When the distributor and supplier have a set relationship with mutual understanding and little room for negotiation, purchase orders tend to be easy to purchase and process. These purchase orders are often automated and the business inventory system may send orders on its own, potentially without authorization. For many businesses, generating purchase orders requires significant study of current and future needs so the company orders the right amount of supplies.
Related Post. This field is for validation purposes and should be left unchanged. All rights reserved. This processing cost will vary from company to company, and can be difficult to pin down due to differences in accounting procedure, industry specifics, and internal business practices.
That said, with some well-considered planning and process implementation, you can quantify these PO costs and begin reducing them. To begin, consider that each purchase order will generate both fixed costs e. The variable costs are especially important to identify and, if possible, limit, as costs that change from one purchase order to the next will wreak havoc on your calculations.
Keeping these costs in mind, break down the purchase order process, from procurement to payment P2P :. After breaking the process into clear steps, and having tallied your fixed and variable costs, the remaining factor to keep in mind is time.
Ask yourself:. Armed with all this information, you can finally begin to tote up your average PO processing cost. Your exact methodology will vary, based on your internal accounting practices, staff compensation, etc. The cost associated with each stage is the average time spent on each process within it, multiplied by the minute-rate cost.
More simply:. Note: The minute-rate cost is simply the hourly cost of a resource, divided by Leave a Reply Cancel reply Your email address will not be published. Hit enter to search or ESC to close. Your shopping cart. WooCommerce should be installed and activated!
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