World Class Operational Procurement: Electronic, XML & Other POs

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Part 6 of a ten-part series that examines key operational aspects of the so-called “Purchase to Pay” value chain
by Independent Contributor, Peter Alkema – Head: Purchase to Pay at ABSA

In Part 5 of this article series we looked in detail at the Purchase Order (PO), which is a standard output document used in the initial steps of the Purchase-to-Pay process. Although a PO marks a confirmed order with a supplier, it is important to note that there are a number of different methods by which the PO can be transmitted to the supplier, depending on the contractual relationship that the organisation has with them as well as technical capabilities. “I often get asked why our suppliers do not get their POs immediately. In this scenario, supplier delivery timeframes is an important aspect of any purchasing relationship, so the people purchasing internally must be familiar with the technical set up between the purchasing organisation and the supplier for the transmission and receipt of POs”, Peter Alkema, Head: Purchase to Pay, ABSA, told SmartProcurement.


The most common form of PO transmission is email. Typically a system will create a PDF document as the PO from the approved shopping cart (see Part 3) and send it through the organisation’s email servers to the email address in the supplier records. The supplier should be monitoring this email address for incoming POs which they can then process for delivery. This is generally the fastest transmission method and is usually only constrained by the speed of the email servers and the volume of email traffic at the time. “Another important aspect in this transmission method is the accuracy of the supplier email address in the records of the supplier database. Sending POs to an incorrect email address can cause significant delays in the supplier delivery process; and also creates frustration in the purchasing community if they feel that the system they are using is not optimally configured”, Alkema continued.

 

Another widely used transmission method is fax. In the days before computers were so common, the fax machine was a mission critical piece of equipment in any buying office. Equally, suppliers would watch the fax machine with great anticipation during the day to monitor for incoming orders to which they could respond and plan deliveries. With the advent of the personal computer, the desktop processing has been simplified, yet the technology of the fax machine remains just as important. This is especially the case where bandwidth and other technical limitations require the use of phone lines and associated technologies, and thus faxing is a useful backup when needed. Just as in the case of using the email servers, fax servers will be used to transmit the PDF document to the fax number on record for the supplier. Typically large organisations will have a common architecture for bulk faxing and the interface to this system will just need to be configured to work with the purchasing system.

 

Finally, Electronic Purchase Orders (EPOs) is an efficient method of PO transmission for bulk purchasing of high volume orders with large and strategic suppliers. In this process the POs that are created in the system are combined into a batch order each day which is then sent during the end of day processing window. This will typically happen late at night when there is low traffic on the servers. Common instances for this type of EPO supplier could be logistics suppliers where multiple deliveries are requested, but can be combined to optimise trip routes and reduce costs. This method works extremely well when correctly set up, but can also cause significant frustration when it is not optimally configured. This is because there will typically be some processing on the supplier side as well as on the purchasing organisation side. The batch orders can furthermore not simply all be printed out at the supplier, as that would negate the more efficient channel. Usually a batching process will work with the Extensible Markup Language (XML) format of the batched purchase orders to create pick lists and delivery schedules for the combined orders. There is often some middleware involved to transmit the batched orders, further adding to the complexity of the technical set up involved.

 

“While a more technical aspect of purchasing, and often left to the IT department, it is important for operational purchasing professionals to be informed and capable with regards to the transmission of POs to suppliers. Any chain is only as strong as its weakest link, and technical hiccups can destroy the value of an efficient process and weaken the credibility of the purchasing system in the eyes of the users”, Alkema concluded. Ultimately the greatest advantage is the use of POs to increase compliance (see Part 1) and thus it is important to be aware of the technical aspects of POs which we have considered in this article.

 

Next month we will consider the very important question of just how much control to introduce in your Purchase-to-Pay process. Some organisations opt for ‘Three-way matching’ while others prefer only ‘Two-way matching’. We will examine these and consider the merits and disadvantages of both, in light of all that we have learnt thus far in our series.

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