Purchase Order Automation: How It Works & 8 Benefits in 2024

Do you ever feel like your team is drowned in a sea of purchase orders, invoices, and shipments? Does your manual processing make it impossible to keep up? Do errors, exceptions, and missed approvals keep arising no matter how many band-aids you try?

If so, you’re not alone. Many procurement teams struggle with clunky, broken purchase order processes that sap productivity and increase operating costs.

But what if you could automate 90% of the repetitive work around data entry, approvals, and supplier communication? And what if you could reduce PO errors to nearly zero while getting full visibility into spending?

The good news is – you can. Purchase order automation provides a lifeline to procurement teams by digitizing and streamlining the entire PO process.

In this comprehensive guide, we’ll walk through:

• Common pain points with manual order systems
• Technologies transforming purchase order processing
• 8 compelling benefits achieved through automation
• Steps to implement PO automation successfully
• How AI is taking automation to the next level

Let’s dive in and explore how automating POs can make your workdays (and vendors) much happier!

Buried in an Avalanche of Paperwork? The Problems With Manual Ordering

First, let’s spotlight some of the typical challenges procurement teams face with traditional, manual purchase order processes:

1. Data entry delays – Manually entering order details for each line item takes ages. Employees might spends hours per day just typing!

2. Math errors – With so many quantities and prices, miscalculations inevitably slip through, resulting in incorrect order totals.

3. Duplicate orders – It‘s easy to lose track and mistakenly order the same items twice when relying on paper or individual spreadsheets.

4. Lost documents – Ever have an urgent order go missing on someone‘s desk during approval rounds? Without tracking, it‘s impossible to find paperwork in the shuffle.

5. Unauthorized purchases – When orders aren‘t digitally verified against policies, it‘s easy for employees to buy restricted items or exceed authorized limits.

6. Poor supplier visibility – Getting confirmations of order receipt from vendors takes forever with manual follow up. You never know if an order fell through the cracks.

7. Inaccurate 3-way matching – Reconciling hundreds of paper orders, invoices, and shipments manually to confirm accuracy is tedious and error-prone.

8. Lack of spending insights – With no centralized data, purchasing leaders can‘t identify problem vendors, overspending departments, or seasonal trends easily.

According to the Aberdeen Group, on average companies lose $182 per purchase order due to rework and errors. With thousands of POs per year, costs quickly skyrocket.

Employees get bogged down fixing mistakes versus strategic work. Vendors suffer from payment delays. Audits become nightmares with paperwork scattered everywhere.

Clearly, manual purchase order processes fail modern businesses. Digital transformation is desperately needed.

Introducing Automated Purchase Order Processing

Purchase order (PO) automation means using software tools to digitize and streamline the entire order process – from filling out forms to approving, sending, and reconciling orders with minimal human effort.

Popular technologies used include:

• Robotic process automation (RPA) – Configurable bots that can complete repetitive digital tasks like data entry, emailing, filing documents, triggering workflows, copying/pasting, and more. RPA is the backbone of most PO automation initiatives.
• AI data capture – Optical character recognition (OCR) and natural language processing (NLP) extract order data from scanned docs, PDFs, emails etc. and convert it into structured formats RPA can ingest. Removing manual data prep.
• eSignatures – DocuSign and similar tools enable paperless order approvals with electronic signatures that are fully legally binding. No printing needed.
• Procure-to-pay suites – End-to-end software like Coupa that covers the full procurement lifecycle from sourcing to invoicing in one integrated platform.
• Supplier integrations – Direct connections to vendor ordering systems via APIs to exchange order data seamlessly. Removing manual order re-entry.

With the right combination of technologies, the entire manual purchase order process can be automated, as this diagram shows:

Let‘s explore some of the biggest ways this transformation pays off.

8 Benefits of Automating Purchase Orders

Companies implementing purchase order automation typically see rapid ROI in the form of:

1. Faster Order Processing Velocity

Processing purchase orders manually takes ages. Just filling out all the product codes, quantities, unit costs, delivery addresses, and other details eats up huge chunks of employees‘ days.

With RPA bots and AI-enabled data extraction, orders can be completed in a fraction of the time – often mere seconds versus hours! Bots handle data entry at lightning speeds.

Approvals also happen digitally in minutes instead of the days it can take routing paper orders around for sign offs. Orders get in front of vendors faster.

According to research by the University of Sydney, RPA improves PO processing speeds by 65% to 80%. That translates to massive time savings!

2. Increased Accuracy, Less Rework

Between poor handwriting, transposed numbers, and accounting errors, manual orders inevitably contain mistakes.

The Aberdeen Group found:

• 91% of organizations experience purchase order errors
• 26% of POs have inaccurate quantities
• 14% contain incorrect products or specs

But software bots don‘t make typos or math mistakes. They also consistently enforce approvals rules – something humans easily forget.

This reduces costly rework and waste. With PO automation, leading companies have reduced order errors by 95% or more. Processing is virtually mistake-proof.

3. Stronger Compliance and Controls

It’s difficult to police every order in manual environments.EMPLOYEES can easily buy unauthorized products or exceed purchasing limits.

Digitizing approvals ensures every order gets verified against pre-defined business rules. Orders breaching policies get flagged or blocked automatically.

Software can check that orders:

• Fall within approved spending limits
• Use only permitted suppliers
• Comply with restricted products lists
• Have valid general ledger codes

Adding these guardrails minimizes non-compliant, fraudulent, and maverick spend while still expediting most orders. Automation provides financial control.

4. Complete Spend Visibility

With the chaos of paper orders, purchasing leaders have limited insights into spending patterns. There‘s no way to easily analyze costs by department, vendor, product category or other cuts.

PO automation centralizes all order data in one place. Dashboards can display real-time metrics on:

• Spending by department, category, budget codes etc.
• Lead times between ordering and delivery
• PO trends over time
• Early warnings on budget overages
• Volume spikes by supplier

This powers data-driven decisions on vendor consolidation, contract negotiations, inventory planning and more.

5. Lower Processing Costs

Managing purchase orders manually requires large teams just to handle routing paperwork, filing, data entry, and fixing mistakes – tedious low value tasks.

McKinsey estimates RPA solutions reduce PO processing labor costs by 40-75%. Bots don‘t earn salaries or take vacations.

Staff can be reassigned to focus on value-add responsibilities like analysis, relationship management, and strategy. It‘s a huge productivity boost.

6. Scalability to Support Growth

Paper-based order systems can‘t scale without linearly growing headcount. There‘s a fixed capacity for manual work.

Automation provides nearly unlimited scalability. The technology can handle 100+ times more orders and complexity without disruption.

Onboarding new suppliers, users, or products takes minutes rather than months of retraining. This flexibility supports business growth and mergers.

7. Smoother Supplier Relationships

Suppliers benefit hugely from digital purchase orders:

• Orders are received instantly, preventing lost documents
• Changes can be synced in real time across systems
• Payments are expedited with automated workflows
• They save costs by eliminating manual order re-entry

Together this improves supplier satisfaction and cash flow while enabling collaborative platforms like order tracking portals.

8. End-to-End Process Automation

Once purchase orders are digital, adjacent procure-to-pay processes get unlocked for automation too:

• Invoice handling – Bills can be auto-matched to orders
• Receipts and shipping – Digital confirmations speed approvals
• Budgeting – Real-time reporting on spending vs. plans
• Payments – Auto-generated based on order terms
• Inventory – Stock levels get updated automatically

Automating POs starts a chain reaction of efficiency gains across finance and supply chain operations!

With benefits like these, it‘s not surprising that over 50% of organizations now have some form of PO automation in place according to Ardent Partners research. And adoption is accelerating.

Implementing Purchase Order Automation: 6 Keys to Success

Transitioning to automated PO management requires careful planning and coordination. Based on lessons learned from hundreds of implementations, here are 6 best practices:

Conduct current state assessments – Document in detail existing purchase order processes, pain points, cycle times, and metrics. This benchmarks progress.

Set measurable automation goals – Target objectives like reducing PO errors by 40%, cutting approval times by 2 days, lowering processing costs by $200K etc.

Select software aligned to business needs – Avoid force fitting a solution. Ensure flexibility, ease of integration, and desired features like mobile access, AI, advanced reporting etc.

Take an iterative approach – Start with a limited pilot focusing on high-impact processes first before scaling across the enterprise. This minimizes risk.

Clean and structure existing data – Use RPA for mass data conversion. Structure metadata like product codes for easy mapping to new systems. Garbage in, garbage out!

Monitor adoption metrics closely – Track leading and lagging indicators on productivity, time savings, errors etc. Address gaps with further training and change management.

It takes time to see material benefits, but once mastered, automated PO systems deliver transformative results.

AI and Machine Learning – The Future of Intelligent Purchase Orders

While rules-based RPA drives initial automation, artificial intelligence and machine learning models will take PO automation to new heights in coming years.

AI capabilities on the horizon include:

• Smart anomaly detection – Machine learning spots risks, errors, or fraud that break from normal patterns in the data versus just rule breaches.
• Complex document processing – Using NLP and OCR, AI can extract detailed context from orders, inventory lists, contracts etc. without templates.
• Forecasting – Predictive analytics tools calculate required stock levels and preemptively create recommended orders based on historical data, weather, promotions etc.
• Auto-reconciliations – Machine learning matches invoices, shipping notices, and payments to purchase orders with minimal exceptions even when details differ. A huge manual effort today.
• Intelligent interfaces – Chatbots and virtual assistants handle common supplier and employee questions on order status, shipment tracking, approvals and more.

By combining data science with process automation, companies can achieve true "hands-off" order management led by AI. It‘s the pinnacle of efficiency.

While cutting-edge, AI is already producing results for leaders. Algorithms tailored using company data learn quickly with each additional order, incrementally boosting accuracy. The future is now.

Are You Ready to Streamline Order Processing?

Manually managing purchase orders is no longer sustainable for modern businesses. Errors, delays, lack of visibility and ballooning costs cripple productivity.

Implementing RPA and AI-enabled automation tools offers a better way. Companies realize:

• 80% faster order cycle times
• 60-80% lower processing costs
• 97%+ accuracy rates
• Weeks of time savings per employee

This allows staff to focus on high-value strategy, relationships, and analysis – not repetitive paperwork.

The business case is extremely strong. The technology is proven and rapidly advancing. The time to explore PO automation is now!

If you‘re ready to transform your own order management process, here are some tips to start:

• Document your current workflows and pain points
• Build a business case with targeted automation goals
• Seek PO automation demos from vendors like Oracle, SAP Ariba, Coupa
• Start small with a pilot before scaling across the enterprise

Every journey begins with the first step. I wish you luck in automating your purchase order busywork away for good! Please reach out if you have any other questions.