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We saved more than $1 million on our spend in the first year and just recently identified an opportunity to save about $10,000 every month on recurring expenses with PLANERGY.

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Cristian Maradiaga

King Ocean

Download a free copy of "Indirect Spend Guide", to learn:

  • Where the best opportunities for savings are in indirect spend.
  • How to gain visibility and control of your indirect spend.
  • How to report and analyze indirect spend to identify savings opportunities.
  • How strategic sourcing, cost management, and cost avoidance strategies can be applied to indirect spend.

Purchase Order Approval Process: What Is It, Benefits, and How To Automate It

How to Automate Your Purchase Order Approval Process

Making a killing in your chosen market is an undeniably rewarding part of any business endeavor. But building a strong bottom line and a razor-sharp competitive edge relies on cutting costs as much as raking in the revenue, and one of the best ways to do so is through process optimization. One of the easiest, and most effective ways of achieving this goal is to automate your purchase order approval process.

What is Purchase Order Approval?

Like Pinocchio, your purchase orders have to go through a special process to become “a real boy”—or at least, a real and binding legal agreement between vendor and buyer. The average purchase order approval workflow follows a set sequence:

  1. The individual or department in need of goods or services submits a detailed request for the item(s) or service(s) in question to either an approving party (such as a supervisor, manager, etc.) or directly to the procurement department. In the former case, the request may require multiple approvals depending on the quantity of goods and services or price involved. Once the purchase requisition has been approved for submission, it is routed to purchasing.
  2. The request is reviewed by procurement for accuracy of information, formatting, and compliance with policy, procedure, and legal requirements. The procurement team also verifies the requesting party’s budget can support the purchase.
  3. Based on the information collected, budget capacity, and procedural review, the purchasing team either approves the request or rejects it. If the purchase requisition is rejected for non-budgetary reasons (e.g., missing or incorrect information), then it may be returned to the requestor for correction and resubmission.
  4. Approved purchase orders are issued a purchase order number and prepared for submission to the vendor. They include essential information related to the order, including:
    • Full address and contact information for the buyer
    • Full address and contact information for the vendor
    • Quantity and quality of goods (or services) ordered
    • Payment information, delivery terms, and conditions specific to both the order itself and any negotiated contractual obligations between the two parties.
  5. Once it’s ready, the purchase order is double-checked for accuracy and then submitted to the supplier.
  6. In order to become a legally binding agreement, the purchase order must be approved by the supplier. Upon receiving the purchase order, vendors will generally either:
    • Check for previous purchases and any existing outstanding balances (for current customers)
    • Or confirm the buyer’s contact and payment information, and, in some cases, their creditworthiness (for new customers)

Once it’s been processed and approved by the vendor, the purchase order is a legally binding agreement between your organization and the vendor.

In the paper-and-pencil era (which, to be fair, is still this era for some businesses), the purchase order approval process was time-consuming, laborious, and heavy on wasted resources. But even if you’re not still relying on triplicate and typewriters, the entire process is still rife with potential problems and risks if you’re not using automation.

Your Purchase Order Approval Process Needs Help

In the paper-and-pencil era (which, to be fair, is still this era for some businesses), the purchase order approval process was time-consuming, laborious, and heavy on wasted resources. But even if you’re not still relying on triplicate and typewriters, the entire process is still rife with potential problems and risks if you’re not using automation.

Switching (or upgrading) to automation-powered purchase order software brings a bevy of benefits, including:

  • Greater speed and fewer bottlenecks thanks to automatic routing, push notifications and reminders, and access from phones and tablets (via a mobile app) and PCs. Decision making is faster and more strategic than with opaque, last-gen solutions.
  • Fewer errors and higher accuracy thanks to “hands-off” workflows that auto-populate data fields from a central database and automatically provide relevant information and access based on user roles and responsibilities.
  • Improved productivity and efficiency throughout your organization thanks to a streamlined purchase order approval process, reduced risk exposure through the elimination of rogue spend, and fewer staff hours and resources dedicated to low-value tasks like data entry and error corrections. Paper consumption (and waste) is massively reduced thanks to digital creation and distribution of all documents.

Automating Your Purchase Order Approval Process

No matter how your organization currently approaches procurement, integrating automation with your existing procurement process is easier than you might think. You have lots of options when it comes to choosing a software solution, but in general, a winning procurement package will integrate with your existing software, provide centralized, cloud-based document and data management, and include a mobile app for user access from a variety of devices.

Once you’ve selected your purchasing software, the next step is following a few simple best practices to ensure a smooth transition and a successful shift to greater productivity and efficiency.

  • Review your existing purchase order approval workflow. Document the journey traveled by every purchase order, from purchase requisition forward, and identify any consistent points of failure or bottlenecks. Make note of the primary and auxiliary buying and approving roles for integration with your system and automated routing.
  • Set benchmarks and standards for performance, reliability, and efficiency. This applies to vendor performance, internal business practices, and overall procurement functionality. Because you’ll have access to every aspect of transactional data across the entire process, you can use data analysis to gain insights into your overall workflow efficacy and discover overlooked challenges (and opportunities for further savings).
  • Establish standardized and consistent product categories with associated vendors. Organize and prioritize your vendors based on contract terms, price point, and reliability. Create automated contingency workflows to accommodate essential buys and maintain production if primary suppliers aren’t available or able to meet demand. Standardization of suppliers also eliminates invisible rogue spend by bringing all purchases into the system for tracking and verification.
  • Use standardized product categories to identify potential opportunities for contract (re)negotiation with preferred vendors. In addition to discounts, strategic sourcing can help strengthen supplier relationships and make it easier to integrate your suppliers into your procurement, inventory management, and financial planning functions. It may even create opportunities to partner with key suppliers for shared initiatives.
  • Create workflows to manage one-offs. Integrate responsibilities and roles for ordering and approving the purchase of unusual buys. Add a review workflow for these purchases to ensure compliance with existing policy while still allowing for discretionary purchases or reprioritization of expenditures (e.g., delaying small but non-critical purchases in order to fund a larger, more urgent one).
  • After designing your purchasing workflows, provide training and support resources. Your new system will only be effective if it’s being used. Make sure everyone who uses the system has training while you’re still setting up (and well prior to launch). In addition, make sure they’re well-acquainted with their system logins before the system goes live. Connect with IT to ensure everyone has the mobile app and desktop client, too. Provide ongoing, real-time support for questions, and training refreshers every few months once the system is live to ensure no one is left behind. Ensure the user guide, FAQs, and other user-driven resources are available on the server and through the software.
  • Audit your workflows for continuous improvement. Going live with your automated purchasing solution is only the first step. You can continue to refine your processes, taking note of potential problems related to specific suppliers, products, or workflows, and then tweak them to bring them up to par with the benchmarks you’ve set. The more efficient and accurate your workflows, the greater your savings.

Simplify for a Stronger, Smoother Approval Workflow

Why settle for clunky, inefficient, and error-riddled purchase order processing that wastes time, labor, and resources? Make AI-powered automation a part of your PO process, and you’ll gain the powerful ability to continually refine your procurement to achieve maximum value with minimum spend.

What’s your goal today?

1. Use PLANERGY to manage purchasing and accounts payable

We’ve helped save billions of dollars for our clients through better spend management, process automation in purchasing and finance, and reducing financial risks. To discover how we can help grow your business:

2. Download our guide “Indirect Spend Guide”

Download a free copy of our guide to better manage and make savings on your indirect spend. You’ll also be subscribed to our email newsletter and notified about new articles or if have something interesting to share.

3. Learn best practices for purchasing, finance, and more

Browse hundreds of articles, containing an amazing number of useful tools, techniques, and best practices. Many readers tell us they would have paid consultants for the advice in these articles.

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