Taking stock: Addressing the fragmented Purchase Order Process
A new survey of finance personnel from public and private sector SMBs reveals that, even when purchase order processing systems are in place, often the rigour they are designed to enforce is not followed through. Ian Smith, Finance Director and General Manager at Invu, which commissioned the research, believes this means businesses could be missing out on all sorts of efficiency savings as well as everyday spending intelligence.
Our recent survey of financial controllers in small and mid-sized businesses, turned up some surprise findings, one being how many organisations had formal purchasing departments and structures in place. This was true for 80 percent of mid-sized companies (those with 50-250 staff). Although the trigger for having a formal purchasing department was often to handle goods for resale, where such departments existed they were also being used for internal purchasing by 93 percent of survey participants.
However, it is the gulf between where these organisations could be and where most of them are in reality that has proved most significant. The majority of businesses taking part in the survey applied rigour to purchase order processing (POP) only partially – controls which were undermined by more haphazard processes at other points in the purchase order management cycle. Typically this has resulted in unnecessary additional layers of manual administration and a lack of visibility across spending. It has also created bottlenecks in Finance departments, where all of the information has been centralised. This has left budget-holders and functional decision-makers overly dependent on Finance teams and disempowered from making informed decisions about new purchasing.
Attempts at formal POP appear relatively advanced from the research - presumably because of the need to be seen to perform due diligence processes in line with Government targets on securing the best value for money. By comparison, small private companies were the least likely to have a formal purchasing function for internally-consumed goods and services – by extension probably because they are not bound by the same external requirements.
Where a hybrid approach was allowed for purchase requisitions, 43 percent of organisations recognised immediate inadequacies in their PO practices and almost two-thirds (64 percent) indicated ‘urgent’ plans to address purchase order management inefficiencies in the future.
Even where businesses do have formal systems in place for purchase order processing, too often the loop isn’t closed – in that purchase requisitioning is inconsistent, even chaotic, and receipts of goods and services are not being tallied with POs until the invoice comes in, by which time the spend has been committed.
As well as rendering the business vulnerable to the cost of human error, late-stage PO/receipt matching fails to prompt budget-holders to think about the purchases they are sanctioning and how this will affect their remaining resources for the period. It also makes a mockery of the approvals process.
All too often, there is a lack of uniformity in the way that requests are submitted – it is common to see a mixture of paper-based forms, intranet-based forms, email requests as well as those made in person or by phone. How POs are raised gave rise to the widest range of responses. Only 9 percent of respondents said they were systematically raising purchase orders using their ERP system; 23 percent used a separate PO system, 20 percent used a Microsoft Office-based system, 15 percent managed everything manually, and 20 percent didn’t use POs at all.
Few organisations participating in the survey had a joined-up purchase requisition-to-order system and it is this missing element that is restricting their ability to streamline processes, and introduce greater intelligence and discernment into the purchasing process.
Staff should be weaned off old habits of estimating budgets based on “last year’s plus 5 percent”, and give more consideration to what they need to be spending and where better deals can be found. Once able to break things down, purchasers will find they start to perform spend analysis as an ongoing discipline rather than a one-off project.
Whether the ‘business’ is a public sector organisation needing to provide evidence that it has shopped around for the best quote, or a private company needing to look more professional to its suppliers, ‘make do’ solutions from spreadsheets and other cobbled-together manual processes no longer cut it. They don’t look good and they don’t support data mining or the level of governance that growing companies aspire to. The goal should be to move controls up to the front of the process and to encapsulate the PO lifecycle in a fit-for-purpose system which is reliable and can be interrogated, audited and measured.
To view the related infographic, please visit: http://www.invu.net/pop-infographic
EU and US agree end to Airbus-Boeing supply chain tariffs
The EU and US have agreed to resolve a 17-year dispute over aircraft subsidies, suspending tariffs on billions of dollars' worth of goods that have plagued procurement leaders on both sides of the Atlantic.
Under an agreement reached by European Commission Executive Vice-President Valdis Dombrovskis and US Trade Representative Katherine Tai on Tuesday, the tariffs will be halted for a period of at least five years.
It will bring an end to punitive and disruptive levies on supply chains that have little to do with the argument, which became embroiled in the trade battle. Businesses on both sides of the dispute have been hit with more than $3.3bn in duties since they were first imposed by the US in October 2019, according the EC.
The US imposed charges on goods upto $7.5bn in response to a World Trade Organisation ruling that judged the EU’s support of Airbus, its biggest aircraft manufacturer, unlawful. A year later in November 2020, the EU hit back. The WTO found the US had violated trade rules in its favourable treatment of Boeing, and was hit with EU duties worth $4bn.
In all the tariffs affected $11.5bn worth of goods, including French cheese, Scotch whisky, aircraft and machinery in Europe, and sugarcane products, handbags and tobacco in America. Procurement leaders on both sides of the fence were forced to wrestle with tariffs of 15% on aircraft and components, and 25% on non-aircraft related products.
Boeing-Airbus dispute by the numbers
- The dispute began in 2004
- Tariffs suspended for 5 years
- $11.5bn worth of goods affected by tariffs
- $3.3bn in duties paid by businesses to date
- 15% levy on aircraft and 25% on non-aircraft goods suspended
Both sides welcome end to tariffs
European Commission President Ursula von der Leyen branded the truce a “major step” in ending what is the longest running dispute in WTO history. It began in 2004.
“I am happy to see that after intensive work between the European Commission and the US administration, our transatlantic partnership is on its way to reaching cruising speed. This shows the new spirit of cooperation between the EU and the US and that we can solve the other issues to our mutual benefit,” she added.
Both aircraft manufacturers have welcomed the news. Airbus said in a statement that it will hopefully bring to an end the “lose-lose tariffs” that are affecting industries already facing “many challenges”. Boeing added that it will “fully support the U.S. Government’s efforts to ensure that the principles in this understanding are respected”.
The US aerospace firm added: "The understanding reached today commits the EU to addressing launch aid, and leaves in place the necessary rules to ensure that the EU and United States live up to that commitment, without requiring further WTO action."
This week’s decision expands upon a short-term tariff truce announced in March this year. The EC says it will work closely with the US to try and further resolve the dispute, establishing a Working Group on Large Civil Aircraft led by each side’s trade minister.
Airbus last month signalled to suppliers that post-pandemic recovery was on the horizon, telling them to scale up to meet a return to pre-COVID manufacturing levels. “The aviation sector is beginning to recover from the COVID-19 crisis,” said Airbus chief executive Guillaume Faury, adding that suppliers should prepare for a period of intensive production “when market conditions call for it.”