How To Calculate Your Purchase Order Cost

Purchase order costs involve expenses tied to creating, processing, and managing purchase orders in your company. Knowing how to calculate these costs is crucial for uncovering potential savings, especially through automation.

Step-by-Step Guide: How to Calculate Purchase Order Costs

Step 1: Document Your Purchase Order Process

List all stages in the purchasing process, covering requisition creation, approval, and the purchase order creation process. Evaluate the number of steps involved in the purchase order process, including creating and sending the purchase order to the vendor.

Step 2: Calculate the Average Time for Each Step

Determine the average time for each step in the purchase order process. Use estimates for different requisition types and steps involved, creating buckets and calculating weighted times.

Step 3: Estimate Individual Costs in the Approval Process

Estimate the cost of each role in the approval process, considering fully loaded costs. Calculate costs per minute to align with the average time for requisition approval.

Step 4: Calculate the Total Purchase Order Cost

Use the data gathered to calculate the total cost of a purchase order. Consider the annual purchase order count to determine annual costs, potentially uncovering significant savings opportunities.

Reducing Purchase Order Costs

Approach #1: Simplifying Your Purchase Order Process

Before exploring automation, simplify your current purchasing process by identifying redundant or time-consuming steps. Focus on streamlining processes to reduce overall costs.

Approach #2: Automation

Consider automating the purchase order process to minimize data entry and review costs. Automation can streamline approvals and reduce the time it takes to create and send purchase orders. Evaluate tools like ProcureDesk, which offers P2P solutions to lower purchase order costs.

Conclusion

Calculating purchase order costs is a critical step in optimizing your procurement process.?

By identifying inefficiencies and implementing automation, you can significantly reduce costs and enhance overall efficiency.?

Remember, investing time and effort in optimizing your purchase order process can result in substantial annual cost savings. Evaluate the worth of these improvements based on your business priorities and objectives. Streamlining your purchasing process cuts costs and improves the overall effectiveness of your procurement operations.

Do you want to dive deeper into this topic? Read more here.?