Strategic Guide to e-Procurement
Procurement Tools
Electronic Purchase Orders (POs)
An Electronic PO is a document that outlines the terms of an order, and outlines the agency’s terms and conditions to which both parties must adhere. Electronic PO’s can be generated in a transactional e-procurement system, or directly from an FMIS or ERP system from a requisition, and then sent via electronic means to a supplier for direct upload into their system.
An electronic PO is a document that outlines the terms of an order and the terms and conditions of the agency
Electronic POs are most readily used where:- the purchase is relatively significant and requires terms and conditions to be attached
- the purchase is one-off and no existing agreement is in place with the supplier.
There are a variety of methods available for transmission of Electronic POs to suppliers, ranging from an auto-fax or auto-email system, through to transmission via direct connect, EDI style networks, or via a third party connectivity specialist.
Electronic POs aid in governance as all of the purchasing information is stored in a single location
Electronic POs provide benefits including speeding up the order transmission process, reducing errors and retaining a clear log of when orders were sent and what they contained. When fully implemented, this has the advantage of electronically enabling the communication of orders between buyer and supplier, and reduces handling time and eliminates re-keying of order information.
Electronic POs are created through:
- creating a PO through a FMIS or ERP system where the requisition and PO data is stored centrally and delivered to the supplier electronically
- creating a PO through a stand alone e–procurement system where the PO data is stored for procurement and accounts processing and delivered to the supplier electronically.
Electronic POs are not created by creating a written PO in the traditional method and scanning and emailing it to a supplier. In this situation, although the PO is being transmitted electronically, none of the purchasing detail is being captured and stored centrally in a database.
The advantages of Electronic POs over traditional POs include:
- line item detail leads to better accuracy for delivery
- easy for the accounts processing department to pay or reject an invoice
- speeds up the PO delivery and payment process.
Types of Electronic POs include:
- two–way PO match – where the payment is triggered by the invoice
- three–way PO match – where the payment is triggered by receipting the order of goods/services and then matched against the invoice.
Blanket order – this involves setting up one blanket order with a total amount and then allowing multiple invoices to draw down upon the blanket order. Blanket orders are typically used for contract agreements where the total amount is known or estimated and invoices are sent periodically. A two–way or three–way PO match can be used with a blanket order.
The main advantage of using Electronic POs is that if the supplier is able to receive the PO information electronically, they may be able to upload it directly into their order management system. This has the benefit of both avoiding re–keying data by sales operations staff, as well as minimising any chance for errors in the order. By keeping the ordering information electronic from start to finish the process is quicker, reduces errors and provides a clear governance and audit trail.
Summary of Checkpoints
Electronic Purchase Orders
- a Identify functionality/capability of the FMIS or ERP system
- a Select the applicable PO set up – blanket, 2–way match, 3–way match
- a Educate users on changes that will take place during the move to Electronic POs
- a Work with suppliers on changes to the process
- a Communicate changes in ordering that are necessary
- a Ensure legal contracts and standard Terms and Conditions cover sending Electronic POs
- a Consult with suppliers to:
- a identify what technological changes are required to receive Electronic POs
- a identify what changes to internal business processes are required to accept Electronic POs
- a determine if an Electronic PO will change the payment cycle
- a establish which Electronic PO types will be the most process/cost–effective
Automated Approvals
Automated approvals are typically enabled through a transactional e–procurement or FMIS/ERP system, and are designed to translate the organisation’s delegation and authority rules into an electronic hierarchy for use in approving orders.
Automatic approvals translates the organisation’s delegation and authority rules into an electronic hierarchy for use in approving orders
When automated approvals are used, an end user enters a requisition which is then automatically forwarded to their supervisor or delegate for approval. Once the requisition has been approved the requisition is sent to the purchasing department to turn it into a purchase order. The purchasing officer can approve or cancel requisitions at this stage. Some systems allow for automatic PO creation once a requisition is approved by the supervisor. Once the PO is created it is typically emailed or auto-faxed to the supplier.
Maintaining the hierarchy is the key challenge in implementing a successful automatic workflow
Automated approvals, sometimes referred to as Automatic Workflow, require that the approval hierarchy be stored electronically and maintained centrally, so that when employees leave or move jobs, the workflow is accurate. One way some agencies have addressed this issue is by identifying purchasing officers who have the authority to approve orders for a number of users, lessening the number of users in the hierarchy.
Benefits of automated approval systems include:
- can reduce the amount of time from requisition submission to purchase order creation
- can reduce the cost of sending POs to suppliers due to lower processing overheads
- increases compliance with spend limits as long as the hierarchy is accurately maintained and checked during approval
- controls leakage as end users have to go through additional steps to add suppliers not currently in the vendor master list.
One issue with automated approvals is that in certain circumstances it can delay the time taken to create an order. For example, if the hierarchy is inaccurate or if an approving manager is out of the office or on leave, a requisition may not progress until approval is given. This can cause frustration for purchasers when they consider that they have placed their order, but it has not actually been processed and turned into an official PO.
Typically automated approvals are implemented when an entire e–procurement system or FMIS/ERP system is put into place. When it is enabled, approvals are usually utilised across all categories that require a purchase order, meaning that as part of the process all orders will be processed through automatic approvals.
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