What is purchase order software?
Purchase order software is a software tool that manages essential procurement processes. It creates and manages purchase orders (POs), can transmit POs to suppliers, and reconciles supplier invoices to POs, contracts, and more.
Purchase order software can be offered as a standalone software program or as an application within a supply chain management system or enterprise resource planning (ERP) software (more on this below).
In this buyers guide, we’ll examine the various types of PO software, the standard features, and the types of buyers in this space.
Here's what we'll cover:
What are the major types of purchase order software?
POs are the beginning of both direct and indirect procurement processes. Direct procurement refers to the purchasing of goods and services used in an organization's products, whereas indirect procurement refers to the purchasing of goods and services used to support an organization's processes.
As such, there are various types of software that deal with purchase orders:
Types of Purchasing Software
Procure-to-pay (P2P) suites are essentially all-purpose tools for managing all of an organization's procurement activities. Typically, P2P systems wade into related areas such as contract management, inventory management, supplier management, and strategic sourcing. They're the focus of this buyers guide.
Most P2P solutions are cloud-based.
ERP suites typically feature procurement modules, but primarily work in conjunction with other modules in the system—e.g., production planning. Moreover, these modules tend to lack the niche features as well as the user-friendly interfaces that encourage adoption throughout an organization.
Work-stream tools are stand-alone applications for managing highly specific procurement processes (telecommunications spend, temporary workforce spend, travel spend etc.). These tools offer dedicated interfaces and approvals workflows to streamline a single, highly important procurement process.
While these solutions are niche, they can offer major benefits when it comes to managing tricky forms of spending. Gartner notes in "Procurement Leaders Need to Deploy Work-Stream-Specific P2P Solutions to Maximize ROI" that “work-stream-specific P2P solutions deliver dramatic out-of-the-box improvements over basic tools in the granularity and degree of control over spending. They achieve this through improved compliance to contract, spend category, and/or project specific workflows and order process audit trail documentation.” (This content is available to Gartner clients.)
Typically, if you're looking for a work-stream tool, you're looking to control spending in a specific area, and you'll look to the niche vendors that specialize in this area. Hence our focus here will be on multipurpose procure-to-pay (P2P) suites.
Notifications on expense report in Coupa Cloud Spend Management
What are the features of purchasing software?
P2P suites offer a range of modules with diverse functions. The below table homes in on some of the most important:
Procurement e-catalog in GEP
|Rules engine for PO to invoice reconciliation (accounts payable automation)
||One of the core features of any procurement solution. Automates the tedious process of reconciling POs to invoices by matching them via rules engines.
|PO to contract reconciliation
||Automatically match POs to contracts.
||Transmit and store invoices in an electronic format such as electronic data interchange (EDI).
||Can be customized and managed to show, for example, prices based on contracts.
|Integrated spend analysis and reporting
||Procurement managers can analyze spend using native reporting tools or export prepared and aggregated data for further analysis. Advanced solutions sport built-in data warehousing functionality.
|Expense reporting and management
||Enables a rules-based approach to ensure compliance with organizational policies.
||Some of the more robust P2P suites have built-in modules for strategic sourcing via reverse auctions and other mechanisms.
||Since P2P solutions are sold as suites in their own right rather than components of ERP systems, they typically offer integrations with leading ERP systems.
Benefits and potential issues
P2P solutions offer the following key benefits:
Exceptions to AP process report in Basware
- Automation of accounts payable (AP) processes: Procurement software eliminates the necessity for manual matching with rules engines, improving efficiency, accuracy, and cost-effectiveness.
- Better control over expenditures: Features such as e-catalogs through which employees can make purchases, supplier information databases, and rules for creating POs and reporting expenses ensure that employees' purchasing habits comply with organizational policies to reduce spending.
- Paperless processing: By eliminating the use of paper in crucial areas, these solutions can offer dramatic savings.
- Integrated reporting and spend visibility: P2P solutions offer dashboards as well as ad hoc reporting interfaces to ensure better visibility into expenditures throughout the organization.
- Improved purchasing workflows: User-friendly interfaces with built-in approvals workflows, as well as remote and mobile access to the system, simplify complex purchasing processes.
Potential issues include:
- Local e-invoicing regulations: While e-invoicing doesn't pose particular regulatory challenges in the US, it remains difficult and/or impossible in some areas of the world. Gartner offers specific guidance in the report E-Invoicing Gains Traction Worldwide.
- Employee adoption: Lack of support for some complex purchasing workflows (e.g. travel purchases) may lead to poor adoption of the system. In some cases, the purchase of an additional work-stream-specific tool may be necessary to supplement the functionality of the P2P suite and encourage engagement.
What type of buyer are you?
We've seen that there are many software options out there for managing POs. Let's take a look at which kinds of buyers should examine particular solutions.
Buyers primarily involved in direct procurement should explore procurement modules in ERP suites, which offer integrated features in other modules for making the most of data generated by direct procurement (e.g., production planning). Additionally, ERP systems offer strong functionality in areas such as vendor-managed inventory/automated replenishment, which are key to streamlining direct procurement processes.
Buyers dealing with both indirect and direct procurement should explore P2P suites, as these suites are robust and rangy enough to handle various types of purchasing.
Departmental buyers should explore work-stream specific tools that don't require the whole organization to move onto a new procurement platform.
Buyers seeking to control spend in a single key area should evaluate work-stream specific tools.
Buyers with advanced needs such as job costing and quoting need to evaluate niche solutions that can track POs against jobs and that can convert quotes to invoices. Such features are lacking in many all-purpose P2P suites.