7 Steps to Implement the Purchase Order Process

Everything you need to know to implement a new purchase order process successfully

With your business moving forward fast, you’ve surely realized it’s time to level up your purchasing and procurement processes. The first place you want to start—and rightfully so—is with the important process of issuing purchase orders.

What is The Purchase Order Process Used For?

This official document is critical to the procurement process and is used by the vendor to accurately issue a purchase to the buyer. The purchase order is created after the purchase request is approved, and includes a unique PO number, contact information, the order and quantity, as well as the payment terms and agreed upon price.

The vendor invoice is different, and may also include the shipping method and delivery date which can be used to track inventory. The PO is compared against the vendor invoice and given to accounts payable along with the goods received note in order to confirm a three way match and complete the order. Smooth and accurate order fulfillment is extremely important to the process, and in addition to making for a strong buyer-vendor relationship, the associated documentation is helpful for any auditing or reporting needs.

While this endeavor may seem clear-cut, there are actually a number of things that need to be accounted for when implementing a new purchase order process. For starters, each purchase order system involves a number of various processes and stakeholders. These stakeholders need to be informed when action is required on their part, and they need easy access to all of the relevant information surrounding the purchase order. There’s also the question of how the team working on any given purchase order manages any changes that arise during the process.   

What are The Steps Involved in a Purchase Order Process?

Implementing a new purchase order process requires factoring all of these things and more. But by following the steps outlined here, you’ll be on your way to fast and efficient purchase order processes that make stakeholders’ lives easier while even improving your business’s bottom line. 

Step 1: Define Your Goals

It’s always good to be clear about your goals before embarking on any major process transformation. When it comes to implementing a new PO process, different businesses have different key goals. Some goals depend on the business size, type (product or service, for example) or culture. Usually, at the core of implementing an optimized PO process is the need to get business spend under control. By properly managing business spend and the spend pipeline, you can gain visibility, accountability, compliance and early involvement from the finance and procurement teams, all while reducing manual tasks and mending broken communication channels.  

Articulating these benefits to stakeholders and leadership is important. When everyone involved in the purchase order process understands the value of managing this process right, you can reap the rewards of a new purchase order process faster. It’s also important for you to be clear about the scope and timeline of this initiative; the faster it is, and the fewer people and resources it requires, the better. 

Step 2: Get Buy-In

Once you’ve defined your goals and timeline, the next step is to get buy-in from the relevant stakeholders. Depending on your company size, type, and culture, the relevant stakeholders might differ. Typically, they’ll be the CFO or VP Finance, the head of IT and systems, and often the head of Procurement or Operations.

Identifying your power users is another important step you should take as part of getting buy-in from your key stakeholders. Who are the people that buy often from a number of different vendors? It’s important to get these power users on board with your initiative to make the transition smoother.

Step 3: ERP, or ERP + a Third Party Tool?

After defining your goals and collecting feedback from the different stakeholders involved, you’ll probably know whether you want to build your entire purchase order process on your ERP, or to separate operational and financial processes between the ERP and a complementary tool. 

If your ideal purchasing process involves a number of non-finance users, you’ll be better off separating your financial and operational processes so that purchase requests and approvals are done on a third-party system while PO generation is done on your ERP.

If your ideal PO process involves a small number of users, most of whom are already using your ERP, then you can roll out the approval process directly on the PO in your ERP. This approach will most likely involve delegating “purchasing reps” in each major department and granting them ERP access if they don’t already have it. 

Keep in mind that most PO modules included within ERPs limit you to opening POs only with registered vendors. This means that, in the case of a purchase from a new vendor, POs often become a sort of “rubber stamp,” rather than an actual pre-approval tool that helps manage spending.

Typically, for fast moving organizations, deploying purchase order processes entirely on the ERP isn’t the best choice. ERPs are technical, sensitive, expensive and often, slow. This makes them a poor choice for a widely used operation. 

Step 4: Design The Process

After defining your goals, getting buy-in from relevant stakeholders and clarifying which system (or systems) to use, it’s time to design your new purchase order process. A vanilla purchase order process involves PO submission, approvals, PO generation and transmission. 

You’ll need to configure the PO fields, approval routing, and transmission policies. If implementing a new purchase order process is part of a broader purchasing initiative, you’ll also need to determine how to incorporate additional processes such as vendor onboarding and marking goods received. 

As a rule of thumb, it takes real usage to achieve real insights. Therefore, starting with the vanilla version is often the smartest choice. After you get your new purchase order process in motion, you’ll be able to identify the necessary changes and implement them.

Step 5: Partner With the Right Vendor or Consultant

Whether you decide to use your ERP for purchase orders and skip the purchase requisition stage, or leverage a third-party tool to use on top of your ERP, you’ll be best off partnering with the right vendor or consultant. 

On the ERP front, you may have an internal expert or an external consultant. Make sure they understand the purchasing process well. Note that some ERP experts are solely focused on Finance’s considerations. You should get insight from someone familiar with combining operational processes with financial ones. 

If you opt for a purchase order tool that will work alongside your ERP, you should look for a vendor whose solution covers the following: 

• User experience (to drive fast and painless adoption)
• Flexibility (to support ongoing process and technology changes within your organization)
• Integrations (to connect with your ERP)

Step 6: Setup and Preparing to Launch 

It’s time to execute!

Deploying a new purchase order process should happen in two distinct stages: technical implementation, and change management. Technical implementation involves ensuring that your purchase order process is working as planned, including integrations and passing usability testing. In parallel to the technical implementation, you should prepare for change management. Keep key stakeholders involved in the implementation process, get their input, update them regularly, highlight your wins, and ensure they relay important updates to their colleagues and team members.

Step 7: Deploy Your New Purchasing Process

When the time to launch your new purchase process arrives, ensure that the teams within your organization are fully aligned with the change and that users are embracing the new process. User adoption is an important key in ensuring your new purchasing process shows results. Sometimes, a “no PO, no pay” warning from the CFO can help get reluctant users on board. While getting everyone excited and part of the process may take some time, stakeholders will quickly experience the benefits of the new, smoother purchase order process. In the meantime, supporting them in adopting the new process is paramount.

Ensure it’s Well-Maintained

Post-implementation requires some attention to make sure everything stays moving in the right direction. Encouraging user adoption and engagement is a great start, but you’ll have to also keep an eye on the entire process to make sure it’s being performed correctly by all users. Now is the time to take inventory and check that the finance department or procurement team doesn’t have any issues or complaints, and that AP is having no trouble matching purchase orders to invoices. Moving from a manual purchase order process to an automated one can also help hugely, making it easier and faster for users to generate and upload exactly what they need. Follow these steps and keep up scheduled maintenance and you’ll have a new and improved professional PO process.