Have you ever found yourself in a situation like this?
You’re making a new product. You’ve designed it, prototyped it, focus tested it, and now you’re ready to put it into production.
You find a manufacturer. They pass your background checks.
You hire them to manufacture your product, and you receive the first batch, and there are glaring errors. It’s the wrong color, the sizing is off, a different one has replaced a key component, the list goes on.
You’re ready to read them the riot act. You’re looking for lawyers to take your case.
When you contact the manufacturer, they let you in on a little secret:
Your purchase order didn’t clearly define these requirements.
In other words, this is a “you problem,” not “their problem.”
Today, we’ll talk about how you can use your purchase orders to eliminate human error, miscommunications, and prevent scenarios like this from happening to your business in the future.
Why are purchase orders important?
We’re going to assume that you’re already familiar with a purchase orders if you’re reading this article.
You may not realize just how important purchase orders are when it comes to preventing problems with your orders from happening in the first place and protecting your business if there happens to be an actual mistake.
Let’s break down why purchase orders matter.
Think of a purchase order like a contract. It’s an opportunity for you to specify what you want, how much of it you want, and when you expect it. It provides a written record of expectations.
Beyond that, here are some other reasons why purchase orders matter and why you should be as thorough as possible when creating them.
· They make orders easier to track
Grouping things on a purchase order with tracking numbers and other pertinent information make it less of a headache if you ever need to go back and find information from previous purchases.
· They create clear communication
If you fill out a purchase order correctly, you’ll provide all the pertinent information to the vendor. This can prevent problems like the one highlighted at the start of this article.
· They help your vendors
Giving clear instructions and defining exactly what you want will make life easier for your vendors. By explicitly communicating your wants and expectations, the vendor can fulfill their end of the deal without having to make judgment calls or contact you repeatedly for clarification.
· They provide legal protection for the vendor and the buyer
This one’s pretty much self-explanatory.
In a case where there’s a dispute over a purchase, a purchase order can demonstrate both what the buyer expected and what the vendor used to fulfill that expectation.
· They help with budgeting
Finally, purchase orders can help you keep projects on budget. You’ll know how many items you’re ordering, unit price, overall price, and all the other intangibles that go along with it.
So, as you can see, purchase orders are essential for your business. A good Purchase Order can save you a lot of time, headache, and lost money. Beyond that, it can help protect you if there is a legal dispute.
What is the cost of human error on a purchase order?
Human errors on purchase orders are a problem many companies deal with regularly.
Mistakes happen, but it’s important to remember that these mistakes often cost your business money.
If you’re the purchaser, mistakes made by your employees on purchase orders can lead to a multitude of problems.
Some of the most common include:
· Ordering incorrect quantities
Whether you order too many or too few, purchase orders with incorrect quantities will cost you money. You either end up with more of something than you need (which will then have to be paid for and stored), or too little of something, which can lead to out of stocks, delayed orders, and unhappy customers who don’t purchase from you again.
· Ordering incorrect items
Ordering the wrong items is another common mistake that will cost your business money.
You may order something you don’t need, don’t use, or already have enough of. Even if these items can be returned or exchanged, you still lose money in shipping and man-hours spent resolving these problems.
· Mis-pick errors
If you’re fulfilling a Purchase Order, mis-pick errors can cost you money.
A mis-pick error is where the wrong item is picked to fulfill an order. The customer receives an item they didn’t order, which leads to you having to re-ship the correct item and take the return of the original.
These are just three of the most common errors we see. Solving these issues will save your company money in the long run, but be aware that other areas where purchase order mistakes can cost you money.
Where do most purchase order errors occur?
Now that we know what some of the common purchase order errors are, let’s discuss where mistakes are most likely to occur on a purchase order.
This list is by no means exhaustive, but these are the places where errors seem to happen regularly.
· Entering the wrong name for the buyer/seller
You wouldn’t think entering the names of the buyer or seller on a purchase order would be too tricky, but this information is entered incorrectly at an alarming rate.
Why is this a big deal? Because a purchase order is a lot like a contract. If this legally binding document has the wrong seller or buyer information entered, you can have a much more difficult time should you ever have to take legal action against a supplier.
If there’s a need to solve an issue through litigation, you will have to jump through more hoops to prove that the incorrect company listed on the purchase order is the same company you’re taking to court.
Make sure you fill out a purchase order with the company’s complete, accurate name.
· Not providing detailed specifications
Again, we touched on this with the example at the start of the article. It’s not enough to specify you want a widget. You need to be clear on the size of the widget, the shape of the widget, the color, and any other important details.
If things are left vague or undefined, this can lead to problems.
Beyond this, it’s important to specify all the terms of the contract too.
Define duties, deliverables, dates, expectations, and anything else you can think of.
Not being detailed and clear is a commonplace occurrence where purchase order errors happen. It’s also one of the most costly.
· Not including Terms & Conditions
Building on the detailed specifications mentioned earlier, another standard purchase order error is not including terms and conditions.
Whether you include this with the purchase order or as a standalone document, skipping this step can cause issues down the line.
Clearly define terms and conditions surrounding warranties, governing law, termination options, and other key areas.
Do not just assume these things are agreed upon and understood. Define them.
· Mistakes entering order data
By far, the most common mistake on a purchase order involves a human entering incorrect order data. Wrong item numbers, wrong quantities, and wrong product names are the most common culprits.
Fortunately, automating your purchase order system with inventory management software can help eliminate the common problems we’ve highlighted in this section.
Inventory management software quickly pays for itself by helping to eliminate costly human errors and the time wasted finding and correcting them.
These are just some of the common problems you’ll find on purchase orders. There are more of them out there waiting to trip up your business, but if you can correct these issues, you’ll be on your way to success.
In the next section, we’ll discuss some additional ways to avoid these problems.
Purchase order and quality control best practices
With all of these potential problems to be aware of, managing your purchase orders can feel like a herculean task.
It doesn’t have to be, though. Follow these best practices guidelines and you can avoid many of the issues we’ve discussed today.
· Create and maintain a vendor database
Having a database of all the vendors you’ve used can be useful. At the very least, it can help avoid errors when it comes to entering company names on purchase orders.
Keep a database of all your vendors and make sure it’s accurate and up-to-date. Software can make this project a breeze.
· Utilize Budget Restrictions
By placing budget restrictions by the category of the product being ordered, you’ll be better able to track how much you’re spending in key areas.
· Use an approval process
Having more than one set of eyes on your purchase orders can help spot problems before they make it out the door. Set up a hierarchy for approvals so that multiple individuals check each purchase order.
· Document everything
Keeping purchase orders documented and accessible will help should you ever need to track down an old PO or if you’re audited. Keeping this information organized can prevent major headaches.
· Automate when possible
Inventory management software has made automating your purchase order process a snap. Look into these solutions as they can dramatically reduce human error and other issues in your PO process.
How do purchase orders and quality control work together?
Using an inventory management system can greatly streamline and automate processes like purchase orders and quality control for your overall warehouse operations.
Each process works with the same goals in mind: to eliminate human error and deliver the right packages to customers, both on your end and the suppliers’ end.
Quality control is the natural next step after purchase orders and receiving, so one cannot be as effective without the other. Not only will steps like these help improve the accuracy of orders before shipment, but they also ensure a higher chance at happy and loyal customers. Happier customers mean better marketplace feedback, a more enthusiastic and responsive social following, better search rankings, and therefore visibility, which ultimately leads to more sales.
How quality control works in SkuVault Core
If you’re looking for an inventory management solution that can help you better manage your purchase orders and quality control, then SkuVault Core could be the answer.
SkuVault Core offers a full suite of inventory management tools that can help you keep your inventory in order, prevent errors, and ensure customer happiness.
Here’s how the software handles quality control.
Pickers drop off orders along with the corresponding picked product where the items are scanned against the order to account for correctness in terms of SKU and quantity. When you scan the order into the quality control page, a picture of the product and its specifications will show. The quality control person also checks for signs of damage/discrepancies with the original listing – anything that could result in an unhappy customer.
The order is then marked as ‘Ready-to-Ship,’ and is sent off to shipping. For our smaller clients unwilling or unable to host a dedicated quality control station, we’ve provided QC Express on Pick, a setting that, once activated, prompts the picker to scan the items against the order at pick.
There’s a tendency to look at purchase orders as “just another document,” but this is a dangerous attitude.
Purchase orders are a contract, and it’s in your best interest to treat them seriously. Every day, purchase order mistakes cost companies huge amounts of money. By being aware of the common types of purchase order errors and implementing bests practices and quality control procedures, your business can avoid these pitfalls.
If you’re looking for more information about software solutions, we’re happy to help.
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