Why is purchase order management important?

There are two areas of purchase order management: the number of POs issued and the timing of them. The first means finding the right balance – failing to write up enough of the orders could result in stock shortages, which could lead to you being unable to fill your customers’ orders; writing up too many could result in you being overstocked. If you’re overstocked, the additional cost of extra storage space and labor mean your business runs inefficiently. The second, your timing, refers to when you actually issue the PO. Do you wait until you’ve used up all your stocked items, or do you take care of restocking before reaching that point? When making these decisions, you have to keep in mind not just the amount of stock you want to keep tied up in storage, but the length of time it will take for your supplier to get your goods to you. If your supplier is in another country, for instance, your order could take months to get to you. It’s all about making sure you have enough of your items on hand at all times to keep your customers supplied and happy, but not too much of it.

You can see that managing your purchase orders can help your business run better. Let’s explore purchase orders in detail.

 

What is a purchase order?

A purchase order is a contractual agreement between a buyer and a supplier. In the United States, it becomes legally binding when the supplier accepts it. Purchase orders are issued by a company when it wants to purchase more goods from its supplier. Basically it is an instruction for the supplier. The description lists the names of the products, their stock numbers, colors, quantity, cost, the place they’re to be delivered to, and any other requirements.

Now that you know what a purchase order is, let’s check out the role they play in the buying process.

1. Issuing purchase orders

A purchase order is written up when a company needs to add items to its inventory. If the company is small, this can be the responsibility of the owner. But if it is a large company with many divisions, the PO may have to go through several administrators for approval. The PO will be sent over to the supplier at the completion of this stage.

2. Supplier approval

When the supplier receives the PO, they go over it to make sure they can fill the order and are comfortable with any stipulations it contains. They may ask the buyer to make some changes, and there may be some negotiating between the two parties. When both parties reach an agreement, the supplier has, in effect, accepted the PO, and it’s then that it becomes a legally binding contract.

3. Delivery of goods

The supplier sends the items requested on the PO to the buyer and issues an invoice. This invoice itemizes the goods the supplier has packed and shipped off, as well as the cost of each item and the full amount the buyer owes the seller. An invoice lets the buyer check a) that it is receiving everything it has ordered, and b) that it has been sent everything it is being charged for. The buyer will also, at this stage, carefully inspect the items to make sure they’re of high quality.

4. Payment

The buyer indicates that the items are accepted by sending the supplier a goods received note (GRN). The GRN is a confirmation of having received the goods in good order. Like the PO and the invoice, it lists the products, but as a legal document, it indicates the date and time of delivery and is signed by someone who has the authority to do so.  Payment of the invoice is dependent on the terms of the PO. These terms could indicate an immediate payment by the buyer, or a stated period of time after satisfactory receipt of the goods.

 

Explaining purchase order management

Purchase order management is an umbrella term that covers the process a business uses to handle their purchase orders. It covers everything from creating POs to dispatching them to maintaining records of them.

For a new company that’s still small, this process can be simple. Along with emails and phone calls, in these early days, a spreadsheet could be all that’s needed to record and keep track of purchase orders. But the information on spreadsheets has to be put in manually, making the system time consuming and prone to human error. These downsides only get worse as a business grows and the volume of orders increases. When that happens, a better, more manageable system is needed. That’s where purchase order management software comes into the picture.

Before we jump to PO management software, however, let’s check out the benefits of managing your purchase orders efficiently.

 

The importance of purchase order management

When you pay attention to purchase order management, your organization benefits in the following ways:

1. Better control over the amount you spend

Having department heads or managers approve purchase orders is a good way to control spending. In addition to making warehouse staff think about the items they put on a PO, it gives these supervisors the ability to make sure that everything being ordered is really needed and that their cost will not exceed the budget that’s been allocated for inventory. This approval process also gives managers a clear picture of how their department’s money is being spent.

2. Reduced storage costs

Keeping hold of more inventory than you need may ensure that you’ll always be able to fill an order, but it also means using up more storage space than is necessary. This unwanted, additional warehousing cost can be cut by controlling the amount you purchase. Controlling the amount you purchase is a major part of purchase order management. It means you only order when your stock is too low to cover your sales.

3. Help when it comes to avoiding stockouts

Purchase order management software automates the restocking process. This is how it works: The computer program recognizes when the inventory, or particular items in your stock, falls to a set lower limit. When that happens, the system automatically sends a PO to the supplier for more goods.

Computerizing your warehousing this way means always having the right amount of inventory to cover sales.

 

How Cin7 can help you with purchase order management

Cin7 is an integrated tool with several power-packed features. It can help you manage and control everything from the inventory you keep on hand to your restocking of it.

Cin7 keeps a record of all the purchase orders you create through our platform. With Cin7, you can instantly pull up specific purchase orders and generate reports for each one of them. These reports, customized by you, can include vital information such as the currency used for the order, exchange rates, customs and freight fees.

Our computerized system also allows you to save supplier details in the database. This information can be used to automatically add addresses and telephone numbers to forms, or it can generate purchase orders. It can even send the PO to the supplier. More than a time saver, when you can take care of your restocking like this, you get peace of mind.

As mentioned, Cin7 can be programmed to take care of restocking automatically. When the amount of stock you’re holding reaches a predetermined low, the system will automatically trigger a PO and send it directly to your supplier. You won’t have to worry about stockouts, and your business operations will run smoothly.

In addition to keeping track of your inventory and POs, Cin7 integrates accounting software like QuickBooks. This feature enables you to import all your POs and PO reports into your accounting system. It’s another aspect of Cin7 that improves and streamlines your business, making sure it’s as efficient as it can be.

To learn more about how Cin7 can help you manage purchase orders, schedule a call with one of our experts today.

Big Music

When Richard Berkman started Big Music with his brother David back in 2009, they did it because they wanted to do something that they were passionate about, instead of a job that just paid the bills. 

“My brother was a passionate musician, and we had this idea to create a one-stop-shop where you could buy an instrument, learn to play it, perform, even record, all under the one roof,”  Richard says. 

He and his brother looked everywhere for businesses following a similar approach, but couldn’t find many overseas, and there were none at all in Australia. 

“We asked why, and the music stores said, ‘We know nothing about running a lessons business,’ and the music schools said ‘We know nothing about running a retail store.’ But we were stupid enough to try to do both at once,” Richard chuckles. “For our sins, we broke all the rules.” 

If they’d have known better, they might have never started. But 12 years and “a hell of a lot of mistakes,” later Big Music is still here, and the business keeps the brothers busy. They have over 800 students come in for music lessons in the Big Music studios, they have 30 music teachers working six or seven days a week, teaching children and adults, and they’ve got a music product business that sells both online and in their Sydney street-front retail premises. 

Prior to 2020, the business had matured and was running well — and everyone knows what happened next. 

Covid pause causes pandemonium 

The Covid-19 pandemic laid waste to many retail businesses. Lockdowns hit first, then when rules relaxed, the ongoing pandemic saw people understandably reluctant to return to packed stores. But, for many product companies, the slump in foot traffic was more than made up for by a surge in eCommerce. Companies that were in a place to take advantage of the conditions often did more thriving than mere surviving. 

“Prior to Covid, our eCommerce business was around 25 percent of total sales,” Richard says. “And now… it’s hard to tell because it’s still settling down, but I think it’ll end up being more like 35 to 40 percent.” 

The music business has some unique caveats that makes online selling potentially problematic. It’s not like, for example, a shoe shop, where products tend to be similarly priced. Music products have a huge price range — something as simple as a guitar pick can be picked up for less than $2, whereas a custom Fender Stratocaster guitar can sell for more than $10,000. Some purchases are impulse buys, where others are much more considered, like buying a car. 

“So our sales people are sometimes like a checkout person at a grocery store, and other times they’re like a car salesperson,” Richard says. 

“We needed to find systems that could handle both — allow us to have a certain volume of very small transactions, where there’s not a big customer relationship component, and then maybe half a dozen times a day there’s going to a much more considered transaction where we could be giving people quotes, they’re going away and thinking about it, and then when they purchase you’re adding on all this other stuff and bundling it.” 

Big Music had long used an inventory management system called Lightspeed to handle Big Music’s unique requirements. Over the years, they’d customized it to fit the business, and their staff were all used to it. But with the increase in their eCommerce sales volume, and the modernization and cloud trend in the business software landscape, they found themselves outgrowing Lightspeed. 

When Lightspeed announced it was winding down, Big Music needed something bigger and better, and to implement it, they turned to the people who’d helped them get Lightspeed up and running over a decade ago — SMB Consultants. 

Time for a tune-up

Richard had known Jeff and Peter at SMB before Big Music even existed, so he knew they were the sort of people who’d be able to help them implement an inventory system that was just right for Big Music. He’d taken note of business software trends, where systems are built to do one thing well — like Xero for accounting — but also have open APIs and software endpoints that allow different apps to share data and talk with each other. 

“You now have this modular approach, where you take the best apps and put them together to give you a customized solution,” Richard says. “And Jeff and his team had worked that out a long time before a lot of other people did. They’ve now helped hundreds of businesses navigate down that particular pathway, and that’s a profound change from 10 or 12 years ago where you chose one system that would do everything.” 

A decade ago, Big Music had settled for just such an approach. They ran the business on Lightspeed and MYOB, both of which were run out of a server on-premises. “It was costing us a lot of money to maintain a server room, have network consultants come out and maintain the servers, do backups, and that sort of stuff. And it didn’t make sense given the whole world’s been moving to the cloud, and I figured we could save some money if we did too,” Richard says. 

However, the process of changing business-critical software can be fraught. Without the right solution and a well-planned implementation, there can be significant adverse business impacts. SMB Consultants knows this very well, which is why they have a careful, staged approach to recommending software, and implementing it. 

“With any Lightspeed client, the software is so heavily ingrained in the business. It’s like their operating system, and that means change management really comes into it, because the staff will be used to the Lightspeed way of doing things,” says Jeff Atizado, co-founder of SMB Consultants. “As a business owner myself, there’s got to be careful consideration going through the process, understanding the workflows, understanding the options, and making informed decisions as you go.” 

Richard agrees. “They’re big projects, and an awful lot can go wrong. That’s why working with a mob like SMB was so critical — as soon as they were engaged, my confidence level that we could do a good job improved dramatically.” 

With the right experts brought on board to help, Big Music was ready for a new approach — choosing a cloud-powered app stack to act as a fully-bespoke ERP, with a single app at its core, acting as a sole source of truth. For this, they chose Cin7. 

Singing from the same song sheet

When Big Music made the move to Cin7, they also opted to switch from desktop-based MYOB to online accounting with Xero. They wanted their move to the cloud to be complete, with all the benefits that being cloud-based entails. Inventory data was cleaned up and carefully moved from Lightspeed into Cin7, and the same process took place from MYOB to Xero. This meant that vital historical data was kept intact, and helped maintain business continuity across the transition. 

With the implementation is complete across all of Big Music’s different software packages, the difference is night and day. 

“The integration between Cin7 and Xero has been a significant enabler of a whole bunch of improvements,” Richard says. “The first is that our server room has been decommissioned, and I don’t have to spend as much money or worry about supporting that infrastructure. That’s been a blessing in itself. Not only that, but Lightspeed was holding us back, because it won’t run on certain operating systems.” 

Now that the business is running on modern cloud technology, Big Music is able to be completely up-to-date with operating systems and security patches. “Our whole environment is safer and more secure than before,” Richard says. “Uptime has been over 99 percent.” 

Big Music are using Cin7’s built-in Point Of Sale capability for all their in-store transactions, and it’s been working seamlessly. The near instant sync with inventory means they always know exactly how much product they have to hand, so customers aren’t kept waiting. 

“The POS system works fine!” Richard says. “When you’re putting through dozens and dozens of little transactions each day, the POS system handles that beautifully. And the guys in the shop reckon it’s actually easier to use.” 

Because of the high disparity in musical product pricing, Richard’s staff have to be jacks-of-all-trades, working the retail floor one moment, then negotiating a high-value purchase. Big Music is an all-in-one location, with the retail storefront, and a warehouse up back, plus studios and other areas for learning and recording. Both retail and online orders are fulfilled from the same warehouse. The website is built on Shopify, and the team uses Starshipit for fulfillment. 

“Our guys jump between the POS system and the backend,” Richard says. “When you’re selling a $10,000 guitar you’ve got to get into discussions about discounts and margins and all of that information is in Cin7, but it hasn’t been an issue for my team to navigate between that and the POS.” 

Richard also cites the cloud capability of Cin7 as having extended his access to the business — even when staff are offsite. “Cin7 was particularly handy during COVID,” he says. “Without it, we’d have been stuffed. Our operations and warehouse manager wasn’t able to physically come into work, but he could log on from home every day and do his job in Cin7, from home.” 

With Cin7 in the cloud, the back-office can be anywhere 

The new system has also created a better work-life balance for back-office staff. “Cin7 enables a more flexible approach to our workforce,” Richard says. “Our bookkeeper Diane moved cities a few months ago, and she didn’t have to resign or anything, because she can access Cin7 and Xero from Brisbane, just as well as she can operate from here. That’s the future, isn’t it? That wouldn’t have been possible in the old Lightspeed and MYOB world.”  

As the business owner, Richard says the system has allowed more oversight while reducing the amount of time he needs to spend poring over reports.  “I love the fact I can login from home on a Saturday or Sunday evening, and see how the store’s been trading during the day,” he says. “Having the real-time information available from anywhere is great for me.” 

For Big Music’s bookkeeper (working from another city!) the level of data available has been a revelation. The depth of the integration has also removed a lot of manual effort, with operations staff all getting more data and working more efficiently than before. 

 “Cin7’s integration with Xero means that our bookkeeper can get a lot more information, down to the product level, when doing things like supplier reconciliations,” Richard says. “That information never existed in MYOB, so that makes her job a hell of a lot easier. I also love the pivot table functionality in Cin7 reporting, and I use that quite a lot when I’m doing analysis. It’s a lot nicer to be able to do it natively in Cin7, rather than exporting and doing it in Excel.” 

Stock-taking and inventory reconciliation is a song with Cin7

Stock-taking — the perennial bugbear of any retailer — has been made much, much easier thanks to Cin7. “It used to drive me insane because the Lightspeed stock-take module was buggy, and not transparent. By contrast, going through the stock-take process in Cin7 is much easier to manage, because you can break it down into components, and execute a section or a brand or a range of things at a time.” 

The difference between then and now, when it comes to stock-take, is night and day. In fact, it’s an entire weekend’s worth of days. The Big Music team used to have to do a store-wide stock take once a year, but now they can do a rolling inventory reconciliation that doesn’t require shutting down for a day or more, or coming in on a weekend. “We had to do a massive store-wide stock-take once a year, which everyone hated,” Richard says. “We don’t have to do that anymore.” 

Furthermore, Cin7 has made the process of taking sales orders and converting them to purchase orders much easier. A lot of Big Music’s online orders are for items they don’t actually stock in their own warehouse. Cin7 has enabled drop-shipping, even for very complex or expensive orders. “We can knock the purchase order conversion very quickly and seamlessly,” Richard says. 

Everything working together in harmony

For businesses considering adopting a cloud inventory management solution, Richard is happy to recommend Cin7 — but he’s adamant that the process is much easier all around when you’ve got expert help. 

“I’ll go so far to say, well, I cannot imagine having got through this project any other way and without the help of these two blokes and the rest of their team,” Richard says. “Don’t try and do it yourself.  I think that SMB have got a unique set of skills and a deep understanding, and we needed it.” 

Now that Cin7 serves as Big Music’s source of truth and center of operations, things have never been better. “It works. It’s a good, reliable platform. It connects well with other apps, and you’re future-proofing your business by taking this kind of modular ecosystem approach,” Richard says.