The Problem with Manual Purchase Orders
In many startups focused on hardware and procurement, manual purchasing processes are common. Businesses often use spreadsheets to create and manage purchase orders, which can lead to mistakes, wasted time, and insufficient data for making smart purchasing decisions. These issues can slow down product development, lower team morale, increase purchasing costs, and hurt profits.
Why Switch to Automated Purchase Order Systems?
Using spreadsheets for purchase orders is risky. Manual systems are inefficient and prone to errors. In this post, we’ll discuss why businesses should consider an automated system like ControlHub. We'll cover the drawbacks of manual processes and the advantages of going digital, especially how it can reduce purchasing costs.
Benefits of Automated Purchase Order Systems
Automated systems streamline the purchasing process. They reduce errors and save time by eliminating the need to manually enter data. This efficiency not only speeds up operations but also helps control purchasing costs. We'll explain the key features of digital purchase orders, including how important order numbering is for tracking and organization.
Why should you stop using spreadsheets for purchase orders?
No one argues that spreadsheets are valuable tools. They speed up several manual processes thanks to formulas that quickly calculate large sums and numbers that you can translate into graphs, charts, and diagrams.
However, they are very inefficient and can produce errors and a lack of data your company needs to make better purchasing decisions.
Related Post: Pain points of a manual Purchase order process flow .
Try our free Purchase Order Template and automate your Procurement Process!
Spreadsheets are outdated.
Spreadsheets are leftovers from 20 and 30 years ago, especially now that advanced software tools (like purchasing software) can do much faster and more accurate work as your purchase order system.
There are plenty of people out there who are self-proclaimed experts at Microsoft Excel.
But why listen to them? They are holding on to a tool that’s a relic of the past.
Many purchasing programs and purchase order systems offer customization, advanced analytics, planning tools, and quick financial reports that allow you to track several metrics very easily.
Spreadsheets are not quick.
In terms of inputting data for purchase orders, your teams must still type information in individual cells, even if columns and rows are labeled correctly.
They’ll have to make sure the original purchase order template is copied correctly.
Then any formulas must be double-checked to see if inputting any data didn’t alter the results. If your accounts payable staff gets an error message, they’ll have to track down what happened (which takes even more time).
Lack of standardization
Yes, you have a purchase order template that everyone starts out with.
But that can change quickly.
Let’s say your staff starts a purchase requisition for your company. The template allows for numeric inputs in some columns. But someone must leave a note or asterisk.
Where does the note go? Will someone see the note? What if another department fails to see the important note?
What happens when a purchase order becomes way too long? Does the staffer add a row or a column to make it bigger?
One person on the requisition team may decide to make purchase orders one way, while another chooses to make it a different way because both people have different preferences.
Can you see how manual purchase orders can quickly get out of hand?
Limited access in Excel.
If you’re using Microsoft Excel for purchase orders, only one person can access a master spreadsheet at a time.
Yes, your staff can make a copy of the original by using the “Save As” feature.
But what if the naming convention is off? Where is the spreadsheet saved? How will someone find it later? Which spreadsheet is the original purchase order? What if there are duplicate purchase orders? Does the purchasing department send one or both orders to a supplier?
The vendor may not realize that you should have only sent one purchase order and not both. Then, your accounts payable team may get two invoices, pay both of them, and then you have too much inventory on your hands.
Another way around the single-access problem was to copy the original, make changes to the purchase order template, and save it to the cloud. But then your team still spends too much time with manual purchase orders.
Even if your team can save one minute for every purchase order, your staff can save tons of time over months, quarters, and years when you consider how many purchase requisitions you make for hardware, raw materials, and goods.
Confusing multiple users in Google Sheets.
Google Sheets tried to solve the single-access problem.
And it works wonders when the entire team needs to collaborate and work on a project together.
But working on spreadsheets in a shared space brings new headaches.
Someone starts a purchase order in Google Sheets but doesn’t finish it in time. A second staffer comes into the shared spreadsheet and takes it over, even if the previous person may have neglected to input all of the entries. There are chances for duplicate orders or omission errors when this happens.
Your hard data is incomplete and unreliable. Then your purchasing team must spend even more time tracking down who approved the purchase order and what the accurate numbers are when the invoice arrives.
Errors, errors, and more errors.
Let’s assume everyone knows your standard purchase order process.
They follow it, but errors still happen.
Your team receives a request for a purchase requisition from an email. Someone copies and pastes the information into the correct spreadsheet cells.
Did they highlight the entire text? Did your staff miss a column or row? How do they double-check for accuracy?
No centralized document storage.
Spreadsheets offer a wealth of data, from who made a purchase requisition request to standardizing templates for your purchase order process.
However, spreadsheets lack a centralized storage system of storage.
When you send an email with the attached spreadsheet to the person who approves the purchase request, what if that person doesn’t get to it for a week? What happens when that person is out sick or on vacation?
Similarly, your accounts payable department may have trouble matching the purchase order with an invoice and packing slip because all of these documents are stored in three different places.
An auditor or accountant taking a deep dive into your bookkeeping may find discrepancies and errors, and then the confidence in your internal quality controls may come into question.
Where are the analytics?
Data is the new gold for businesses, even ones relying heavily on requisitions for goods as raw materials every month.
Spreadsheets are great for containing data, but there are limits to their analysis capabilities, particularly if human errors are introduced into the spreadsheets. Once that happens, the errors propagate to your data, and you’re making flawed decisions based on inaccurate data.
An automated purchase order system gives you robust analytics in addition to automation that reduces human errors and speeds up the purchase order process. Use your analytics to manage inventory more effectively, reduce duplicate orders, employ strategic sourcing throughout the year, and make your purchasing more efficient.
Spreadsheets don’t readily discover unanticipated invoices.
Companies that lack a good purchase order process may have to wait for invoices to arrive before figuring out how much money was spent.
If your accounts payable team received an unexpected invoice, it may indicate that a purchase order was either not recorded or is not visible to the other team. And the invoices may not match what a purchase order says.
Because spreadsheets need a lot of manual data entry, they may have errors. An automated purchase order system reduces these errors and mitigates any surprises in your accounts receivable team.
Suppliers are probably already automated.
Have you considered that your suppliers are probably already automated? They are expecting purchase orders in an easy-to-read format they can quickly fit into their system. In fact, suppliers may require certain automation before they even decide to do business with you.
You could be missing out on valuable partnerships and relationships by not having an automated purchase order system.
Inefficiencies of a Manual Purchase Order System
Manually issuing purchase orders offers dual areas of inefficiency: lost time due to manual labor and human error.
Common errors and inefficiencies in a manual purchase order system include:
If no one signs the order, accounts receivable won’t agree to it.
A breakdown of the purchase order process may occur if the PO does not accurately name or code a supplier.
Failure to complete all aspects of a purchase order can create problems down the line where other departments must track down additional information.
Are you willing to bet your company on spreadsheets as purchase orders?
Related Post: How to integrate Purchase Orders in your procurement flow
Generate POs quickly and efficiently.
Now that we’ve gone over the many dangers of having spreadsheets as purchase orders, let’s go over some standards for automating your purchase order process a little more.
What is a purchase order?
A purchase order is a standardized form that explains to a supplier exactly how many goods your requisition department needs. For companies that rely on a steady stream of materials from suppliers, purchase orders are a lifeblood for getting inventory, determining the financial stability of a company, and having accurate accounting for stakeholders, investors, lenders, and tax authorities.
Digital Purchase Ordes
A digital purchase order has several key elements that a purchasing department needs for proper order tracking:
- Name, address, and contact information of the purchaser
- Name, address, and contact information of the supplier
- PO number
- Item descriptions
- Item numbers (if available)
- Quantities of each item
- Prices of each item
- Payment terms, like due on delivery or 50/50 payments
- Delivery and logistics details
- Subtotals, totals, and amount due.
One key way to make tracking easier is through the PO number.
Purchase Order Numbering
Every purchase order utilizes a unique PO number that can’t be confused with another as part of the automated purchasing process.
It can contain numbers or letters. Your purchasing department can make numbers themselves, or automated software can generate PO numbers based on someone’s criteria.
The Old PO Template/Generator
A purchase order generator or template represents one upgrade from a spreadsheet.
But it’s still unwieldy because all it does is generate a purchase order one at a time.
While you can use a purchase order template instead of a spreadsheet, this still isn’t the most efficient solution for your procurement-heavy business model.
A template generator is still too slow.
Spreadsheet Alternatives for Purchase Orders
You should probably start using a more efficient system to generate purchase orders, like a PO generator or, better yet, a purchase order system
description for each of them where you include the pros and cons for each one.
Purchase Order Generator
A purchase order generator is a quick and easy way to create a purchase order without needing a spreadsheet. You can email the PO to whoever you need, and the supplier can easily copy and paste the information.
However, the PO generator only works for one purchase order at a time. It doesn’t allow for auto-fill information from a database, nor does it automatically allow someone to approve the order.
Purchase Order System
An entire purchase order system is the best way to go.
ControlHub, an end-to-end purchasing solution that includes purchase order generation and management, has many features that not only make the purchase order generation process super efficient, but the rest of the purchasing process as well.
Try it out, we promise you’ll like its intuitive controls, metrics and analytics, and ease of use. Efficiency in your purchasing department isn’t far away.
What is a Make-or-Buy Decision?
This critical decision involves choosing between manufacturing a product or component in-house or purchasing it from an external supplier. It's a complex consideration, intertwined with the core of business strategy and decision-making, requiring a deep dive into costs, quality control, compliance, and much more.
Learnings
Manual purchasing processes can be labor-intensive and inefficient for procurement-heavy startups, leading to errors, delays, and reduced morale. Using spreadsheets for purchase orders can exacerbate these issues, as they lack the automation and data management capabilities necessary for efficient procurement.
This post highlights the inefficiencies of manual purchase order systems and explains why startups should consider an automated purchase order system. The article covers the key elements of digital purchase orders, purchase order numbering, and the benefits of using a purchase order system like ControlHub.
By switching to an automated purchase order system, startups can streamline their procurement process, reduce errors, and make data-driven purchasing decisions.
