Implementing Purchase Order Automation: A Complete Guide

It's the end of the month, and you're scrambling to close the books. You've been chasing down missing purchase orders, trying to match them with invoices, and following up with suppliers and your procurement team and it's been a nightmare.

If you’ve been chasing down missing information and manually dealing with exceptions, you're not alone. The average company processes just 32.6% of their invoices straight-through. The rest are stuck in manual touchpoints, leading to costly errors and delays and frustrated employees. But it doesn't have to be this way.

In this blog post, we'll explore how purchase order automation can help you streamline your workflow, reduce manual intervention, and improve your straight-through processing rate.

Understanding Purchase Orders

A purchase order (PO) is a legal document that a buyer sends to a seller, indicating the types, quantities, and agreed-upon prices for products or services. It serves as a formal request for goods or services and becomes a binding contract once the seller accepts it.

It outlines exactly what you need, when you need it, and how much you're willing to pay. Basically, it keeps your purchasing process organized, efficient, and compliant.

The purchase order creation process begins with a department identifying a need and submitting a purchase requisition. It is then reviewed and approved by relevant managers. Once approved, the purchasing department creates the actual PO, including detailed information such as product descriptions, quantities, prices, and delivery terms. The PO may be further reviewed by senior management before being sent to the vendor for fulfillment.

A typical purchase order includes header fields that identify the buyer and seller, and line items that detail the products or services being ordered.

Header items:

• PO Number: A unique identifier for tracking and referencing the order
• Customer Information: Name, address, and contact details of the buyer
• Vendor Information: Name, address, and contact details of the seller
• PO Date: The date when the PO is issued
• Shipping Address: The address where the goods should be delivered
• Billing Address: The address where the invoice should be sent
• Payment Terms: The agreed-upon terms for payment, such as Net 30 or 2/10 Net 30
• Shipping Method: The method of shipping, such as FedEx, UPS, or USPS
• Requested Delivery Date: The date by which the buyer needs the goods to be delivered

Line items:

• Item Number: A unique identifier for each item being ordered
• Item Description: A detailed description of the item, including specifications, color, size, etc.
• Quantity: The number of units being ordered for each item
• Unit Price: The price per unit for each item
• Total Price: The total price for each line item (calculated as Quantity x Unit Price)
• Taxes: Any applicable taxes for each line item
• Discounts: Any discounts applied to each line item

Besides these items, POs may also include special delivery instructions, signatures or electronic approvals, and discount terms.

POs are a solid foundation for effective communication, documentation, and financial control. They help prevent misunderstandings between buyers and sellers, ensure that the correct goods or services are delivered, and provide a clear record of the transaction for accounting and auditing purposes.

Identifying the pain points in your current purchase order process

Purchase order processing challenges can create major bottlenecks and inefficiencies that hinder your organization's ability to manage spend and maintain compliance effectively.

Let's take a closer look at some of the most common pain points, their causes, and their impact on your business:

1. Lack of control and unauthorized purchases

Employees may purchase goods and services through the easiest and quickest means possible, bypassing established procurement policies and controls. This lack of control can lead to unauthorized purchases, maverick spending, and non-compliance with company guidelines.

When POs are not issued, suppliers won’t have clear instructions on what to deliver. The goods could get shipped elsewhere, or the receiving department may fail to log receipts, it creates a chaotic environment where unauthorized purchases can slip through the cracks. It leads to overspending, unnecessary purchases, increased risk of fraud, incorrect budgeting and forecasting, strained supplier relationships and non-compliance.

2. Broken workflows and inefficiencies

Imagine your basic OCR failing to extract key information from a requisition because the document was a scanned image. Or hopping between spreadsheets, email inboxes, and your ERP solution to match POs with invoices and receipts.

When you rely on inadequate tools, manual handoffs, data silos, disconnected systems, and paper-based processes, it leads to broken workflows. Information gets lost in the shuffle, errors creep in, and everything takes longer than it should.

Broken workflows prevent organizations from achieving straight-through processing. This means organizations may find it challenging to scale their procurement operations, adapt to changing business needs, or compete with more agile competitors. They may also miss out on the opportunity to redirect their procurement resources toward more strategic, value-added activities.

3. Detecting fraudulent activities

In manual purchase order systems, the lack of proper controls and visibility can create opportunities for fraudulent activities. Paper-based purchase orders can be easily stolen, altered, or duplicated, allowing for unauthorized purchases to be made without detection.

Additionally, if proper access controls and monitoring are not in place, an individual with malicious intent could gain access to the database and create fake purchase orders or modify existing ones.

The consequences of vendor fraud can be significant, leading to financial losses, legal liabilities, and damage to the company's reputation. In cases where fraudulent activities go undetected for an extended period, the company may face substantial losses and struggle to recover the funds. The time and resources required to investigate and resolve vendor fraud can also be considerable, diverting attention away from core business operations and straining relationships with legitimate suppliers.

4. Lack of coordination between teams

The lack of coordination between different teams, such as procurement, compliance, and finance, can exacerbate the issues associated with manual purchase order processes. When these departments operate in silos, it becomes challenging to maintain a cohesive and compliant procurement process.

Siloed operations can lead to gaps in control, miscommunication, and potential risks. This can result in delays, errors, and inefficiencies in the procure-to-pay process, ultimately impacting the organization's bottom line.

5. Time-consuming and inefficient approval processes

In many organizations, purchase orders must go through multiple levels of approval before they can be sent to suppliers. This can involve a complex web of stakeholders, each with their own review and sign-off processes. The inefficiency arises because these approval workflows are often managed manually, relying on email chains, physical signatures, and paper-based routing.

The consequences of time-consuming and inefficient approval processes can be significant. They can lead to longer cycle times, missed opportunities, and frustration for both internal stakeholders and suppliers. Bottlenecks can form in the procurement process as purchase orders pile up waiting for approval, delaying critical purchases and impacting overall organizational efficiency.

How automation streamlines each step of the purchase order process

When purchase order automation is done right, invoices can be processed more quickly and at a lower cost. It can streamline each step of the purchase order process, from requisition to approval, dispatch, and reconciliation.

Let's take a closer look at how:

a. Purchase requisition and order creation

Standalone OCR tools and Large Language Models (LLMs) can help with data extraction and PO template population, but they may lack the accuracy, flexibility, and integration capabilities needed for modern procurement. These tools often fall short in context understanding, functionality, and automation workflows required for a complete purchase order solution.

Intelligent Document Processing (IDP) tools use advanced OCR and AI to automatically extract data from purchase requisitions wherever they originate. This could be in Gmail, a Typeform, or even a Dropbox folder.

You don’t have to chase down stakeholders for information or manually enter data into your system. The IDP tool does it for you as and when requisitions are submitted.

The extracted data is then auto-populated purchase order templates, ensuring accuracy and consistency across all your POs. With intelligent automation, you can create POs faster, with fewer errors, and in compliance with your organization's formatting requirements.

In addition to standard PO templates, IDP tools can handle various layouts and formats, including non-standard templates. All you’ve to do is map the data fields you want to be extracted and where it’d be populated in your PO template.

b. Automated approval workflows

Many ERP systems like SAP or Oracle have built-in approval workflow features to automate the routing of POs to the appropriate approvers. However, these tools may have limited flexibility and customization and may be unable to handle complex approval scenarios. It may not integrate with all your external systems, either.

With IDPs, you can create custom approval workflows that align with your organization's specific requirements. By defining rules based on factors like PO value or department, you can ensure that each PO is routed to the appropriate approvers automatically.

This streamlined approval process not only saves time but also improves compliance with internal policies. With manual processes, it's easy for POs to get lost in the shuffle or for approvals to be delayed due to miscommunication. Intelligent automation eliminates these issues, providing a clear and auditable trail of every PO's approval journey.

Everyone will have clear visibility into each PO's status, reducing the need for follow-ups and status inquiries. Automated notifications will keep stakeholders informed at every stage.

Moreover, automated approval workflows can be set up to handle exceptions and route them to the right people for resolution. This could be based on order amount, supplier name, nature of the exception, or any other criteria you define. This ensures that issues are addressed quickly and efficiently.

c. PO dispatch and goods receipt

Once a PO is approved, companies typically send it to the vendor using various methods, such as email, Electronic Data Interchange (EDI), procurement software, accounting software, fax, web portals, or mobile applications. While these methods work, they often require manual intervention and can lead to delays or errors.

IDPs can be configured to automatically send the approved POs to suppliers via email or other integrated channels. This eliminates the need for manual intervention and ensures that POs are dispatched promptly, reducing the risk of delays.

When goods are received, intelligent automation tools can capture and match the receipt data with the corresponding PO. The PO data is automatically pulled from the ERP system, and compared with the data from the goods receipt. Any discrepancies, such as missing items or incorrect quantities, are flagged for review.

IDP tools can perform 2-way, 3-way, or even 4-way matching, comparing key details like item descriptions, quantities, prices, and totals across all your documents. If everything matches or is within the predefined tolerance levels, the receipt is automatically posted, and the PO is marked as received in your ERP system. If there are any differences, the system will flag them for review, showing you exactly where the mismatch is.

d. Invoice matching and payment processing

Once the PO is received, the supplier will send an invoice for payment. While accounting software like QuickBooks or Xero may have built-in tools for matching invoices with POs, these tools often have limited flexibility, basic matching capabilities, and integration challenges.

IDP tools can address these limitations by automatically pulling invoice data from your inbox or any other source as soon as it arrives. The data is then matched against the PO and goods receipt data. You can set up tolerance levels for matching, custom approval workflows (based on rules like invoice amount thresholds, vendor categories, or department codes), escalation rules, and export triggers.

IDP tools can also handle more complex scenarios, such as line-item matching, partial invoices, and multi-way matching. By setting up custom validation rules, database matching, and tolerance thresholds, you can automate the approval of minor discrepancies while ensuring that significant ones are flagged for manual review.

Set up field mapping for export after approval so that the invoice data is automatically posted to your ERP system. Intelligent automation tools can also integrate with your accounting software, such as QuickBooks or Xero, to initiate payment processing automatically.

Intelligent automation tools streamline your purchase order process. They allow you to reduce errors, improve efficiency, and achieve better control over your procurement spend. These tools offer unique features and benefits, such as advanced OCR capabilities, customizable workflows, and real-time analytics, that simply aren't possible with manual processes or siloed tools.

Best practices for optimizing your Purchase Order automation workflow

Implementing intelligent automation for your purchase order process is a significant step towards improving efficiency and reducing errors. However, to truly optimize your workflow and overcome common challenges, consider the following best practices:

1. Ensure smooth data flow and collaboration

To maximize the benefits of purchase order automation, it's essential to connect your IDP system with your other business tools, such as your ERP and accounting software. This enables information to flow seamlessly between all your systems, allowing everyone to work together more effectively.

When you integrate IDP with your ERP system, such as SAP or Oracle, you can automatically send matched POs for inventory management. Similarly, integrating IDP with your accounting software like QuickBooks or Xero allows you to process invoices for payment seamlessly. Real-time data syncing ensures that everyone is working with the most up-to-date information, reducing the risk of errors and delays.

2. Use AI to detect duplicate POs and potential fraud

Intelligent automation tools can help you identify duplicate POs and potential fraud by comparing key details like PO numbers, vendor names, and amounts. By flagging these issues early on, you can prevent unnecessary purchases and protect your organization from fraudulent activities.

IDPs use advanced AI algorithms to scan your POs and compare them to past ones, looking for matches or suspiciously similar details. The system can flag any potential duplicates or fraud for review, allowing you to catch them before they cause problems.

3. Enrich data from external sources

Even with intelligent automation, some POs, such as those with missing information or discrepancies, will always require manual intervention. However, IDP tools can minimize the need for manual input. So, when a PO is missing certain details, it can automatically look up and populate the relevant information from these connected sources.

For example, if a PO is missing the vendor's address or contact information, IDP can search your SAP vendor master database and fill in the missing details based on the vendor name or ID. Similarly, if a PO contains a product description but no item code, it can match the description against your Salesforce product catalog and add the corresponding code to the PO. This automated data enrichment process not only saves time and reduces manual effort but also improves the accuracy and completeness of your PO data.

4. Support global procurement

If your organization works with international suppliers, it's important to choose an IDP solution that can handle multi-language and multi-currency processing. This ensures that your purchase order automation workflow can accommodate global procurement needs.

The IDP should ideally automatically detect the language of a PO and extract the relevant information, regardless of the format. The system can also convert currencies like EUR, GBP, or JPY to your standard currency, such as USD, for easy matching and reporting. Additionally, it should be able to apply country-specific validation rules, such as VAT for European transactions or GST for purchases in India, to ensure compliance with local regulations.

5. Continuously monitor and optimize your workflow

Implementing intelligent automation for your purchase order process is not a one-time event. To ensure ongoing success, it's crucial to continuously monitor your workflow and look for opportunities to optimize it further.

Use the analytics and reporting capabilities to track key metrics, such as PO cycle times, exception rates, and supplier performance. Review this data regularly to identify trends, bottlenecks, and areas for improvement. Adjust your workflows, validation rules, and tolerance thresholds to adapt to changing business needs.

Adopting these best practices and continuously refining your purchase order automation workflow can help you achieve even greater efficiency gains, cost savings, and compliance improvements.

The key to success is not just implementing intelligent automation but also optimizing it over time to ensure that it continues to meet your organization's evolving needs.