What Is the Objective of a Purchase Order System in an Organization?

If lots of purchase and sales orders occur in your organization then the purchase order system is mandatory. It is one of the main purposes of the purchase order system!

The purchase order system provides several other benefits as well. What exactly is a purchase order system? What is the objective of the purchase order system? You will learn in this blog, so let us begin!

What Is a Purchasing Order (PO)?

Purchasing order is an official document sent from buyer to seller. It has all the information such as product type, purchase order number, quality, quantity, price when the product needs to be delivered.

Purchasing order allows businesses to get products and payments can be made later. Purchasing order is an essential part of business and especially when inventory is crucial for business.

If the buyer refuses to pay for goods and services, this purchasing order document works as an official document and legally binding contract for the seller.

What Is a Purchase Order System?

The purchasing order system is an automated way to keep track of purchase orders. It notifies you about each purchase order this feature comes in handy when you have several purchase orders to keep track of. It decreases the complexity and allows you to focus on other activities.

According to persistence market research, “The global procure to pay solutions market is anticipated to witness an increase in revenue from US$ 5.6 Bn in 2020 to US$ 13.7 Bn by 2030. North America held the highest share of 32% in terms of market value in the global procure to pay solutions market in 2019.”

What Is the Objective of Purchase Order System?

The objective of the purchase order system is to keep track of each purchasing order. Now if you are a small organization or do not have several purchasing order requirements then you can do it manually.

However, when an organization grows, they need purchasing orders regularly and then you will not be able to manage PO manually. Therefore, you will need an automated way to keep track of purchasing orders. This is where the purchasing requisition software comes into play.

It not only keeps track of each work order but also alerts you whenever any progress occurs in any purchasing order.

You can also see changes if the quality of the products is not good enough. If you want to change the product you can return it and update the records in the system. It means even small updates or changes can be made with this software.

You can also keep track of vendor-related aspects such as vendor payment, vendor performance, vendor reviews given by employees.

Vendors are important in order to deliver quality work for instance if they provide the required material on time then you will be able to finish the product on time.

If the vendor is not punctual then your business will also suffer. You can create data records of each vendor for payment and performance. It is also important that you have a good relationship with the vendor.

Another objective of the purchase order system is to formalize the purchase order and systematically do everything.

    It will keep informed the employee who has filled the purchase order form about the purchasing order.

    Notify the employee when it is approved or disapproved.

    It means this system keeps every required person notified.

How Does a Purchase Order Work?

For an effective purchase order the first step is purchase requisition! Here is an example, in the purchase requisition, firstly, an employee feels that he needs a mouse, so he fills the form of purchase requisition and fills in the other details, and forwards it to the manager.

If the manager disagrees then reject the form or if the manager agrees to it then forward the request to the finance department. Then the finance department allocates the budget and the purchase requisition becomes a purchase order.

Once a purchase order is created then it is sent to the buyer. It becomes a legally binding contract, and the seller can also process the purchase order and the purchase order number is given through which tracking and monitoring are done.

It has all the details mentioned in as we told above along with that address where products need to be delivered & billing is also mentioned.

After that seller schedules dispatch as per the order along with that purchase order tracking number is provided so that buyer can know when the shipment will arrive.

After that when goods are received by the organization, they check the quality and send the Good Received Note (GRN). Goods Received Note is the acknowledgment that goods have been received.

Moreover, purchase orders and goods received are cross-checked, and invoices are created accordingly.

Conclusion

The purpose of the purchase order system is simple to make things simplified and automated so that work efficiency increases. Purchase order assistance increases productivity and keeps track of purchase orders. It is also helpful in avoiding any suspicious activity such as fraud. Asset management software has the facility to manage purchase orders efficiently. Purchase order provides several other benefits and that will be helpful to grow your business.

This software allows you to check the status of the purchase order if they were received partially, as the purchased order is open or closed.

Frequently Asked Questions (FAQs)

What is the difference between purchase orders and purchase requisition?‍

A purchase requisition is the initial stage of the purchase order. It has all the quantities mentioned of the product, and when it needs to be delivered. Changes can be made in this stage only. The purchase order is an official & legally binding document. Any changes cannot be made in the purchase order once it is finalized. These are the few differences between purchase requisition and purchase order.  

What is the difference between purchase orders and invoices?‍

The difference between purchase order and invoice is purchase order is made by the buyer whereas the invoice is made by the seller. A purchase order is created before purchase and an invoice is created after purchase. Purchase order payment may vary from invoice details.  

What are the benefits of a purchase order system?‍

The benefits of purchasing order system are as follows

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1. Keep track of purchasing order
2. Formalize purchase requisition
3. Minimize fraud chances
4. Vendor management
5. Purchase history