What is the Cost of Processing a Purchase Order ?
How much does raising a Purchase Order (PO) cost you? Each PO raised, approved, placed, received against, and paid by your organisation costs you money to process.
Across your supply chain, PO processing costs have an impact on your bottom line. PO costs are comprised of both fixed costs (overhead, salaried employee wages/benefits, infrastructure, software licences fees, archiving etc.) and variable costs (email, postage, staff wages, office supplies, etc.) over the course of its creation, approval, and fulfilment.
Some of the Tasks associated with raising a Purchase Order are:
- Internal Purchase Order Processing: The person ordering the goods chooses an item/service to fulfil a need, creates a specification, asks for quotations, selects a supplier, and creates a purchase requisition. The requisition is submitted for approval, and when approved, it is sent to the supplier.
- External Purchase Order Processing: Here interactions with suppliers regarding the submitted PO occur. This might include adjusted quantities, clarifications, revisions, or discussions about delivery times, product availability, and potential replacements for items ordered.
- Order Management and Expediting: Once the PO has been placed, there may be costs associated with confirming delivery dates, order modifications, or other communication related to the status of the order. With larger and time critical orders, a significant amount of time is spent “chasing up” (expediting) the delivery status of the order placed.
- Order Receiving: When received, the order needs to be checked to confirm it is the right quality and correct quantity. Should there be an issue, then the PO may generate additional costs related to returns, credits, disputes, additional shipping, order errors, etc.
- Invoice Processing: When the invoice is matched to the purchase order and checked for any discrepancies. As with Order Receiving, errors and additional communication can generate higher costs as staff chase exceptions, wait for approvals, etc.
In short, there are many processes that culminate to the overall cost of placing a Purchase Order. The Centre for Advanced Procurement Strategy (CAPS) Research (USA) found “that the average cost per purchase order hovers somewhere between $50 and $1,000 ($USD), based on the industry with the average cost being $217.00.
Invoices, similarly, have fixed costs embedded into them, for example PFD estimates that it costs $60 to process an invoice (not including, picking, packing and delivery).
What does this mean for you? Your bottom line and your supplier will be much happier if you consolidate purchases wherever practical. Similarly reducing the frequency of order placement also has an impact on your bottom line. It may be convenient to place 5 orders a week with the same company but that comes at cost. As with all processes where convenience is touted, consumers pay for convenience in many ways without even realising it.
CCI’s suppliers stand ready to assist you in reducing overheads and can provide reports that may help guide you in limiting time and money spent on processing Purchase Orders.
We invite you to reach out to your CCI Business Development Manager and/or your suppliers’ representative and start the conversation that will in turn improve your productivity and bottom line.
0418 773 858