In different organizations, the procurement process usually involves multiple managers across departments that approve a purchase order. However, if you don’t have a streamlined procedure, it becomes challenging to track the progress on every purchase request and there may be a lot of back and forth. This consumes time, delays purchase orders, and may also cause confusion. Since procurement of new assets or inventory involves a significant part of a company’s time and budget, it is critical to develop a purchase order approval workflow to manage requests.
In this article, we will explore what a purchase order approval process entails and its benefits— helping your business coordinate a procurement strategy easily.
What is a purchase order approval workflow?
A purchase order approval workflow outlines the entire process of validating requests before a purchase is made. This approval process helps ensure that all purchases align with business policies, the budget, and the organization’s quality standards.
In order to set up a successful approval workflow, it is important to define the criteria for authorization. Using categories such as total cost, location of delivery, and vendors enables you to clearly highlight all critical information in the PO. For example purchase requests created for less than $100 can have a single approver every time. Similarly for high value assets, organizations can set up a sequence of approvers to minimize chances of errors in the procurement process.
The approval process also facilitates easy reviews and revisions. Lets say a senior manager denies a request for two Macbooks. A revision can be sent back to the requestor asking for clarification on the request. In this way, an approval process keeps flowing smoothly without unnecessary disruptions or delays.
How does a purchase order approval process work?
Let’s take a look at the stages of a purchase approval process:
Generating the request: The procurement process starts off when an employee generates a purchase request. The request includes details like the good or service required, its cost, name of vendor and the delivery location.
Review and approval: Next, the purchase request is sent for review and approval. The relevant approvers review the purchase request and make sure it aligns with the company policies. If the purchase request passes the review stage, it is approved. This stage may require more than one approver depending on the hierarchy defined by the business.
Purchase order creation: Once all the details have been reviewed by the approvers, the purchase request is converted into a purchase order with its unique tracking ID. The identification details are used to track the progress of the purchase order.
Vendor approval: After internal approval the purchase order is sent to the vendor for approval. If it meets the supplier criteria then it will be accepted and a delivery date will be provided to the company.
4 ways a purchase order approval workflow helps improve procurement
Organizations want to control costs and avoid unnecessary expenditure, which is why a purchase order approval process is beneficial. Higher authorities can ensure that a purchase is necessary before approving it. When implemented correctly , a procurement approval system can expedite workflows, and save time and effort for all the employees involved.
Here are some major ways a purchase order approval system helps improve procurement:
1. Automated workflows
Manual PO approvals are time consuming and prone to human error. In order to tackle such problems, businesses can automate the PO workflows by using an asset tracking software.
This means using a dedicated system to route purchase requests to the appropriate approver. With an automated PO process in place, there are fewer chances of inaccuracies and bottlenecks as timely notifications remind the approver to review the request. All details regarding the PO are recorded in the system so there is minimal chance of error in documenting critical information such as total costs, location of delivery, and shipping rates.
Overall, an automated PO system facilitates seamless task execution. It improves team collaboration by boosting productivity, and reducing approval times.
2. Policy compliance
Every organization has a set of policies and rules that need to be followed before a purchase is made. These are generally based on the requirements of the supplier and business budget constraints.
For example, a supplier only considers orders above $100 or a minimum of 20 units. A requester unaware of this supplier policy may set up a purchase request of $80. Now, with the help of an approval workflow, this PR can be sent back for revision on time – saving the inconvenience of vendor rejection.
When setting up a PO workflow, businesses have the option to add authorized approvers from different teams. This acts as a compliance control – ensuring quality standards are followed. For example, you can add approvers from the legal and finance teams. This way the PO can be vetted by the appropriate authorities and stay in line with company policies for procurement. In such workflows, it becomes easier for the approvers to flag any items that do not meet the business requirements or budget and send the PO back for revision to the requester.
3. Verified audit trail
According to survey data, the average level of inventory accuracy in US retail operations is 63%. Inconsistent inventory practices have a negative impact on stock management, and end up disrupting the budget, and storage space. To tackle such issues, it is essential for businesses to devise streamlined procurement strategies. In such cases a PO approval workflow for your business helps in maintaining comprehensive and accurate records for all procurement activities.
With an approval process in place, you have a transparent record of all procurement steps– from purchase request creation to the sales receipt. Moreover, all communication is also added on to the PO workflows to provide justification for every purchase made for the organization. All these workflows combined act as a reliable audit trail for regulatory financial reporting.
4. Standardization and control
Businesses can set up PO approvals to control procurement and streamline budgeting. For example you can create a PO workflow for items of different costs.
Low value items can be routed towards junior managers, while high value equipment can be sent to higher authorities for approval. Categorizing POs according to costs incurred helps businesses standardize procurement practices– leading to a higher level of organizations.
Having a sequence of approvers also ensures that procurement always remains within budget . This way, no PO exceeding the set limit can be approved without being reviewed by the specified authorities. . With quick access to critical PO information, approvers can avoid vendors quoting higher costs or with a bad reputation. All of this information helps practice stringent control over procurement operations.
Use your asset management system to set up an approval process
The best way to set up a PO approval process is to combine it with your asset management system. EZOfficeInventory is an asset management software that offers Multi-tier approval, a PO approval workflow to help you improve procurement processes with higher security and control. Doing so enables you to easily create POs by entering existing asset details in your system. You can even designate approvers by simply searching for the appropriate roles and users.
Frequently Asked Questions (FAQs)
1. What is a PO approval process?
A PO approval process is a workflow designed to help streamline purchasing processes. Every PO created passes through a series of approvals before it reaches the vendor.
2. What are the steps of a PO approval process?
The PO approval process starts from the creation of a purchase request, then goes through internal review, then approval. After approval, the purchase order is created and sent to the vendor.
3. Why is PO approval important?
PO approval is important as it helps streamline purchase requests coming in based on certain criteria. It provides standardization and control along with automated workflows.
EZOfficeInventory is an asset management software that offers PO approval workflows to help you improve procurement processes with higher security and control.