September 20 - 22, 2021
Purchase Orders for Low Dollar High Volume Spend
The CPO's Corner
Question from Arthur:
What are your thoughts on the value of purchase orders and doing away with them, specifically for low dollar, high volume spend?
Procurement is all about adding value and for a long time one of the ways we measured that has been to report on spend coverage, assuming that if a spend was on our radar we were in a better situation than if it was not. But in these days of limited resources we need to also be considering “Value for Effort” and that’s where purchase orders for low value items might no longer stand up.
The world has moved on from the Purchase Order and you ought to be evaluating whether it’s time for your firm to move on as well. You’re probably not going to do this with direct materials, software, or consulting spend. You’ll start by checking your spend data against transactions and see where that low value/ high transaction spend lays.
One option is to try to mimic the kind of buying experiences your employees are having when they’re on the Web buying things for themselves. You can have them go direct to a site maintained by your supplier, link payment to a Purchasing Card or some kind of auto payment mechanism, and let it flow. Years ago, there was a legitimate concern for abuse; during the 2008 recession companies experienced an uptick in people using their business cards for personal expenses as their own cards maxed out. But with virtual cards, MCC code blocks, daily limits and transaction limits there are ways to make sure that the right kinds of controls are in place.
Another paradigm is that we have better deals where there is a preferred supplier. But anyone who purchases office supplies knows how much of a shell game that is. You do your best to anticipate your company’s needs, but as requirements or sku’s change, so do your prices. There is software today that allows comparison shopping and virtual price competition. How many of us have had office managers tell us they can do better with the deals in the Sunday paper? As long as you put some reasonable controls in place, maybe its time to let them.
And maybe your next measurement should be one that tracks how you’ve simplified the process for your firm.
Joanna Martinez is a global procurement / supply chain leader and the founder of Supply Chain Advisors LLC. She is a frequent lecturer and blogger on procurement topics and also provides coaching, strategy development, training, and cost reduction opportunity assessment. Her clients range from Fortune 100 companies to technology startups.
As either regional or global CPO, Joanna has led transformation initiatives for companies in many different sectors: among them Johnson & Johnson (consumer products), Diageo (beverage), AllianceBernstein LP (financial services) and Cushman & Wakefield (real estate services, property management). She has also held client-facing roles, effectively giving her the opportunity to “sit on both sides of the table”.