A Cost Breakdown Of Purchase Order Software for Your Company in Memphis
Have you pondered, "How much does spending money cost us?" It sounds ridiculous, but as you sum up the expenditures, you might be shocked at the true cost of issuing purchase orders in your company.
There are the charges connected with producing the PO itself, which can comprise purchase order solutions and hiring an AP expert to conduct purchase order management.
Next there is the cost related to your purchase order operations which include any review or study, approvals, routing, and processing payments. As you do the math throughout the supply chain, you could soon realize that these expenses have a massive impact on your total expenses.
Though, with the right solutions and distinguishing the processes that you could automate and expedite, you could find opportunities to acquire cost reductions in your purchase order processing costs. But before we get to that, we'll break down the costs associated with POs.
The Cost of a Purchase Order
The Center for Advanced Procurement Strategy (CAPS) study has reported that the average cost for a purchase order is between $50 and $1000 based on the industry.
Hence, the average cost of a purchase order can differ greatly from business to business. Furthermore, operation costs might be difficult to determine if you don't know what to watch for and how to assess it.
Fortunately, with this PO cost template breakdown, you can identify what corresponds to you and begin determining these quantitative numbers.
Evaluate Your Fixed and Variable Costs
First and foremost, it's essential to know that purchase orders will contain variable and fixed costs. Examples of a fixed cost might include salaries and employee benefits, whereas a variable cost could involve the amount of office supplies to alleviate the operation.
All variable costs must be minimized because their volatility can complicate your computations. To understand your fixed vs variable costs, start by breaking down your entire purchase order process from procurement to insurance of payment.
These include:
Choosing an asset to meet a need
Choosing a merchant
Filing a purchase request
Getting authorization
Making a purchase order
Forwarding the PO to the supplier
Any interactions with the merchants on payment conditions or adjustments to the PO
Managing the order: shipping, order quantity, alterations, status, etc.
Overseeing receipt of the products - if there are any issues, additional fees may be needed to address the conflict
Invoice processing
Calculate the Labor Costs
An additional significant cost element in the PO operation is the cost of labor to support supply network management. After adding up your fixed and variable costs, set that number aside and then calculate your employee costs.
These include:
Salaries and benefits divided by the amount of hours devoted to each of these tasks
The total number of purchase orders you fulfill in a year
How many errors occur and how long do they normally take to address?
The cost connected to each phase in the PO procedure should be multiplied by the minute or hour rate cost to perform it. The formula might look something like this:
Avg time spent per task * Rate = Benchmark Labor Cost
As an example, if you are paying your staff $0.85 per minute and a purchase order requires 10 minutes to complete, you're expending $8.50 to create 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 will need to do this for every worker implicated and for every single process.
When you have all the processing charges for every step of the operation, you can then quantify the total estimated expenditure of your purchase order procedure by dividing the aggregate cost of a PO by the amount of POs produced in a year, or whatever time span you want to calculate for.
Apart from understanding the exact cost of this component of your company, you can also start to evaluate how much a purchase order platform that includes automation can save you.
Using Automation to Offset Purchase Order Costs
Via automation, you could reduce labor expenditures by enabling the purchase order system, using artificial intelligence (AI) and Optical Character Recognition (OCR), to execute the processes for you.
Using a simple if-then, rules-based functionality, much of the repetitive purchasing processes related to your procure-to-pay processes can be automated.
Advantages of eProcurement solutions include:
A quicker PO process
Increased precision
Increased efficiency from reorganized employees
Expedited workflows
Greater transparency into processes
Performance KPI tracking
Less risk, better compliance
Strengthened security
In addition, the perks of automation can extend beyond your accounts payable processes to other elements of your firm including Inventory Management, Data Entry, and Human Resources.
Nevertheless, most procurement systems and software can combine conveniently with your Enterprise Resource Planning (ERP), Enterprise Content Management (ECM), and Customer Relationship Management (CRM) systems.
Wave Can Help You Select and Enforce a PO Automation Solution in Memphis
At Wave, we understand more than anyone that keeping a competitive one-upmanship and achieving long-term continuity for an organization requires back-office restoration and digital conversion.
As these are broad concepts, we can demonstrate how they equate to dissolving silos among organizational units, augmenting cooperation, finding opportunities for productivity and cost reductions, and utilizing automation as much as possible.
To do this, you’ll need the proper tools that meet your needs, budgets, and development objectives. We can come alongside your firm and go over your existing systems and operations to pinpoint the simplest areas to mechanize or otherwise ameliorate with the right toolset.
We have assisted countless companies do this in a multitude of industries including Industrial Manufacturing, Education, Legal, Professional Services, Finance, and more!
We utilize a blended set of technology which we exercise on an individual basis, contingent on your particular needs. We are happy to work with more than 60 industry-renowned ECM and DMS platforms including Azure, OpenText, M-Files, SharePoint, and more.
If you’re ready to learn more about how Wave can aid you in implementing an automation solution, let's schedule a time to chat.