What is Purchase Order System?
A purchase order (PO) is a commercial document and first official offer issued by a buyer to a seller indicating types, quantities, and agreed prices for products or services. It is used to control the purchasing of products and services from external suppliers.
It is important for an organization to have an advance purchase order and inventory management software application so that it can execute the purchasing of goods and services from vendors and keep track of them. A large organization may be able to afford to spend hundreds of thousands of dollars to implement an ERP system. For small and medium-sized companies, there are many software vendors who provide purchase order systems with varying degrees of complexity and cost. If your organization has few to several hundred employees, then the DATAMOTO.COM purchase order management system application could be right for you.
What are the key features of a Purchase Order System?
Key Functionalities of Purchase Order Management System
The key features of a purchase order system can be summarized as follows:
- Create a purchase order for a vendor.
- Only designated approvers can approve purchase orders.
- It should able to create PO for both goods and services.
- For goods, it automatically integrated with the inventory system and adds quantity when goods are received.
- Goods receive automatically generates bills.
- Received goods can be returned. It will deduct stock from the inventory and also generate an invoice for the vendor.
- Generate PDF of a PO and email to the customer.
What are the advanced features of a Purchase Order System?
Sales to Purchase Order Tracking
Dashboard to Track Sales and Purchase Orders
For example, it is common that material handling companies mostly source materials when a customer places an order. So, a sales order will have one or more purchase orders. It is very important that a purchase order management software supports tracking of purchase orders of a sales order so that it can be fulfilled as soon as goods are received. A dashboard where all the sales order and purchase order states can be viewed can help track various purchases and sales orders.
Order Aggregation
A sales order can have items that you need to source from various vendors. For example, you run a field service and your field tech decides a number of materials required to fulfill the service. So, your field tech finds the preferred vendors for each item and creates POs. In such scenarios, the system should automatically aggregate orders in a single PO if items are being ordered from the same vendor. This way, the field tech does not need to manually add items in an existing PO — the system does for you.
Bill Aggregation
When orders are received, the purchase order system generates the bill. It is common that all the items requested may not arrive at the same time. As ordered items are received, bills are generated. So, for a purchase order, there could be multiple bills generated. But, it is desirable that if bills are in draft state (not yet paid), then all these bills from the same PO should be merged. A purchase order system should only generate a new bill if the previous bill for the same PO is not in a draft state. If it is in a draft state, then it should aggregate the received items in the existing bill.
Drop-ship Purchase Order
A drop-ship order is a supply chain management technique in which the seller does not keep goods in stock, but instead transfers customer orders and shipment details to either the manufacturer or a wholesaler, who then ships the goods directly to the customer. There are situations, where sellers do semi-drop ship. This means, once they receive customers’ orders, they buy from wholesalers or manufacturers. Once items are received, they repackage items and send them to customers. A purchase order management system must support drop-ship orders.
Multi-Location Warehouse Integration
To handle good receives, a purchase order application must be integrated with the inventory management system. An inventory system can manage multiple warehouses. In such cases, when items are received, a purchase order system must allow receiving goods in a particular warehouse location. A purchase order receive should able to track inventory updates and similarly, an inventory update activity should able to track the purchase order which caused that inventory update.
Inventory Alert to Purchase Order
An inventory management system usually allows users to set stock thresholds and if the available quantity goes below the threshold quantity, then the inventory system generates an alert. It is highly desirable, that users should able to generate POs from the inventory alert messages for items with a single click. This automates the process and reduces human errors.
Vendor Catalog
A Vendor Catalog provides the list of all goods available from various vendors. You can manage multiple vendors to supply the same item. A vendor catalog is mapped using SKU with inventory and using vendor ID with vendor database. Usually, a vendor catalog keeps track of vendor item code, vendor item description, vendor cost, and currency. When you create a purchase order, you can choose a vendor from the vendor catalog. The purchase order system then populates PO with the vendor item code, description, and cost along with your own item code. This way, the supplier or manufacturer can supply you with the right part, and also you can keep track of your inventory using your own item code.
Cost Center or Budge Control
It allows you to set cost centers and allocate a budget for each center. You can choose to configure your system in such a way that every PO must provide a cost center to indicate from which heading the expense will be tracked. Having a cost center and budget tracking is the best way to track your expenses.
Advanced PO Approval
Sometimes you need an approval process for POs. You may want to set approval for all POs or only the POs which are above certain predefined thresholds. Also, you can have one or more approvers. The approval process should advance once the current approver approves the PO. PO approval can be done from the application or through Email.
Bill Integration with Accounting System
Purchase order control system generates bills when goods or services are received. Though bills are generated by a purchase order system, often accounting system of a company is separate from the sales and purchase order system. In such a scenario, it is necessary that the bills and invoices generated in a sales and purchase order management system must be integrated with the accounting system. For example, if you are using Quickbooks for accounting, then your purchase order system must synchronize its’ bills into the Quickbooks accounting system.
Further reading: the best purchase order software review & pricing
The best way to find out whether a purchase order management system is right for you or not is to give it a try or arrange a demo. Once you start the discovery, you may find that you may want to change some of your business processes to automate and optimize your business operations. For more information look at it at Datamoto: purchase order management control system.
