Purchase Order Management
Effective purchase order management is often the key to success in today’s dynamic and competitive retail environment. But the purchasing activity of many retailers remains inefficient and fraught with issues. This makes it difficult or impossible for them to reduce costs and to satisfy the demands of consumers.
Efficient purchase order management has never been so important.
What is a Purchase Order?
A purchase order is a document that is sent from a buyer to a supplier. This document features the details of the goods that the buyer wishes to purchase and the quantities of each item that they are ordering. A purchase order should also include the agreed price for each item being ordered. When accepted by the seller, a legally binding contract is established between the two parties.
It is essential that each purchase order raised is detailed and accurate in order to eliminate potential confusion. The document should include all relevant product identifiers including product numbers, colours, sizes and any other information which would be required to distinguish that product or variant from all others.
Most retail operations are small businesses at the outset and so tend to raise purchase orders manually. As these businesses develop, this practice becomes less desirable and then counterproductive. The biggest challenge that retailers face is the necessity of having the right products available at the right time and in the right quantities. The complexities of modern retailing ensure that it becomes increasingly difficult to meet this challenge without digitising purchase order management.
The Complexities of Retailing
Many organisations wait far too long to attend to their purchasing systems. Some persist in not raising purchase orders at all. This could stifle growth and if the businesses do expand, inefficient purchase order management will deliver a raft of issues.
Ranges and Variants
Comprehensive ranges and product variants mean that it becomes hard to definitively identify each item. Confusions are inevitable when humans are involved and so errors begin to creep into purchase orders. The result is the acquisition of the wrong stock and this will seriously impact profits.
The diversity of products and the sheer number of variants can make it very difficult to manually monitor sales and seasonal trends. It also becomes an onerous task to manually establish the stock levels which should trigger re-orders as these will vary from product to product and perhaps even from variant to variant. The inevitable consequence is that stock is ordered too late, in the wrong quantities or not at all.
Most retailers now sell across multiple platforms making it even more difficult to monitor sales activity and therefore to order the correct stock at the right time.
Many retailers hold stock in more than one location. Those responsible for purchasing can’t simply visit the shop floor to check stock and observe sales activity.
Supply chains vary in their complexity and efficiency. In addition, delivery times can be subject to seasonal fluctuations. The stock which has been ordered will be of no use to a retailer if it hasn’t arrived on time and so delivery times and potential delays must be identified and then factored in to purchasing activity. Where a business holds significant stock or purchases stock from many suppliers, it could be beyond the scope of any person or team to keep on top of these issues without the help of effective software.
Amendments and Partial Deliveries
It is inevitable that purchase orders will sometimes require amendment, that orders are occasionally only partially fulfilled and that some goods are defective and must be returned to suppliers. It becomes very difficult to monitor and account for this activity manually as a business continues to expand.
Purchase orders initiate a process which should culminate in the arrival of the ordered goods. It is vital that businesses have the means to monitor whether or not stock has been delivered and that the order has been fulfilled correctly. With manual systems, it is all too easy to overlook the fact that an order has failed to arrive or that only half of the goods have been delivered.
A global supply chain could mean that stock must be ordered, paid for and costed in multiple currencies. A manual purchasing system will mean that this situation results in even more work and an increase in human error. Complications with pricing are also inevitable.
As any organisation grows, more and more people may become involved in purchasing on behalf of the business. It is crucial that their activity is managed, that stock isn’t ordered twice in error and that purchasers do not overspend. With manual systems it can be hard to spot duplication and other errors.
Poor Purchase Order Management and Profitability
It is vital that the importance of efficient purchase order management is understood. Without it, the accurate identification of merchandise, correct pricing, the monitoring of delivery times and efficient stock allocation become impossible. The timely and accurate ordering of stock and materials are fundamental to fulfilling demand, minimising costs and maximising profits.
Poor purchasing practices will result in the following issues, all of which will impact profitability:
- Missed sales opportunities arising from lack of stock
- The inability to fulfil orders on time due to lack or stock or the late arrival of stock
- The holding of excess stock which will remain unsold
- The holding of stock in the wrong colours and sizes
- Holding the wrong quantities of each variant
- Lack of awareness that stock ordered has not been delivered
- Not knowing that an order has only been partially delivered
- Inability to respond quickly enough to trends
- Inability to determine where an order has gone wrong
- Duplicate orders and other human errors
- Lost or damaged paper documents which are vital for record keeping
The Benefits of Purchase Order Management Software
When you really think about how complex retailing is today and how many potential difficulties there are with purchasing, it becomes obvious that purchase order management software is an essential investment. One which will almost certainly pay for itself in double-quick time.
The latest systems feature manual and automatic purchase ordering, a purchase order approval process, extensive reporting and supplier performance statistics. Businesses can also benefit from multiple forms of purchase order, the ability to order in multiple currencies, the monitoring of drop ship orders and estimates of shipping costs including import duties. Information is accurate and available in real time.
An effective system enables any business to improve their profitability and gain a competitive edge by:
- Reducing costs through operating lean
- Reducing costs by minimising errors
- Maximising sales via timely purchasing decisions
- Maximising sales by holding the correct levels of stock for each product and variant
- Improving decision making through access to real time information
- Identifying and managing issues with supply chains
- Establishing competitive prices whilst maintaining adequate margins
- Streamlining purchasing and accounting
- Establishing and adhering to purchasing budgets
- Saving time and potential confusion by Syncing purchasing systems with suppliers’ systems
Is there a good reason not to digitise purchase order management? Simply, no. Many businesses delay making an investment in technology in the erroneous belief that they don’t need it, that they don’t need it yet or that they can’t afford it. Many of the advantages that can be enjoyed with the right system will only become apparent when a business begins to use it. The efficiency of any retail business will be significantly improved by taking advantage of the latest technology and that includes purchase order management.
To learn more about how Island Pacfic can help your business harness purchase order management, or for a demo of our inventory management software, contact us today.