A Cost Breakdown Of Purchase Order Solutions for Your Business in Raleigh
Have you ever wondered, "What is the cost of our spending?" It sounds silly, but when you tally the expenditures, you may be stunned at the actual cost of generating purchase orders in your business.
There are the charges related to creating the PO itself, which may involve purchase order solutions and hiring an accounts payable (AP) professional to conduct purchase order administration.
Then there's the expense associated with your purchase order workflows which involve any review or analysis, approvals, forwarding, and payment issuance. Once you do the math throughout the supply chain, you may discover that these expenses have a significant impact on your total expenditures.
Though, with the appropriate tools and pinpointing the processes that you could automate and streamline, you might find openings to achieve cost savings in your purchase order administration expenses. But before we get to that, let’s take a look at the expenses associated with purchase orders.
The Cost of a Purchase Order
The Center for Advanced Procurement Strategy (CAPS) study has reported that the average cost for a purchase order ranges from $50 and $1000 contingent on the industry.
Hence, the average cost of a purchase order may vary considerably from company to company. In addition, processing expenses can be hard to gauge if you don't know what to search for and how to evaluate it.
Thankfully, with this template breakdown of PO costs, you can identify what corresponds to you and start calculating these quantitative variables.
Calculate Your Fixed and Variable Costs
First and foremost, it is essential to know that purchase orders will include both variable and fixed costs. Examples of a fixed cost might include salaries and employee benefits, whilst a variable cost can include the cost of office equipment to expedite the operation.
These variable costs have to be kept to a minimum as their volatility might make your calculations difficult. Begin by analyzing your complete purchase order process from purchasing to payment insurance to understand your fixed vs variable costs.
These include:
Selecting a product to satisfy a need
Picking a merchant
Filing a purchase request
Getting validation
Making a purchase order
Forwarding the PO to the merchant
Any communications with the merchants associated with payment terms or revisions to the PO
Overseeing the order: freight, order quantity, modifications, status, and so on.
Handling receipt of the merchandise - if there are any concerns, additional expenses may be imposed to address the situation
Processing invoices
Calculate the Cost of Labor
An additional major cost component in the purchase order procedure is the cost of labor to assist the logistics management. Set aside the total of your fixed and variable costs before calculating staff expenses.
These include:
Wages and incentives divided by the amount of hours expended on each of these processes
The number of purchase orders you fulfill in a year
How many exceptions occur and how long do they usually take to remediate?
The cost connected to each phase in the PO cycle must be multiplied by the hour or minute rate cost to perform it. The solution might resemble this:
Avg time spent per task * Rate = Benchmark Labor Cost
As an illustration, if you are compensating your worker at a rate of $0.85 per minute and a purchase order takes 10 minutes to finish, you are outlaying $8.50 to produce a purchase order.
Determine the Total Cost
But keep in mind that this is only for one aspect of the operation and only one staff member involved. You must do this for each worker implicated and for each process.
When you have all the handling costs for every phase of the procedure, you can then determine the overall average price of your PO procedure by dividing the grand total cost of a PO by the value of POs processed in a year, or any time frame you'd like to calculate for.
Apart from determining the actual cost of this element of your business, you can also begin to calculate how much a purchase order tool that includes automation can save you.
Implementing Automation to Offset Purchase Order Costs
With automation, you could reduce labor costs by allowing the purchase order system, with the help of artificial intelligence (AI) and Optical Character Recognition (OCR), to execute the tasks for you.
Through a basic rules-based, if-then logic, almost all of the repetitive purchasing processes connected to your procure-to-pay procedures can be automated.
Advantages of eProcurement tools include:
A faster purchase order process
Increased precision
Increased efficiency from re-focused personnel
Simplified tasks
Greater transparency into processes
Performance KPI tracking
Reduced risk, greater compliance
Reinforced security
Furthermore, the advantages of digitization can go beyond your accounts payable tasks to other aspects of your company including Human Resources, Inventory Management, and Data Entry.
Nevertheless, most acquisition systems and software can integrate smoothly with your Customer Relationship Management (CRM), Enterprise Resource Planning (ERP), and Enterprise Content Management (ECM) systems.
Wave Can Help You Choose and Apply a Purchase Order Automation Platform in Raleigh
At Wave, we know better than most that maintaining a competitive advantage and accomplishing long-lasting feasibility for a business demands back-office innovation and digital conversion.
Though these may be broad notions, we can show you how they equate to removing silos among business departments, augmenting collaboration, recognizing areas for efficiency and cost savings, and leveraging automation as much as possible.
To achieve this, you need the proper platforms that meet your needs, budgets, and growth goals. We can collaborate with your organization and talk through your existing methods and processes to determine the simplest areas to digitize or somehow improve with the proper tech stack.
We have assisted countless organizations achieve this in a range of industries including Education, Legal, Industrial Manufacturing, Finance, Professional Services, and more!
We use a combined tech stack which we exercise on a case-by-case basis, based on your particular needs. We're happy to work with over 60 industry-renowned ECM and DMS tools including Azure, OpenText, M-Files, SharePoint, and more.
If you are ready to know more about how Wave can help you implement an automation solution, let's schedule a time to chat.