Material management is all about saving money and increasing profits. When you take short cuts to ordering and managing your material for a job, it has a direct impact on the bottom line and exposes your company to many risks.
1
This can be hard to detect and prove with an informal PO process because either buyer or supplier may be manipulating your orders. Without proper documentation, it opens the door to mistakes that lead to cash leakage and to billing schemes.
2
Invoicing errors might happen without a proper PO such as duplicate invoices, use of substitute materials, wrong pricing and wrong quantities. Without proper written PO, your finance team has no way of identifying and rectifying these errors.
3
When you include your price for each item on a purchase order, the supplier must adhere to this price or notify of a different price before the order is released. This protects you from surprise price increases when the invoice arrives.
4
When you are ordering material ad-hoc or as your guys tell you what is needed, you likely do not have enough time to compare what you ordered previously or to check your estimate to verify that the material is within your budget.
5
Theft occurs when no one is looking, and no one is tracking. Without a process that contains all your orders, it is impossible to control the flow of material on a job site.
6
Without a copy of what you ordered, your accounts payable team will not be able to reconcile invoices. Instead your project managers will need to find the time to try to review and approve the invoices based on their emails, text messages and memories. This creates delays in payments exposing you to accumulate interest charges and potential holds placed on your accounts.
A manual PO process is when the buyer informally, written or verbal, places an order with a supplier where any of the key elements of a formal written purchase order are excluded.
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Challenges of an informal or manual PO process
An informal or manual purchase order process tends to be used in 70-80% of small electrical contracting businesses.
1. Define a purchase order policy and procedures.
2. Provide training on products and pricing.
3. Improve internal department communication.
4. Build stronger supplier relationships.
5. Use technology and automation to assist.
KE Electrical Ltd, Ottawa Ontario
How KE Electrical added technology and automation to accelerate and simplify invoice reconciliations
read moreThere is nothing more frustrating then having to check each line item on every invoice for errors because you know how expensive those errors can be. KE Electrical was spending a fortune in time and money to do just that!
That is until they discovered a better way using technology and automation saving them thousands of dollars!
