People that work closely with me know that I have a few standard lines that I use a lot. One of my favorites is if my wife ever leaves me I am going with her. That is both a treat and a promise all at the same time. Another line that is more appropriate to this article is that I am a technologist that serves accountants, so naturally I am the most paranoid person on the planet. Well I gave that line to someone as they were looking into Accounts Payable Automation and she said… “try being a controller at a police department”. She got me there.
In what I like to call the “unreal world” which is the world outside of accounting, the use of “control freak” is used in a negative context. In the accounting world being a control freak is a badge of honor, it’s a profession and for the most part being a control freak is the reason for employment.
What Does This Have To Do With Purchase Orders?
Thanks for asking, in corporate america, expense control is an extremely important strategy. Notice that I wrote “strategy”. Expense is not a technique or process it is much more. Expense control can serve to prevent fraud or (even better) can save the company’s cash, which I heard a CEO refer to cash as oxygen.
Expense control is a great reason for using a purchase order process. The control however comes from solving a common problem within the purchasing world… maverick purchasing.
I don’t know if Tom Cruise was a maverick purchaser… oh yea… a definition. Maverick purchasing is when different parts of the business buy the same product or service from different providers at different prices. The opposite of maverick purchasing is a single consolidated pricing for everything bought and used through one of a few vendors. Consolidating between one or a few vendors allows the organization the ability to capture their internal buying power.
What Does This Have To Do With PO’s?
Great question! The purchase order process is perfect to mandate which vendors are to be used for certain products. A company can set up lists or catalogues that will tell people where to buy what they need. This works best if the purchase order process is non-paper. Most accounting system have a purchase order process that even helps create the invoices (more to come on this later). Through the process the company can report on exactly what their purchasing power is for certain products and services.
Tomorrow I am going write about the second control that purchase order are perfect for. Stay turned!
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