Inventory is the most valuable asset in a product-based business' balance sheet. You can significantly impact your business by increasing gross margins and delaying future stock operation hires.
This content will explain how companies can use technology to manage purchase orders (PO) today. This article also examines the shortcomings in ERP's management of PO. It offers recommendations for improving efficiency and digitizing purchase order flow.
Current State of Purchase Order Management
This question has been answered by many firms. These are the two most famous studies.
American Productivity & Quality Center: This agency is involved with many supply chain research projects. The average purchase order cost was between $35.88 to $506.52/PO. The literature also revealed that a $1,000 PO costs, on average, $5.37 to $28.09. The average cost of a $1,000 PO was between $5.37 to $28.09. These metrics can be seen from a different perspective. They show how much a business pays.6 to.3 Cents per $1 in PO Value.
The Center for Advanced Procurement Strategy (CAPS) research numbers is similar to those of APC. These numbers show that purchase orders cost an average of $50 to $1,000, depending on the vertical and industry.
These costs include internal purchase order execution, requisition, factory, and purchase order processing. Shipping dates confirmation and requirements. Product receipt and confirmation. Invoice processing. And they are sorting any errors. These metrics do not include the costs of finding, testing, and onboarding new vendors. These metrics do not have product design/sampling expenses or cost-related demand planning. These studies include the costs of finding new vendors and the calculation of demand plans. They also spend thousands to hundreds of hours looking for them. These metrics do not include time or cost.
After we have looked at how PO management affects businesses, it is time to examine the systems companies use to manage POs. CAPS has created this infographic that provides data on how companies most commonly create and manage standard POs. Participants were able to choose from multiple answers. These three buckets were the most popular.
We should first look at the 17% paper/manual ordering management. Some industries won't or can't use technology. This includes companies relying only on paper, telephone, or email to complete orders. These legacy companies represent a small fraction of businesses. These metrics show that most industries worldwide have attempted to digitize PO execution. Surprisingly, only half of ERP users utilize PO automation capabilities.
A staggering 96% of companies use ERP systems for capturing POs. This is not to suggest that 96% of companies use ERP systems to capture POs. ERP systems are not just necessary for enterprises but also require software to manage the supply chain. This content will show where ERP functionality ends and manual intervention begins. Today's tools can wrap up your ERP system to provide better PO automation, digitization, and tracking.
Are ERPs Strong?
ERPs excel at accounting, baseline inventory management, and dashboard-level reporting/insights. Accounting is the management of AP & AR expense reporting and period close. The primary financial statements are income, cash flow, and balance sheets. They also include corporate budgets and prior financial statements. Baseline inventory refers to the execution of purchase orders, marking merchandise received, tracking inventory levels, and managing basic pick/pack/ship operations. The dashboard-level reporting allows you to state that ERPs offer a lot of information and business insight for many business stakeholders.
ERP is a software and system that connects all business processes, including finance, manufacturing, supply chain, and sales. ERP integrates all these processes into a single system at a fundamental level.
An ERP can't be used straight out of the box. It must be integrated with the business goals and structures. It combines data from all areas of the enterprise, including financial, logistical, and human resources, to support enterprise-level planning and operations.
Types of ERP Integrations
The type of ERP integration you choose will depend on your IT resources and your specific business needs.
Read More:- You Should Know These Important Benefits of ERP Solutions
E-Commerce
E-commerce integration connects your eCommerce platform (such as Shopify) to a cloud-based ERP system. They work together to improve your eCommerce store's functionality and provide better customer shopping experiences.
An eCommerce ERP integration allows data to be tracked, including customers, leads, orders, shipping times, and taxes. Integrations are designed to make data accessible to all employees of an organization that manages an e-commerce store.
These benefits include:
- All departments have access to accurate, relevant front-end information.
- Inventory counts at the front and back end in real-time.
- Pricing options that are dynamic and customer-specific.
- Automated financial audits.
There are several ways you can integrate your ERP with an eCommerce platform.
- You can customize the eCommerce solution API by yourself. However, you are responsible for its management.
- Use an out-of-the-box third-party solution. You will need to pay for it and rely on another team.
- Integrate your ERP system with your e-commerce platform via native integration. A native integration ERP, such as Shopify NetSuite, offers the best flexibility. An ERP company integrates the ERP system into an eCommerce platform. It is flexible enough to adapt to market needs and meet the requirements of an organization.
Ecommerce companies can integrate with other platforms to increase efficiency and save money, such as:
- Product lifecycle management.
- Management of the supply chain.
- Warehouse management systems.
Customer Relationship Management (CRM)
A standardized way to manage customers and leads is essential for every eCommerce business. CRM systems store customer information such as purchases and contact details. This data can be used by marketing and sales teams. This data is used by businesses to get better insight into customers and to make informed decisions about how to interact with them.
Salesforce and Netsuite, an ERP and CRM Integration, can pass data between one another, giving companies a 360-degree view of their customers. Your company will have all the information you need, whether it is sales, support, or shopper data. This data can be easily used to improve customer relationships.
Business Intelligence
Software for business intelligence (BI) is used to retrieve, analyze and report data. Companies undergoing digital transformations will find BI software essential because it gives them visibility into their data. It allows stakeholders to easily visualize and compile data, allowing them to discover new insights and take action to improve their bottom line.
Sometimes, an ERP system may include a BI function. The functionality may need to be improved for organizations that receive large amounts of data daily.
These insights are easily accessible to any authorized employee when a company connects an integrated ERP with a third-party system for BI. A business can also access advanced reporting to make the most out of all data it receives.
Human Resources
Human resources are the back-end department with the most tasks. It can be overwhelming to manage HR data. It is costly to mishandle sensitive HR data and a security risk for any business.
Your ERP can include an HR module that helps you manage, digitize and automate your HR department processes. These are some of the benefits:
- Databanks of employees are safe and secure.
- Simpler payroll and compensation management.
- Management of attendance and time better.
- Employee training and development should be improved.
With their ERP HR module, businesses can be creative. They can easily send surveys to employees to gauge their satisfaction, set up automated reporting, and implement and understand performance reviews throughout the company.
Management of projects
Some ERP systems can include project management software, just like BI software. Many companies that start building ERP systems use more advanced project management software. It is helpful to see the status of your ERP projects for several reasons.
- It is possible to determine the project cost.
- You can view project updates and processes.
- It is possible to determine if the project methodology is working.
- Collaboration with the HR and payroll departments is possible.
Anyone can see who works on what in an ERP's project management module. They also can see when it will be delivered. These workflows can be used to encourage ownership between departments and help companies resolve small problems before they become major ones.
Why Do Businesses Avoid ERP Customizations?
ERPs can effectively cover a wide range of processes and provide proper functionality. However, those with a negative opinion about ERPs claim they are "jacks of all trades" and "masters of none." Customization is an ugly word in the ERP industry. Many ERP-related projects that were involved required customizations to accomplish tasks that were impossible with the platform.
Scripting is the first thing that comes to mind when you want to upgrade or evaluate an ERP. This means you will receive a quote for hundreds of hours at $150-$300 an hour. This task is designed to create a simple workflow. Because every record/object within an ERP can dynamically be linked back to the chart of accounts, it takes time to create customized workflows and objects. The ERP can fail if it is not constructed correctly or quickly. Because ERPs store financial and proprietary information, it is risky to add customizations to them without their permission. Although custom fields can be easily added to ERPs, it is easy to create objects, workflows, and reports. Customizations and access extensions to third parties are necessary to manage the PO process in an ERP from start to finish.
Why Don't Businesses Allow ERP Access To External Parties?
A company should not grant ERP access to suppliers or vendors. This could allow an outside party to have financial information or, worse, put in inaccurate data. ERPs are well-structured and segmented. Configuring roles that grant vendors access to specific fields for their inflight POs can take administrators hours. Access to third-party data is also a risk. The average ERP user spends between $50/user/mo to $120/user/mo. Vendors are not granted access to their data, so it's not surprising. Companies may also consider custom integration with suppliers/vendors. However, integrations are more costly than ERP users. They also need to be ($) maintained. A company could have hundreds of suppliers.
Since ERPs cannot be used as standalone systems, there are many limitations in PO management. I have already mentioned the points about ERP customizations and providing access to outside parties. Let's look at four things that PO management requires that ERPs do not natively support:
- Communication and Collaboration.
- WIP/Status Tracking.
- Demand planning.
- Supply Chain Marketplace.
Communication & Collaboration
ERPs don't have Slack, or Zoom Esque features that allow you to collaborate and communicate with other supply chain members. ERPs are useful for routing and executing internal tasks and approvals. However, ERP access is often restricted to the organization or business. A PO process is just the beginning of a chain that will trigger downstream communications. It was inevitable that there would be hours of back-and-forth communication, no matter what the order status, factory receipt of raw materials, size/SKU/quantity breaks, or shipping/freight carrier carriers.
Many communication options are available to factory workers. However, this does not mean I use only email, WhatsApp, and Wechat to communicate with factories. We also include time zones and native languages. Multilingual communication will make the PO process easier and more efficient.
Email integrations involving multiple POs from the same vendor can prove inefficient. ERP Integrations can be inefficient because many touch a PO (internal or external). It isn't easy to have multiple email addresses that coincide with POs. Multiple POs can have multiple email addresses from the same vendor. Establishing a central communication channel for all information about a particular PO is difficult.
ERP systems have a limit on data storage that restricts how centralized all documentation can be. High-resolution images, such as photographs of complex garments and electrical products, are essential to share with vendors and communicate POs. High-resolution images may eat up data storage, which can reduce the amount of documentation stored in one location.
Tracking WIP
NetSuite allows clients to track their flight PO status. I'd be extremely rich if I could make a dollar per client. Every Supply Chain Manager needs a beautiful dashboard that shows every PO. You can filter it by product, vendor, line of business, or status. Any ERP can add custom fields to purchase or order. For example, "status" can be filtered by product, vendor, line of business, and status. However, there are no drop-down options to select "order received", in progress, cutting, stitching," final, "shipped directly to the customer", or "received." Your system is one of many vendors used. No vendor will update your system every day. Even if they did, how would you feel if your method was not updated? Remember how expensive ERP users can be.
ERP users who modify their PO forms and give access to others to modify them 99 percent of the time return to email-driven communication. ERPs are not meant to allow access to the supply chain. Future-generation supply chain platforms will enable factories to seamlessly integrate their platform with yours, creating the perfect WIP/PO status dashboard.
Planning for Demand
ERPs are also useful for essential demand planning. An ERP program can alert me when I sell less than X units. This will activate a reminder in the dashboard. ERP can automate my PO process by recommending and executing a PO. ERPs plan with min/max/preferred inventories.
Although it sounds great in theory, this is far from the truth. It does not meet the essential criteria that buyers require to execute POs. What happens if multiple vendors offer the same product? What happens if I have a Chinese vendor who is more efficient in bulk orders and a South American partner who provides better service and lead times? These metrics are not part of my ERP, so I must manually select a preferred vendor. Or I might accidentally trigger POs I didn't want to.
It is also essential to consider what happens if a product's stock levels change. Naturally, businesses that are growing will sell faster than others. The sell-thru rate may change over time. ERP makes it possible to control stock levels and reorder points. ERP allows you to do this. ERP is not recommended for purchasing products. The ERP requires more analysis and needs more consistency. It is also difficult to set a reorder limit. This is common in seasonal businesses without an evergreen or non-expiring product line.
It is difficult to plan for demand. Before you can execute any POs, you need to plan for handbags, Nestle nerds ropes, or skis. This is impossible in an ERP.
Supply Chain Marketplace (Identification of Potential Vendors)
It would be wonderful to have a virtual bidding platform that allows all suppliers in your network to respond and offer their POs. This will ensure the best price, quality, and lead time. Virtual marketplaces are the future of supply chains.
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An ERP system can not optimize purchase order management but can manage key steps in the PO management process. An ERP system can help finance and accounting see APs. Every day supply chain participants responsible for successful inventory purchases still need to be able to access pieces from different approaches and communication channels.
There are two types of business: pre-ERP and after-ERP. Lean pre-ERP companies will help save bandwidth and enable you to invest early in a supply chain digitization platform. This will reduce the time and effort required to roll out ERP systems. If you've used your ERP system for over a year, some things could be improved. You can add other tools to your ERP system to achieve the vision you had initially.
A supply chain digitization platform can help you delay future headcount hires and increase margins. The platform gives you real-time updates, data, and information without hiring additional staff. This data can be used to make smart factory assignments, bid on engagements, identify bottlenecks, and control your supply chain partners.
