Purchase order automation: A comprehensive guide and best practices

Even a small business may need to depend on multiple suppliers.

You can probably handle transactions with them manually up to a point, but sooner or later you’ll have to deal with several of them simultaneously.

Standardized your purchase orders is a start, but you still need to take the time to fill them out and send them off.

If things are getting out of hand maybe it’s time to consider automating this process.

This guide describes where purchase order automation can make a difference.

Not only can it streamline procurement, but it also strengthens your relationship with suppliers.

And of course, automation is synonymous with efficiency, which means concrete results in your bottom line.

Here’s what we’ll cover:

What is purchase order automation?

Purchase Order (PO) automation is the use of technology to streamline the creation, approval, and processing of digital purchase orders, including their distribution.

Essentially, it digitizes and programs your entire purchase order lifecycle, and also allows for seamless integration with other business systems.    

If you rely heavily on specific materials and services to keep your business running, seemingly simple tasks like issuing purchase orders can quickly add up. Automation significantly reduces these burdens, freeing up valuable time and resources.   

The alternative is to create purchase orders manually, or by traditional paper-based means.

This exposes you to human error, with potential for mistakes in data entry or your calculations. Paper documents can be easily misfiled, damaged, or lost. And sending them for approval could take days. 

A valuable advantage of PO automation is that it creates a readily available audit trail, providing crucial information for financial tracking and compliance. 

Benefits of purchase order automation

By adopting an automated system, your business can reap the rewards of digital transformation in its procurement operations.

Here’s the seven areas that would see the most improvement: 

1. Enhanced operational efficiency 

Instead of having your team bogged down with repetitive, manual tasks, automation frees them up to concentrate on higher-value activities.  

Your POs soon add up to vast amounts of data that need to be managed.

It’s significantly easier with a centralized, cloud-based system, which facilitates faster processing and improved overall efficiency. 

2. Improved accuracy and fewer errors  

Automated routing ensures that you and your staff always send purchase requests to the right people.

While digital forms simplify the submission process because they offer pre-populated fields and drop-down menus that are easy to complete.

This eliminates the potential for manual data entry errors, ensuring accurate and timely order placement.  

With fewer mistakes, you minimize the risk of delayed deliveries, incorrect orders, or other costly issues.

3. Cost and time savings

An automated system allows you to easily track spending patterns and identify areas for cost reduction.

This puts you in a better position to negotiate convenient terms with suppliers.  

Automation also speeds up approval workflows through automated routing and notifications, preventing delays that can lead to missed deadlines and increased costs.

Constant monitoring further ensures that you reap these benefits at every stage of the PO’s journey. 

4. Increased flexibility and scalability 

Dynamic forms and vendor prioritization give your purchasing team greater flexibility.

As your business grows, automated systems can scale with you by following established approval rules and thresholds.

You have freedom to customize those rules as your business needs evolve. 

5. Less risk and paperwork

By eliminating the physical paper trail, you minimize the risks associated with lost or damaged documents.

The shift away from paper also streamlines storage and retrieval, because your files are centralized and easy to find.

This frees up physical space and reduces the administrative burden on your team.

6. Enhanced visibility and teamwork 

Modern systems automatically sync your POs with goods receipts and supplier invoices (three-way matching), ultimately improving customer experience.  

Accessible digital systems mean you can easily select and share information from your procurement process, promoting transparency and fair trade between buyers and sellers.  

Real-time status updates help you and the supplier stay in the loop, so you can manage your needs more effectively while they know they’re giving you adequate service. 

7. Accountability and compliance

You define the rules governing the procurement process, such as internal policies or the people responsible for approval.

The system then automatically notifies the relevant parties at each stage of the cycle.

This enhances accountability because there is a record of who took responsibility and when. It also means you adhere to external regulations helping you remain compliant. 

Challenges of a manual purchase order process

If you decide to stick to a manual paper-based process, there are pitfalls to consider.

It’s not just outdated, there are several practical downsides to the traditional method:

Unauthorized spending

Your employees may be authorized to make purchases on behalf of the business, but can you be sure they will use the right channels to do so?  

The very word “paperwork” often leads people to seek alternatives, tempting them to find quicker options that bypass your procurement policies.

This kind of ‘maverick spending’ can cause the company to miss out on prearranged deals with suppliers, directly affecting budget adherence and your bottom line. 

Inefficient workflows

While there are multiple tech tools that help you manage most PO operations, there’s a huge difference between using them piecemeal and having them coordinated in a  unified, automated solution.  

Manual PO processing may depend on improperly scanned documents, transfer of information between emails, spreadsheets and other tools, and data lost in incompatible silos.

This is a perfect recipe for errors, lapses and delays.

Worse still, those issues are only worsened when it comes to scaling your procurement needs, adapting to change, or trying to stay competitive.  

Poor team coordination

Your procurement, compliance, and finance teams often need to be able to share their information but cannot do so effectively if they each manage different data silos.

This leads to delays, errors, and inefficiencies in your procure-to-pay process, ultimately impacting your bottom line.

Open to fraud

Manual systems generally have weak control measures and limited visibility, often based on paper documents that can be easily stolen, altered, or duplicated.

Even traditional tech solutions like databases may have limited security features compared to a purpose-built platform.

That makes it relatively easy for staff to doctor the records, create fake purchase orders, or make unauthorized purchases.  

Investigating and resolving fraud also takes up a lot of time and resources, distracting you from core business activities and straining supplier relationships. 

Cumbersome approval sequences

In many organizations, purchase order approval can involve a complex web of stakeholders, each with their own review process.

This is often coordinated by email, where messages can be overlooked or lost in the queue.

And paper documentation can be delayed simply by the requirement to have the right approvals signature. 

This adds up to slow approval processes, leading to longer cycle times, missed opportunities, and frustration for everyone involved. 

How to implement purchase order automation right

It’s clear by now that purchase order automation can significantly streamline your procurement process.

However, you risk missing out on all the benefits if you overlook details of the implementation process.

Here are the five key stages: 

1. Automate purchase requisitions 

This phase involves

a) the transition to digital forms

and

b) the use of vendor catalogs

Start by ditching paper forms and providing employees with user-friendly digital document tools for submitting purchase requests.  

You can automatically extract data from existing documents with tools like Optical Character Recognition (OCR) or Intelligent Document Processing (IDP).

OCR converts scanned documents into machine-readable text, while IDP uses machine learning (ML) and natural language processing (NLP) to interpret, classify and validate the data you’ve extracted. 

Implement vendor catalogs to list all the products you typically deal with.

This could be with standard database software, or purpose built, cloud-based catalog management systems, which are designed to integrate with your other business systems.  

Some vendors offer online portals where you can access their catalogs directly, integrating with your procurement system to automatically pull product information and pricing.

This simplifies product selection and ensures accurate pricing.  

2. Set up approval workflows

The first step of this phase is to set predefined rules, such as order value, department, vendor and the person responsible for approvals.

This means you can automate routing of PO requests. 

Configure your system to send automated notifications to all necessary stakeholders.

This provides real-time visibility into the status of your purchase orders, minimizing delays and cutting the need for manual follow-ups. 

An important aspect in this phase is your exception handling settings.

This refers to orders that don’t conform to your predefined thresholds or require additional approvals.

Thresholds include variables that you determine subjectively, such as:

• Order value: you may prefer to insist on senior management approval for orders over $10,000.  

• Quantity: e.g. to prevent overstocking.  

• Vendor ID: you may wish to flag problematic vendors.  

• Product type: e.g. you may have special rules for mission critical equipment or hazardous materials.  

• Budget: the system will warn you if spending is about to exceed allocated limits. 

• Delivery timeframe: e.g. special rules for rush orders or long lead times. 

3. Automate PO dispatch and goods receipt confirmations

Configure the system so that once purchase orders are approved, they are automatically dispatched to vendors via email or other integrated channels.  

Confirmation of receipt of goods is best done by setting up a matching process, which compares the values of the purchase order, goods receipt, and invoice.

This depends heavily on your systems being compatible with those of your suppliers.

Many businesses achieve that by using Electronic Data Interchange (EDI) to exchange documents electronically with suppliers and clients.  

Any discrepancies in the matching process will be automatically flagged, triggering notifications and workflows for resolution.

This ensures that potential issues are addressed promptly and efficiently. 

4. Integrate with your accounting systems

Your accounting software should keep track of spending and expenses, which means it needs a seamless data flow with your invoice processing and payment reconciliation systems.

A bonus of integration with accounts is that you automatically eliminate duplicate entries and synchronize relevant data. 

For example, both systems will use the same supplier information and chart of accounts, preventing discrepancies, reducing manual reconciliation efforts, and ensuring data consistency across departments.  

This integration also enables further automation of tasks like invoice processing and payment reconciliation, freeing up your finance team for more strategic activities.

5. Reporting and visibility

A huge advantage of automated systems is their potential for real-time reporting and user-friendly visualization through dashboards.

Be aware that your initial dashboard set up upon implementation is liable to change as you bring in more stakeholders or as your business evolves.  

The good news is that dashboard systems are often highly customizable, so each department involved can personalize them for instant insights into spending patterns, cost-saving opportunities, key performance indicators, and countless other variables. 

Features to look for in an automated purchase order system

The previous section dealt with the essential components when setting up an automated purchase order system.

However, the functionality can be much more extensive if your business needs or operational specifics call for it.  

Whether you wish to prioritize reliability, security, flexibility or a user-friendly format, here’s a checklist of details to consider when investing in an automated PO solution: 

Intelligent invoice processing

Use AI to automatically import or email vendor invoices and match them to corresponding purchase orders, minimizing manual effort and errors.

You maintain a centralized list of all automated transactions, including invoices and POs, ensuring proper governance and audit-ready compliance across all business units. 

User-friendly interface

An intuitive interface allows your staff to quickly create, approve, and track POs without extensive training.

It simplifies recordkeeping with drag-and-drop file functionality for instant access to supporting documents.

Best-practice purchase order templates allow for fast and accurate PO creation.

Templates should offer ready-made workflows for requisitions, quotes, returns and adjustments 

Automatic quantity price breaks and Economic Order Quantities (EOQ)

Configure the system with pre-negotiated pricing agreements to automatically calculate the price based on the quantity ordered.

Or have the system calculate the EOQ for specific items based on factors like demand, holding costs, and ordering costs.

This gives you the optimal order quantity to minimize inventory costs. 

Comprehensive reporting

A good dashboard will tap into everything relating to orders, such as delivery rates, pricing, and vendor performance.

It will also identify and reproduce key documents, such as invoices and receipts, that verify and clarify issues surrounding a specific order.

Role-based purchasing dashboards give you real-time insights while tracking budget performance, comparing purchase quotes, analyzing price breaks. 

Customizable workflows

Flexible workflows can be tailored to match nuances of your organization’s procurement process.  

For example, you may have a single-factor approval hierarchy, or multi-level approvals based on factors like order value, department, or product type.

Certain purchases may be tied to specific contracts, or you may need to adjust for industry-specific regulations.

Added to that, you probably have different workflow schemes for different stages, like approvals, notifications, or escalations.

This functionality will be maximized if you connect the system to your AP, cash management, and inventory modules, reducing duplicates. 

Budget and spend management

Does the system allow you to set and track spending limits, monitor expenses, and prevent overspending?

Does it notify you of deviations in those criteria?

automated transactions involving your invoices and POs are centralized, ensuring proper governance and audit-ready compliance across business units. 

Supplier management

Ideally, you’ll be able to vet suppliers by keeping a centralized supplier database that stores supplier information, tracking their performance and reliability. 

Mobile accessibility

If your automated purchase orders are mobile-compatible, your staff can create, approve, and track purchase orders on the go and at any time. 

Scalability

Improved efficiency is the main goal of automation, and with improved efficiency your business should grow.

So, check that your automated PO system allows for growth of order volume and the number of employees who will need to access it. 

Customer support

If you invest in a complete PO system from a single vendor, check that they have a strong customer support offering.

This should include phone, email, and chat support options, as well as online documentation and training materials.

Best practices to optimize your automated purchase order process

Now you’ve implemented a system and configured the features you expect to be most useful.

How can you be sure the solution is always operating optimally? 

Here are five tips to maximize efficiency: 

1. Fine-tune integrations

Ensure seamless data flow between your IDP system and other business tools by prioritizing the synchronization of key data points, such as vendor information, product catalogs, and pricing agreements. 

This facilitates real-time data syncing between your IDP, ERP, and accounting software to minimize errors, prevent delays, and ensure everyone is working with the most up-to-date information. 

2. Anomaly detection with AI

You may already be using AI to identify duplicate POs, but the same functionality could detect more subtle anomalies, possibly indicating fraud or errors.

This could include unusual spending patterns, inconsistencies in vendor information, or deviations from established procurement policies–such as orders placed outside of normal business hours or with unusually high discounts. 

3. Connect to external data sources

Proactively enrich your data and minimize manual intervention by connecting your IDP system to external data sources, such as industry databases or vendor portals.

This allows the system to automatically augment POs with missing information, such as product specifications, vendor certifications, or compliance documentation. 

4. Go global

Some systems may have the capability to automatically translate and convert currencies, which greatly streamlines global procurement.

Check whether your IDP solution can handle POs in multiple languages and currencies.  

A caveat for this point is that you may have to adjust your system to apply country-specific validation rules, such as tax regulations or import or export requirements.  

5.Regular reviews and updates

Continuously monitor your purchase order workflows and look for opportunities to optimize them further.

This could involve refining approval processes or incorporating new data sources.  

Feedback from users and partners could prove useful, highlighting pain points and areas for improvement.

This helps ensure that your system remains user-friendly and aligned with the evolving needs of your organization. 

You could also automate additional tasks, such as:

• Vendor onboarding: Gathering information on their financial stability, certifications, and compliance.
• Document collection: Verifying vendor documentation such as tax forms, insurance certificates, and bank details.
• Contract renewals: Preventing lapses in coverage or missed opportunities for renegotiation.
• Tracking contract compliance: Such as adherence to service level agreements or delivery schedules.
• Budget allocation: To different departments or projects.
• Feedback collection: From internal stakeholders, such as comments on supplier performance.

Final thoughts

Purchase order automation offers a powerful solution for streamlining your procurement processes, improving efficiency, and gaining greater control over spending.

By automating key tasks, such as requisitioning, approval workflows, and invoice processing, you can free up valuable time and resources. 

Even better, most automated PO solutions are highly adaptable, allowing customization for specific user roles or business relationships.

This way, you have a system that remains relevant and effective over time.  

While there are complexities, choosing the right system can help unify your systems, giving you deeper insight, and bigger gains as your business grows.