Wednesday, May 29, 2024
Homeecommerce blog What is a PO System? & How to Set it up?

[Complete Guide] What is a PO System? & How to Set it up?

PO system stands for Purchase Order system and it is basically a system which is used to make sure that businesses can keep track of all the orders they have created and the invoices they have generated to be paid to the vendors. Small as well as medium-sized businesses need to use the Purchase Order system in order to streamline the process of tracking and documenting all the orders.

With the help of a PO system, small businesses can forecast the demand and make orders to the vendors based on the recommendations given by the system. A PO system also helps avoid fraudulent activities as it keeps track of each and everything so that nothing can be undocumented during the process.

Nowadays, it is not mandatory to have PO systems inside your own factory or warehouse as the systems are now cloud-based as well which means you just need to take a subscription from a good PO system such as Coupa Procurement. It is also worth noting that the PO systems have become essential in the functioning of any small business because vendors demand invoice as well as tracking of payments which means that you need to automated these tasks with the help of such systems.

It is also very interesting to note about the life cycle of a Purchase Order which involves the various aspects such as:

  • Choosing the vendor
  • Negotiating terms with the supplier
  • Preparing a PO
  • Receiving orders and inspection of quality
  • Invoice processing
  • Payment processing

There are various types of PO forms as well as such as standard, planned, blanket, and contract. For this article, we will keep things simple and just tell you about how to set up a simple PO system.

Why do you need your own PO system?

Before we delve deep into how you can create your own PO system, we will tell you about the reasons why you need to have your own PO system. As we already mentioned, small businesses need to have a PO system in order to streamline their business but there are 5 main reasons why you need a PO system and here they are:

  • Legal Reasons

It is obvious that if you are going to start a new business, there will be legalities involved in it such as copyright issues and everything else. In order to standardize and comply with all the standards, a PO is required. With the help of a PO system, you can also avoid the risk of duplication and fraud.

  • Save Time and Money

You can also save time and money with the help of a Purchase Order system which is automated because we have noticed that manually created POs have a lot of duplication due to discrepancies in data which means that the vendors have an issue with them as well. Also, PO system make sure that you avoid price fluctuations as the price mentioned in POs is legally binding.

  • Easy tracking and documentation

With the help of a PO, you can track exactly how the vendor is processing your order and if it has already been dispatched or not. This is also a legal documentation to show exactly how your order was processed to make sure that there are no legal issues afterwards.

  • Improve Efficiency

You can easily improve the efficiency of your employees as they don’t need to manually create POs and instead give their energy on tasks which help you run the business optimally.

  • Improve Planning and Forecasting Orders

As we mentioned earlier, the main reason why you need a PO system is to forecast the demand of your orders and make sure that a new order is placed in order to not get out of stock, it also helps you not spend more than needed by letting you know when you will stock out.

How to set up your own PO system?

Purchase Order system
Purchase Order system

Now that we have mentioned why a PO system is needed, the next obvious question is how to set up a PO system for your small business. Well, here are the exact steps with which you can create your own PO system.

There are various features of a PO system that you need to keep in mind while setting up your own PO system and they are as follows:

  • Request and Quote module
  • Authorization and approval
  • Product and Service Catalog
  • Budget module
  • Invoice matching
  • Audit trails
  • Supplier management
  • Access management
  • Ease of use
  • Integration with other systems

In order to create a good PO system, you need to keep all of the above features in mind and get started with setting up your own based on the characteristics of your own business as every small business is unique in nature and requires a different set of instructions. To create a PO system from scratch, you need three main steps as mentioned below:

  • Define the purchasing policy

As we have mentioned already, there are different policies for every small business and your business might have a different policy compared to the rest. In order to understand the current purchasing policy of your business, you need to review the existing workflow of vendor selection, roles and permissions in the company as well as other things and define the policy accordingly.

  • Choose the purchasing software

Once you have understood the purchasing policy of your organization, the next step is to figure out how you solve all the loopholes that are present in the current policy with the help of a new PO system. For that, you need to choose the right PO software which is ideally cloud-based so that you can access it from anywhere. We have already recommended Coupa Procurement as the ideal Cloud PO software for your business.

  • Implementation

Once you have understood the policy and also chosen the purchasing software, the next and final step is to deploy it in your organization and start making your Purchase Orders. However, it is worth noting that you should not implement the system in one-go for the entire organization because there are chances that things could go wrong. For that reason, it is always preferrable to deploy the software in a phased manner and it should be implemented first for those who have the highest decision-making power such as the top-level managers.

Any kind of business, small or large, will benefit from using a PO system and we have listed all the benefits, features, and use cases of a PO system in this article. Going a step further, we have also mentioned how you can set up your PO system inside your organization and we recommend you to use an already available option so as to save time and setup costs.

Alf Alferez
Alf Alferez
Dedicated writer with a strong track record of developing customer loyalty and managing general office operations. Enjoy being a part of a company where my skills and creative ideas will benefit the overall productivity of the organization. I have a strong desire to work in helping make the world a better place. Please reach out to me on alf@ecommercenext.org
RELATED ARTICLES

Most Popular