If you work in manufacturing, you know how important it is to ensure your suppliers deliver on time. Late parts or components can lead to costly delays, angry customers, and sometimes even the demise of an otherwise well-run business.
In this article, we’ll discuss how implementing an efficient and reliable purchase order tracking system can easily reduce risk in your supply chain. We'll look at the typical PO process, where it often fails, and five best practices you can use to improve purchase order tracking systems at your business.
The Ideal Purchase Order Process
A purchase order is a legally binding contract between a buyer and a supplier that outlines the products or services the buyer intends to purchase from a supplier. Typically, it will contain the following details:
- Product or service
- Quantity purchased
- Agreed price
- Payment terms
- Billing address
- Delivery date(s)
- Delivery location
- PO number
In an ideal world, every PO would be fulfilled exactly as ordered, none of these items would ever change, and purchase order tracking would be an easy job. Unfortunately, that’s not usually the case. But before we dive into ways to improve the purchase order process, let's look at how the process is supposed to work:
Step 1 - Identify the goods or services to purchase
Step 2 - Identify the supplier(s)
Step 3 - Send a request for quote(s) (RFQ)
Step 4 - Negotiate
Step 5 - Send purchase order
Step 6 - Receive goods or service
Step 7 - Receive the invoice and match it with the purchase order (three-way matching)
Step 8 - Accept the invoice and pay the supplier
Step 9 - Close the purchase order
The Challenge of Purchase Order Tracking Systems
In a perfect world, a purchase order tracking system would not be necessary. Suppliers would always deliver the right goods on time and in full. If an ETA were to change, the supplier would promptly notify you of the change and update the ETA.
For many reasons, orders change, are delayed, or are not delivered at all. A supplier might forget to enter the PO into their planning system, accidently ship to an incorrect delivery address, or not follow up promptly with sub-suppliers to identify further upstream delays.
For a manufacturer, these delays mean more than just an out-of-stock item; they can have dramatic impacts on downstream orders and potentially shut down your entire operation. To guarantee goods arrive on time and in good condition, purchase orders need to be tracked and ETAs need to be regularly updated via proactive follow-up.
You can track purchase orders manually if you’re tracking just a few of them. The problem is that many businesses continue to use manual processes to manage and track purchase orders on a large scale.
A manual PO tracking system will always be prone to human error, and it’s not uncommon for teams to accidentally mistype a PO or part number or miss emails about unanswered questions on the PO.
How ERP Systems Fall Short
Even for companies that have invested heavily in their ERP system, purchase order tracking often is a major pain point. Even if a company has an ERP, they may not have a supplier portal in place. Through our experience, we’ve found that many ERP supplier portals only see 30-40% adoption, leaving a manufacturer in the dark on the majority of their suppliers. One of Factor’s founders previously worked at a company that spent $50M on an ERP for a single factory, only to continue using manual processes after its implementation.
Buyers and suppliers often have different ERPs that don’t communicate. Creating a custom integration can take months and be very costly to set up and maintain. This is why even large-scale businesses like major auto manufacturers do not have direct ERP integrations with every supplier, and large companies often manually call and email suppliers despite having an ERP system.
Designing a Better Purchase Order Tracking System
We’ve established that there are problems with the way most businesses track and manage purchase orders, so how can we fix it? What would the ideal purchase order tracking system look like? And what sort of results should it produce for users? Here are 5 ways an effective purchase order tracking system should support your business:
1. Saves You Money and Time
Tracking purchase orders can be time-consuming and costly. A survey by APQC found that tracking a single order can cost a business as much as $500. When you consider the hours that go into manually calling and emailing suppliers for every PO that needs to be tracked, this is no surprise.
Ideally, the time-consuming process of contacting suppliers for updates should be automated by your purchase order tracking software. This allows your purchasing team to focus on the big picture–like strengthening supplier relationships, renegotiating contracts, or providing suppliers with forecasts–rather than data entry and email management.
2. Easy to Use and Set Up
The ideal purchase order tracking software should be user-friendly and easy to set up, not only for buyers but also for suppliers.
Emailing and calling suppliers to confirm orders and follow up on past-due items is inefficient. However, most companies still use email or phone to communicate with suppliers because suppliers don’t have the time to learn and adopt complicated ERP supplier portals or other complex third-party purchase order tracking systems.
At Factor, we recognize that email is the default mode of communication that many suppliers prefer to use. For this reason, we built an intuitive purchase order tracking system that automates the email follow-up that most supply chain managers or expediters do manually, including order follow-up.
Just think of it as your automated assistant that never forgets to follow up or record supplier ETAs. Factor sends emails based on a tried and true cadence based on the estimated ship date. In the email suppliers receive, they are offered a simple choice to confirm or update the ETA for each purchase order being tracked. This takes less time than typing out a reply, which explains how we achieve a 95% supplier adoption rate with ZERO supplier onboarding.
3. Designed Around Your Business Needs
The purchase order tracking software you choose to track purchase orders should be designed around your unique business needs.
For example, at Factor, we’ve built a procurement solution that focuses on the needs of manufacturing companies. Manufacturing companies often purchase from many suppliers and order custom mechanical and electrical parts that require multi-tier assemblies, which can be hard to track in other procurement software systems.
Choosing a purchase order tracking system designed with your business and industry needs in mind will make your life much easier in the long term.
4. Provides Visibility for All Stakeholders
Visibility into spending and supplier performance should be shared across your organization. But since manufacturers and their suppliers rarely use the same integrated ERP, there is no single source of truth in the supply chain. Instead, companies often lose critical business information within a swamp of emails, papers, spreadsheets, and phone calls, leaving a business prone to mistakes and delays.
Your purchase order tracking system should work with and enhance your ERP, not introduce additional complexity and further isolate departments. Factor integrates with your existing tools via API, including your ERP, to close critical communication gaps between your resource planning and supplier network, and our integration team has experience connecting Factor to a wide range of enterprise platforms.
With Factor, suppliers confirm POs and update the estimated time of arrivals 5-10x more frequently. In addition, the information they provide is more accurate. By feeding this data back into MRP scheduling engines, planners can increase the accuracy of their planning workflows, and companies get more out of their resource planning systems and processes.
5. Helps You Reward Top Suppliers and Reduce Future Risk
One of the best ways to reduce risk in your supply chain is to select reliable suppliers who are less likely to cause issues in the first place. To do this, you’ll need to track data on supplier quality, service, and on-time delivery. You can perform this process manually using a spreadsheet, but it can be time-consuming, prone to mistakes, and often won’t reflect the latest data.
By switching to a centralized platform like Factor, you can automate tracking on-time delivery. Using this data, you can push more business to your most reliable suppliers, reducing the number of order delays, changes, and other risks to your business.
A Better Way to Track Purchase Orders
If you manage procurement at a manufacturing business and are looking for a more efficient solution for PO tracking, we can help. Factor is the easiest way for manufacturing companies to track POs and measure supplier performance. There’s no need for supplier onboarding or training, and Factor customers see a 95% adoption rate by their suppliers. You can also connect Factor with all of your favorite tools to ensure consistency across your platforms and workflows.
We’re on a mission to modernize supply chain infrastructure and are committed to helping companies like yours improve visibility and control over their supply chains. In just minutes, you can reduce risk and save your company time and money.