Purchase Order Tracking: Then and Now
If you’re old enough to remember how companies did business back in the days before digital technology, then you may remember what a pain purchase order tracking used to be. Fortunately, what used to be a paper-based and repetitive process, has become much easier, letting companies keep track of all the elements of ordering and paying for the items their customers need.
One of the improvements brought about by current technology include the simplification of the purchase order tracking process.
Purchase Order Tracking the Way It Used to Be
Let’s enter the “wayback machine” and turn the dial to 1995.
Say you ran out of paper clips. Back then, you would fill out an order form—on paper—or make a call to let the purchasing department know what you needed. The purchasing department would then fill out a paper purchase order form to submit to their supplier. This was often done by hand, or using a typewriter.
Typewriters were great when you had to fill out a purchase order form in triplicate since your hand didn’t get as sore trying to press down through the layers of paper and carbon copy. However, you sometimes had to punch the keys down pretty hard on older typewriters. Multiple color-coded copies of the purchase order had to be created so that they could be attached to the other paperwork created for the order. The supplier needed two copies of the purchase order: one to accompany the sales order and invoice as the order was filled that would later be filed, and one to accompany the payment. The customer needed an extra one to keep on file in case it was necessary to refer back to it later. This meant there was a lot of paper floating around. If you didn’t include extra copies, you could end up paying for an invoice off the wrong purchase order number, and fouling up the whole system.
Once the purchase order was filled out, the purchasing agent would then send the purchase order to the paper clip supplier. The purchase order detailed all the terms and conditions of the purchase: the price and quantity of the items needed and the payment terms for the order. Each purchase order would include a purchase order tracking number, or PO number. This would be referenced on each element of the order, from sales order, to invoice, to payment, so that the initial purchase order itself could be associated with the items, order, and eventual payments.
Purchase Order Tracking with Technology
All that paper sounds like a pain, doesn’t it? Can you believe we used to do it that way? Today, most companies manage their purchasing systems, sales orders, invoicing, and payment processes electronically. This has eliminated unnecessary paperwork, making purchase order tracking much more streamlined.
With today’s technology, the purchase order is still referenced on all documentation using a PO number. This is often automatically entered as a field on each piece of documentation, and an electronic copy of each PO is usually saved and associated with every order. If you need to look the purchase order up, you can do so in the order management, inventory management, or purchasing system by referencing the PO number without having to search for a paper copy. This has cut down on the amount of paper that gets shuffled around while improving accuracy throughout the entire purchase order tracking process.
It’s now much more difficult to mix up your purchase orders and pay invoices off the wrong PO. Many manufacturers and distributors who use mobile order writing solutions like Handshake choose to associate a PO number with each order in the app. This allows sales reps to easily track purchase orders on-the-go and confirm key order information for their accounts. Here’s how the purchase order tracking process we outlined above would look today, with a technology-enabled procurement process:
- Your company runs out of paper clips. Someone notifies the purchasing department using an online order form, phone call, or email.
- The purchasing department creates a purchase order and assigns a PO number to that order. If your company used an online order form for submitting the order to purchasing, a PO might automatically be generated.
- The purchasing agent submits the order electronically to the supplier, via EDI, web services, or other back-end systems integration such as an API.
- The supplier receives the purchase order and creates a sales order with an associated PO number in their sales order management system. When sales order management is integrated with the customer’s purchasing systems, this will happen automatically, requiring very little manual effort.
- The supplier processes the order, using the sales order and PO as a reference in the inventory management system. When the order is complete, the sales order is converted electronically to an invoice, including the original PO number as a reference for ease of payment.
- The supplier ships the order. They may invoice the customer electronically and may also include a copy of the invoice with the order when it is shipped.
- The customer receives the order and begins processing the order for payment, using the PO number for tracking purposes.
Why Are Purchase Orders Necessary?
You might look at the process above and ask, why not just submit the order without a PO? Doesn’t it just overly complicate the process?
It’s true that the purchase order tracking process is a little complicated, although much of this process is now happening automatically, behind the scenes. But there’s a very good reason for the complexity. The purpose of a purchase order is to provide a contractual legal protection for the buyer and the supplier when customers purchase goods and services on account, using a contracted vendor credit arrangement such as Net 7 or Net 30. It provides assurances to the supplier that the buyer has a system in place to actually pay for the order, as well as telling the supplier when they should expect payment. It covers the risk suppliers take when filling orders without payment up front.
Purchase orders also fulfill an important inventory management function. Suppliers use purchase orders to compare what was originally ordered to what was shipped. In the case of standing orders, this allows suppliers to plan ahead for the orders they will need to fill in the future with some assurances that they will be paid once they fill those orders. It can fulfill a similar function for the buyer: it allows the customer to plan their business’s activities with the assurance that certain items are expected to arrive within a certain timeframe.
And, purchase orders provide assurances to the buyer that the goods and services will be purchased at a certain price. If the price changes, the purchase order should be amended or cancelled and a new PO issued, to make sure that the buyer has agreed to any substitutions or price changes. Purchase orders often have an expiration date, so that if an order is not filled within a specific period of time, or if the purchasing contract with a vendor has expired, a new purchase order is required.
As you can see, technology has improved the process of purchase order tracking and enables customers and suppliers to streamline the procurement process. Today, suppliers are even going the extra mile to integrate their eCommerce software—for taking and receiving customer orders—with accounting software and ERP systems, automating this process entirely.