 Steps for Successful Purchase Order Processing 

    Implement these standard steps to optimize your purchase order process, leading to improved efficiency, cost savings, and better procurement outcomes. 

    1. Identify Needed Items 

    Begin by researching and selecting the required supplies from either a new or existing vendor. Stakeholders should evaluate product details, compare prices among various vendors, and assess similar options across suppliers. Ensure that your company’s corporate procurement policy is documented and communicated clearly to guide buyers in adhering to internal and external spending rules. 

    2. Create a Purchase Requisition 

    After identifying the needed items, complete a purchase requisition that includes all relevant vendor information and supporting documentation for approvers. A clear and documented approval process, with designated interdepartmental approvers, streamlines the procurement workflow. This reduces confusion regarding review responsibilities and accelerates the overall transaction timeline. Experienced approvers help minimize errors, ensuring better decision-making. 

    3. Submit the Purchase Requisition for Approval 

    Once the purchase requisition is completed, it should be submitted to the initial approver, typically a department head or direct manager. This approver reviews the request to ensure it aligns with the budget for the department or project and grants initial approval. The requisition may then be routed to other required approvers, including IT, legal, security, or finance teams, depending on the purchase. Organizations often have set thresholds for additional approvals; for example, high-value contracts may require executive sign-off. 

    4. Create an Approved Purchase Order 

    Following all necessary approvals, the accounting or finance team uses the requisition to create a purchase order. A thorough requisition form ensures a complete and detailed purchase order, which serves as a legally binding document. Essential information to include in the PO: 

    • Purchase order number 
    • Date and time of the order 
    • Requestor and department details 
    • Vendor name, address, and contact information 
    • Description and quantity of goods/services 
    • Unit price and total price 
    • Applicable taxes and fees 
    • Shipping and delivery details, including costs 
    • Billing and payment instructions 
    • Additional notes from stakeholders or finance 

    5. Approve and Submit the Purchase Order 

    In some cases, completed POs undergo an additional review by the accounting department to verify accuracy. Once approved, the purchase order goes to the vendor. The supplier reviews the PO, clarifies any questions, confirms item availability, and prepares to fulfill the order. If items are unavailable or delivery timelines cannot be met, the supplier may suggest alternatives or provide estimated delivery times. 

    6. Vendor Approval and Fulfillment 

    The vendor confirms the purchase order, provides an estimated delivery date and tracking information, and initiates fulfillment. Stakeholders can monitor the order’s status until it arrives. 

    7. Receive and Reconcile Goods 

    Upon receipt of the order, the buyer inspects the shipment to verify completeness and quality. Any discrepancies or damages should be communicated to the vendor for resolution, such as replacements or refunds. In severe cases, shipments may be refused. Once the goods are accepted, Accounting records the receipt and notes any exceptions. The data is then reconciled against the purchase requisition, purchase order, and delivery documentation in a process known as three-way matching to ensure accuracy and compliance. 

    By following these seven steps, companies can ensure an efficient and effective purchase order process, fostering better supplier relationships and maintaining streamlined operations. 

    Getting Purchase Order Process Right with Technology 

    AI and automation significantly enhance the purchase order process by providing comprehensive visibility and seamless tracking from requisition to invoice payment. 

    Leading systems can streamline the entire procure-to-pay process, offering real-time tracking of each purchase order. Buyers can monitor the status of their requisition through multiple approval stages, order creation, submission to suppliers, supplier acknowledgment, advanced shipping notices (ASN), and even invoice management. This level of visibility eliminates the need for follow-up emails, frequent reminders, and status requests—making the procurement process more efficient. 

    Additionally, automation enables stakeholders to generate detailed reports on contract utilization, supplier compliance, and purchasing activity, giving category managers and chief procurement officers (CPOs) complete oversight of the process. With everything visible, trackable, and reportable, procurement teams can operate with greater precision, reduce errors and save time—fostering smoother collaboration and better supplier relationships. 

    Here’s how GEP can help in streamlining your PO processing.

     

    Tags: Procurement Strategy , purchase order processing

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