Not All Heroes Wear Capes

We all like to root for the underdog, right?

When we see mistreatment and misunderstanding, we want to stand up for the downtrodden, don't we?

I'm like Dateline's Keith Morrison of the Procure-to-Pay world. I want to tell you a story - a meandering story narrated in a whimsical voice. A story where you think you know where you stand on something and then, in the end, you surprisingly find yourself somewhere else altogether.

The hero of my story is the Purchase Order.

(See? You are over there going "Ugh. RED TAPE! You Procurement people and your stupid processes. I can call a vendor and place an order in 2 seconds but you make me go through all this red tape.")

You think you hate the Purchase Order. You think it's a waste of time and effort. You think it does nothing for you, or your boss, or your company.

Well. I hate (love) to be the one to tell you this: you're wrong.

The Purchase Order isn't going to tell you that. It's a humble document. It doesn't boast or brag. It has become accustomed to the abuse and it suffers silently. But I am here to tell its story, and once you understand, you will see it in a whole new light and you will sing its praises. You will sing its praises. (You totally heard that in Keith Morrison's voice, didn't you?)

Let's talk about who loves the Purchase Order, even if they don't really know they do. They may not love it when they have to particiapte in the process themselves for their own spend, but they love that Procurement has put this process into place for helping to achieve their broader goals. Read on to understand who the Purchase Order's biggest fans are and why:

• Legal loves the Purchase Order. The Purchase Order itself is a written contract. It comes built in with robust governing terms and conditions. That relieves Legal of reviewing, redlining, and approving thousands of contracts a year. When a purchase is governed by PO Ts & Cs (Purchase Order Terms and Conditions), it still protects the buying company, but it reduces the overhead cost of making that purchase. You don't get that protection when you call in an order!
• Finance loves the Purchase Order. The Purchase Order allows systematic rules to be put in place so that the money spent is not only properly approved according to the Spend Commitment Policy (or Approval Matrix or whatever it's called where you are), but it can support other rules. For example, if it's CapEx, it must have a Project Number. If it's unbudgeted, it needs special approvals. If you phoned in an order, NO RULES APPLY and you'd love that, but nobody else would. Every line on a Purchase Order has valid financial allocations, which are necessary if those dollars spent have to flow here or there downstream from the purchase. You don't have to be an accountant to know that every dollar you spend in a company must have a home in the budget, on the balance sheet, in the prepaid schedules, in the asset depreciation schedule, etc.
• Financial Audits are a reality for all companies, public and private. Those who oversee them love a Purchase Order. It allows the organization to empirically demonstrate that an expediture was properly approved and properly vetted. It's a central place where a company's auditors can see all of those financial controls adhered to and, in the end, your company gets a cleaner audit report because of our unsung hero, the Purchase Order.
• Other Audits are also a reality and those who oversee them love a Purchase Order. Software Audits go like this - "I see you are using X number of our software licenses. Can you please show where you purchased those?" Let's hope people didn't buy them from Amazon on their corporate credit cards, because we'll never find that proof. (Pssst, this is one of many reasons most companies insist that software is purchased via Purchase Order. High risk when you don't.) I work for an MSP and just this week, one of my colleagues called me to say a customer of ours was going through an audit and needed to prove they DIDN'T own the equipment (we sell to them as-a-service, we retain title to the equipment). I pulled 8 Purchase Orders, redacted the pricing, and handed them over to him in 10 minutes. DONE. Without a Purchase Order process, that would not have been possible, but because I was able to look up purchases against a customer Sales Order number, it was easy-peasy. This is one example of hundreds a year where the Purchase Order saved someone, in this case, our customer.
• Budget Management is a responsibility that sits with many across the organization. An important tool (but not the only one) in the arsenal of the Budget Manager is the Purchase Order. The Purchase Order allows business managers with budget responsibility to keep a finger on the pulse of spend - completed and in-process - against any budget code. Budget managers also love that the Purchase Order process requires all requisitions to be properly approved based on spend approval policies. That control gives them reassurance that the spend against the budget/s they manage are properly controlled.
• Financial Approvers love the Purchase Order for other reasons beyond budget management and spend-control, but they may not even realize the perk I'm about to describe. Financial Approvers are called upon to approve requisitions, which turn into Purchase Orders. Subsequently, any invoices that come in against each of those Purchase Orders don't need to be approved again by those Financial Approvers because the expenditure was approved up-front. Let's say that a large Purchase Order results in 10 or 12 individual invoices, which is not unusual. In Purchase Order world, those invoices match against the Purchase Order and a Receipt Record and are paid. Yes, there is still work to be done by Accounts Payable and the receiving people, but the Financial Approver - or approvers - are spared 10 or 12 invoice approval transactions. Your average person in leadership is bombarded with approvals from all sides. If your organization didn't use Purchase Orders, they would be called upon to approve hundreds more documents through the invoice process (which, for the record, generally lacks up-front spend controls).
• Anyone who needs to reconstruct past purchases for whatever reason loves the Purchase Order, because it becomes the company's "memory" of what happened. Over time, people leave the company or move to other roles. New people come in who weren't here when Project Supernova took place and yet they are asked questions "When did we buy that? Why did we go with the one without the flux capacitor?" Or maybe they are working on the renewal and need to review the previous transaction details. The Purchase Order is not just the document used to place the order with the vendor, it contains all the crucial information associated with that purchase. The vendor quote, the signed contract or SOW (if there is one), the email thread where a change to the specification was discussed and agreed. All attached right there, ready to save your bacon. Humbly, quietly.
• Anyone who needs deeper dimensions of spend data needs the Purchase Order, though they may not even realize it. Anyone who wishes to take costs our of their budget needs it. Anyone who wants to have an impact on the bottom line needs it. These people may only know they need information "How much did we spend on widgets last year?" and their friendly Procurement people can quickly give them what they need with dates, quantities, part numbers, shipping locations, vendor names, costs, requester name, and much more. That wouldn't be possible if that spend wasn't on a Purchase Order. In fact, this is probably the most important job of the Purchase Order - it is where companies capture line-item detail about what they are buying. That data turns into Business Intelligence to drive significant impact. Spend data can surface opportunities, and those often become impactful projects. Let's talk about those widgets. Spend data might reveal that your company spent $22M on widgets last year and bought them from 18 different vendors made by 7 different manufacturers. Some of those vendors gave you favorable terms and some did not. Some of the vendors had competitive costs and some were considerably higher than market rates. For some manufactuers, the costs were low but the lead times were unacceptable. All of this insight comes from Purchase Order data. You would not get it from your invoicing systems. You might be able to get it from your vendors, but you'd have to know which 18 suppliers to go ask. So now that you have the data, you have the opportunity to analyze it, assess your internal requirements, choose to go out to bid with the goal of a consolidated agreement that addresses the terms, the cost, the lead times, the quality, and more. Maybe that $22M from last year turns into $17.9M after the new agreement is signed. The Purchase Order - it's amazing!

But here's the catch. If you want to benefit from the amazingness of the Purchase Order, you have to partcipate in its care and feeding. Nothing in life is both Wonderful and Easy. (I know this because I have children, and a job, and a car built on German engineering. All of those things are wonderful, but none of them is easy.)

Your part in this care-and-feeding is to particpate in using the Purchase Order process without whining. Questions are acceptable but whining will not be tolerated. OK, fine - we'll tolderate it, but we may go and write a 17 page manifesto about the value of a Purchase Order on LinkedIn if you whine too much.

You are allowed to ask questions about why, whyyyyyyyyy, and we will happily answer them. You are allowed to suggest a better way if you think you know one. Us Procurement types will participate in that conversation. In fact, we already know that not everything belongs or fits on Purchase Order. There are times where we set aside our hero, the PO, and implement a different process. But the alternate process should consider how our organization might still achieve the same things mentioned in all the bullets above. A good example is Office Supplies. Most companies don't put office supplies on PO. They typically have those consolidated to one provider and orders are placed on that supplier's portal, with the necessary controls and rich-detail reporting available from this alterate source. These are also low-risk and lower-cost items, so they don't need as much control as, say, software.

I've been in Procurement for more than 30 years and the poor Purchase Order has been sorely misunderstood by the masses that whole time. I felt it was time to speak up on its behalf.

I can talk about Procure-to-Pay systems and processes for hours. If you ever have insomnia - call me!

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Linda Metzler likes to write about work stuff on LinkedIn. Sometimes, she rambles on and on and then adds this bottom part just to see if anyone is truly reading the whole thing. She might test you by asking a question, such as "Has the Purchase Order or its data ever saved your bacon?" or maybe "What is the air speed velocity of an unladen swallow?" Answer either of those in the comments for extra credit.

PS: Please don't ask "Extra credit on what?" or you'll lose the extra credit. That's how it works. I don't make the rules.

PS2: I tell my dog I don't make the rules all the time and I can tell by the way she looks at me that she isn't buying it, but I can't see how you are looking at me so I assume you are buying it. Right?

PS3: This is an example of buying something that doesn't require a Purchase Order!