Could you please share best practices on increasing PO penetration?

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It is no small thing.  To increase PO penetration requires building support—from management and internal customers/partners. This requires change management.

Greater PO reach, of course, is necessary to gain greater control over company expenditures. Non-PO spend means requestors buying whatever they want from wherever they want at whatever price—and sometimes, if not often, paying additional “rush” shipping charges because they failed to order it in time to meet their need.

Benefits of moving to a PO-based system, then, include:
• Working with legitimate suppliers (compliance issue)
• Reducing fraud (which is most often perpetrated through non-PO spend)
• Cost savings as a result of negotiating:
    - Unit price
    - Quality
    - Best delivery
    - Volume discounts
    - Payment discounts
All of which will bring savings to the company’s bottom line.

In addition to the above, you can promote the case around cash management:
• PO has budget approval before the purchase, whereas with non-PO purchasing, the company does not know it owes money until the invoice is recorded;
• PO spend gives you better cash management because the PO is a commitment of spend well in advance;
• Spend is based on company need and can be accrued.

Because moving from non-PO to PO is a change to the entire end-to-end procure-to-pay process, you will have to work with the company’s purchasing management to ensure they are on board, and there is enough staff in procurement to handle the new volume.

For smoother implementation, consider moving the non-PO spend to PO by commodity—the first and easiest spend to look at is probably office supplies (if this is not on PO). Look at the data in AP and target two areas:
• 80 percent of the invoice volume
• 80 percent of the dollar volume

This will help you roll out the process change from non-PO to PO by selecting the commodities that will give you the greatest impact.

1. Gather your data (how many dollars are being spent without upfront approvals; loss of discounts; loss of volume discounts; cost of overnight delivery; potential cost reduction from negotiating better pricing—benchmark results will help with this one as it validates your proposal) = ROI.
2. Decide what will go on a PO—there are definite items that should not be on a PO: utilities, taxes, insurance, etc.
3. Get CFO and CPO to support the project.
4. Communicate to the organization: in writing, verbally, and through training; sell the benefits—people need a strong reason to change, or they will keep buying via non-PO. (This is where the CFO and CPO's support will be needed).

This is a very important company strategy because the benefits will have a large positive impact to the company's bottom line.

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