In this article, we explore the strategic shift to Purchase Order (PO) purchasing with insights from Tom Erickson, President of CoreIntegrator.
With over 35 years of experience in the procure to pay space, Erickson offers a unique perspective on how transitioning to PO purchasing can dramatically improve your procure-to-pay process.
Readers will gain an understanding of the benefits of PO purchasing and receive practical advice from a seasoned expert on effective implementation. He also addresses common efficiency concerns and the successful integration of automated PO purchasing.
Introduction to PO Purchasing: A Conversation with Tom Erickson
Q: Tom, could you explain the essence of PO purchasing and its importance in business?
Tom Erickson: Absolutely. PO purchasing is all about creating an official order, or a Purchase Order, before acquiring any goods or services.
This step is fundamental in setting clear terms and expectations between buyers and sellers. It’s a system that brings transparency and accountability to the forefront of financial operations.
Q: How does PO purchasing differ from non-PO systems, particularly in financial management?
Erickson: Non-PO systems often lead to less organized financial tracking and a higher risk of errors. In contrast, PO purchasing ensures that every transaction is pre-approved and meticulously recorded.
This dramatically reduces unauthorized spending and financial discrepancies, which are common pitfalls in less structured systems.
Q: So how does integrating PO purchasing benefit companies?
Erickson: Integrating PO purchasing is not merely about following best practices; it’s about leveraging a tool that offers both control and flexibility.
Ever since the pandemic, companies have been keeping an eagle eye on cashflow. But controlling expenses is more complicated when employees are remote. PO purchasing ensures that all purchases are approved BEFORE they are made rather than after. That just makes so much more business sense. It means no surprises and total predictability of spending.
Expert Insights on PO Purchasing
Q: What are the most significant benefits of transitioning to PO purchasing, in your experience?
Tom Erickson: There are so many. Firstly, there’s enhanced visibility. PO purchasing allows for real-time tracking of expenditures and commitments, which is invaluable for financial planning and analysis.
Secondly, it reduces maverick spending – unplanned or unauthorized purchases that can disrupt budgets.
By requiring pre-approval, PO purchasing aligns spending with company policies and budgets.
Q: How does PO purchasing impact the efficiency and speed of the procurement process?
Erickson: There’s a common misconception that PO purchasing slows down procurement.
In reality, when implemented correctly, it can streamline the process.
With clear guidelines and approval pathways, PO purchasing eliminates guesswork and reduces back-and-forth communication.
It’s about smart spending, not slow spending.
Q: From your perspective, what role does technology, particularly AI, play in optimizing PO purchasing?
Erickson: Technology is a game-changer. At CoreIntegrator, we’ve seen how AI can automate and enhance PO processing.
The biggest breakthrough came in the biggest roadblock to moving to PO purchasing: matching of PO line items with invoice line items. This is a tedious task and prevents a lot of companies from moving to PO purchasing.
But revolutionary new AI developed by our team uses algorithms to automatically match POs and invoice at the line level. Not just header information, but line by line. It calls out discrepancies in price or quantity without any human effort at all. It’s an absolute breakthrough in making PO purchasing accessible to companies without having to add overhead.
So, the AI not only speeds up the process but also adds a layer of intelligence that manual processes can’t match.
Q: For businesses hesitant to transition due to perceived complexity, what advice would you offer?
Erickson: Start small and scale. You don’t have to overhaul your entire procurement process overnight.
Implement PO purchasing in phases, learn from each step, and gradually expand. With the right tools and a strategic approach, the transition can be smooth and highly beneficial.
Addressing Efficiency Concerns
Q: One of the main concerns for businesses is how switching to PO purchasing might affect the efficiency of their procure-to-pay process. What’s your take on this?
Erickson: It’s a valid concern.
The key is in understanding that efficiency in procure-to-pay isn’t just about speed; it’s about accuracy, control, and visibility.
Initially, integrating PO purchasing might seem like it’s adding a layer of complexity. But in reality it streamlines operations in the long term.
By having a well-defined PO process, you reduce errors and the time spent rectifying them, which actually speeds up the overall cycle.
Q: Can you elaborate on how PO purchasing enhances control and visibility in the procure-to-pay process?
Erickson: Certainly. With PO purchasing, every expenditure is tracked from the outset.
This means you have a clear view of your commitments and actual spend against budget. This level of visibility is crucial for making informed decisions and for financial forecasting.
It also means you have better control over your cash flow, as you’re less likely to encounter unexpected expenses.
Q: How can businesses ensure a smooth transition to PO purchasing without disrupting their current processes?
Erickson: The transition should be strategic and gradual.
Start by identifying the areas of your procure-to-pay process that would benefit most from PO purchasing. Implement it there first, refine your process, and then scale up.
It’s also important to involve your team in this transition – training and change management are key to ensuring everyone is on board and understands the new processes.
Q: What role does employee training and engagement play in this transition?
Erickson: A huge role. Successful implementation of PO purchasing is as much about people as it is about process and technology. Employees need to understand why the change is happening, how it will benefit them, and how to use the new system effectively.
Engaged and well-trained employees are critical to the smooth functioning of PO purchasing.
Implementing PO Purchasing Successfully
Q: For organizations ready to make the switch to PO purchasing, what are the key steps they should follow for a successful implementation?
Erickson: The transition to PO purchasing should be systematic and well-planned. Here are the key steps:
1. Assessment and Planning: Start with a thorough assessment of your current procurement processes. Identify pain points and areas where PO purchasing can bring the most improvement.
2. Define Clear Policies and Procedures: Establish clear guidelines for when and how purchase orders should be used. This includes setting thresholds for amounts that require a PO and defining approval workflows.
3. Choose the Right Technology: The effectiveness of PO purchasing greatly depends on the technology used. Opt for a system that’s user-friendly, integrates well with your financial system, and offers automation features, like what we provide at CoreIntegrator.
4. Training and Communication: Ensure that all stakeholders are adequately trained and understand the new processes. Communication is key to a smooth transition.
5. Monitor and Optimize: After implementation, continuously monitor the process. Gather feedback and make adjustments as needed. This step is crucial for long-term success and scalability.
Q: Finally, what common pitfalls should businesses be aware of during this transition?
Erickson: The most common pitfalls are inadequate training, resistance to change, and choosing a system that doesn’t align well with the company’s needs. Making the request form/process too complex.
To avoid these, invest in comprehensive training, engage employees throughout the process, and carefully evaluate your technology options.
In conclusion, transitioning to PO purchasing is a strategic move that, when executed correctly, enhances the efficiency and control of the procure-to-pay process.
Tom Erickson’s insights highlight the importance of clear policies, appropriate technology, and effective training in this transition.
While challenges exist, such as potential resistance to change and the need for thorough training, the long-term benefits of improved financial visibility and control are significant.
Best of all, solutions like CoreIntegrator automate the entire PO purchasing process, making it virtually touchless by human hands.
Organizations looking to optimize their financial operations should consider PO purchasing as a fundamental component of their strategy for growth and efficiency.
Many executives implement “no PO no Pay” policies without thinking through the entire process, so bad practices at the front end, create real bottlenecks at the backend.