Purchase order approval process is basically the method of routing necessary procurement information through the right people so that they know that a purchase requisition has been made by an employee and initiate the following procedure.
The purchase order approval process can be used typically at three stages of the procurement process:
- Purchase requisition – This is a very common use since purchase requisition is something that end-users have just entered and now it requires to be looked into before being sent to a supplier.
- Invoice – Whenever invoices are received which aren’t linked with purchase orders, the approval has to take place once the invoice has been received and subsequently entered into the system. Obviously, this isn’t a very good scenario, and it’s always better for you to get approval in advance instead of waiting for the order to be placed. But, in some situations, this is a standard and justified process.
- Purchase order – Since most time during an approval of a purchase order is spent at purchase requisition, the number of cases where approvals are done at this step or an additional approval is taken are very rare.
Also, there is the possibility of an approval workflow existing at the step of receipt for particular items like hazardous materials.
Who all get involved in the approval of a purchase order?
- User manager: They are the most common approver for finances. Managers have to control what employees working under them buy and ensure these purchases are all a part of the spending limits and are made as per the company policy.
- Budget Manager: No matter what the chain of command is in a company, there are specific employees who may be given the responsibility of being the budget manager. This is usually the case as far as larger companies are concerned. The budget manager has financial responsibilities for various items, types of purchases, and categories.
- Project manager: They are a special type of budget manager. Where budgets are usually defined every year, projects could be executed for shorter or for longer periods and may even include sub-projects which have budgets of their own. Being a part of the workflow for approvals will ensure project managers effectively control purchases that are associated with a project.
- Subject matter expert: In special cases like hazardous materials, IT services, custom-made items, etc. subject matter experts are involved in the workflow. Mostly, the goals here aren’t financial but to ensure the expert gives a seal-of-approval, from the technical point of view, on services or items purchased.
- Buyer: The main goal is to get the buyer involved very little in the entire approval workflow. Indeed, he needs to be focusing on sourcing products instead of wasting time approving transactional data. But, when prices are missing, or non-catalog items are ordered, buyers have no option but to be involved in the workflow.
It is very obvious that the type of business and what is being purchased matters too. There are only certain approvers from the above list who would be included in the PO approval process.
How complicated should this process be?
This is something which the company will need to decide on its own. It is obvious that small companies will have smaller processes as compared to larger companies where the processes will be much more complicated.
The rule here is to replicate the basic process in a company and then let it evolve according to the company’s requirements. There are some real simple processes which can help a large company and there are some detailed processes which work really well too.
When the process is being designed, you need to remember the main criteria is for the main people to approve purchases within a reasonable amount of time. If it takes three weeks for urgent purchases to be approved since there are too many steps involved in the process, the process isn’t a good one.
What about purchase requisitions?
The best way is for approvers to receive emails about purchase requisitions that must be looked at. Then they should log into the systems and either approve or reject it. This works well if you’re in front of your computer at all times. But, even on the best of days, this isn’t possible.
Fortunately, with the help of smartphones, everyone can access emails all of the time. So, emails make this a lot easier. The goal here is to shorten the amount of time taken by this process.
Even if you are able to create the perfect purchase order approval process, maintaining it is another thing altogether. Purchase order processes need to be updated constantly so as to ensure the least amount of time is spent in this process and all approvals are given within time.