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The reasons for high levels of retrospective purchase orders

by | December 18, 2019

Following on from our first article about what to expect after implementing a Source to Pay (S2P) solution, we now go into more detail about some of the various scenarios our consultants have encountered and solved over the years.

From experience, we know that it’s easy to overlook problem areas and sometimes you make do with a solution that doesn’t deliver at its full capacity. The most common scenarios our procurement experts have seen are:

1. Too many retrospective purchase orders

The reasons for high levels of retrospective purchase orders vary, but there are a few things you can do in order to avoid this. Firstly, you need to pinpoint the requisitioners who are buying in this way, what are they buying and from whom. Having this simple information can help you arrange targeted training. Also, having discussions with suppliers on why they should not accept orders without a PO can really help with adoption. And finally, making buying from a catalogue the preferred option can help you to keep things in check.

An important consequence to keep in mind if your organisation has high levels of retrospective purchase orders is the loss of compliance within the organisation’s buying process, this can leave the organisation more prone to fraudulent purchases and vulnerable to risk.

2. Payment term opportunities

Initially, before deciding to move forward with a supplier, payment terms need to be taken into consideration. Many industries have different needs and  distinctive rules in terms of payment contracts. Also, where you do business can have a major impact on payment terms. Maintenance of master data is often a neglected task and supplier payment terms are no exception. We have seen large numbers of suppliers with very short or immediate payment terms. In one situation an organisation had placed 80m spend over 18 months on immediate terms. This significantly affected their cash flow and has negative implications for operational borrowing costs.

3. Large amounts of free-form purchase requests

Sometimes not all scenarios have been taken into consideration during the implementation stage and requisitioners who can’t buy this way may generate free-form POs. Analysis of this spend can be difficult as each order is unique. Items don’t fall within pre-defined categories and suppliers may not be contracted to provide these goods or services. If users are placing high volumes of spend this way, the impact to your business could be significant.
You need to analyse the spending profile of free-form POs to enable you to change this behaviour. Identify commodities that have been omitted from your catalogue or punch-out facilities and widen the range of items available through these channels.

4. Low level of electronic purchase orders

POs can be sent to suppliers in a few ways, from free-format emails to formatted electronic POs. Failing to send electronic purchase orders to a destination that can process them automatically can create blockages in the purchasing process and can create higher risk of duplicate POs being issued.

Not analysing which suppliers fail to take advantage of this facility, could hold back your digital efforts. Getting the supplier to accept these POs can speed the buying process for everyone.

5. Low leverage of new functionality in procurement systems

Usually after go-live the assigned team to the release management project doesn’t continue in the same structure. We quite often find that software release management does not extend beyond testing and applying the updates. In order to be on top of each procurement system version upgrade we advise our customers to have a two-step approach. Having a clear and detailed version upgrade schedule can come in handy and a resource plan can help you to be better organised pre-deployment. Reviewing releases and assessing the applicability of the new features can benefit your overall optimisation goals.

Taking the time to review the changes that have been integrated in your procurement systems since you went live is something we always recommend to our customers. Assessing these new features, being organised and conducting scheduled reviews of your systems should guarantee that you are taking full advantage of your procurement solution.

Interested in knowing more about how to optimise your source to pay (S2P) solution? Our procurement consultants have created a spend management optimisation service that provides advice and expertise to ensure benefits are identified and achieved from your spend management solution.