Purchase Order Workflows to Lower Hotel Purchasing Costs

Posted by: Stuart Amoriell | President, Seva Procurement on Apr 28, 2014 at 7:32 pm |

This week's hospitality best practice focus highlights the use of Purchase Order Workflows to exert control over the purchasing process by ensuring that corporate standards and budgetary guidelines are being consistently maintained.  Additionally, there are a number of secondary benefits that your organization will achieve by embracing this best practice, as outlined below. Utilizing purchase order workflows does not occur in a vacuum, though, and provides a pathway to adopt many other best practices, such as product standardization and proper inventory execution.  Also, as we review the benefits of using purchase orders and why they have become an industry best practice, keep in mind that different systems have varying features, so we will focus on those that are most common, including those available in the SevaNet system provided to Seva members as part of their membership in our comprehensive procurement solutions.

What is a purchase order workflow system?

While there are various ways that a purchase order system can be implemented, both manual and electronic, at its most basic level a purchase order system requires that prior to a product purchase, the purchaser must submit an itemized listing of the products and their prices to a supervisor for approval.  The obvious goal of this is so that the approver can review the purchases to ensure they are in line with product standards and that they meet budgetary requirements.  While on the surface this seems like a logical best practice, it is actually rare to find this function consistently executed across hospitality organizations and hotels.  One primary reason for this lack of purchasing oversight is the time and difficulty involved in a manually administered purchase order system.  These complications increase when you add more variables in complex properties, such as the number of purchasing decision makers and revenue/cost centers.  These burdens often lead properties to inconsistent adoption of this best practice, if at all.

Why use a purchase order workflow system?

Change is never easy and if your organization is not using purchase orders, or is using a manual purchase order process, it is important to understand the benefits of how a web or server-based system can provide increased value.  The following are a few of the reasons that using such systems has become an industry best practice.

1) To ensure product purchases are consistent with organizational standards.  One of the primary reasons to institute a purchase order workflow process is to ensure that product specifications and organizational standards are being met with every purchase.   On one end of the spectrum, there are hospitality organizations and hotels where product selection is largely a function of the purchaser.  As a result, different personnel select different suppliers or products based on their individual criteria—this fragmentation could exist within a single property or across an entire portfolio.  On the other end of the spectrum, organizational product standards are often embodied in a single individual who is the gatekeeper for all supplier orders to ensure standards are being maintained.  In the first scenario, there is very little consistency and our recommendation before instituting a purchase order process would be to execute product rationalization and specification development to establish standards.   In the latter example, there may be a higher level of consistency, but it will not be sustainable consistency.  A primary problem of utilizing a gatekeeper system is that knowledge of the standards, suppliers and process resides with that one individual.  If this person leaves the organization, is injured or simply wants to take a vacation, standards are no longer able to be maintained.  The better way to achieve these objectives is through an electronic purchase order system that will:

a) Enable approved products, from approved suppliers, to be loaded into custom order guides for each property that are maintained in the purchase order system.  When personnel go to create a purchase order it will either not allow them to order non-approved products or will automatically require an approval from a supervisor before the order is submitted to the supplier, depending on how an organization wants to configure the system.

b) Enable a decentralization of the ordering process by creating standardized specifications and transparency in the ordering process.  Less seasoned employees can, therefore, place orders without financial or consistency concerns.  This leads to more individuals able to complete the purchasing process while maintaining company standards.

2) To ensure that purchases are aligned behind financial objectives.  It is not a coincidence that those hotels and hospitality organizations that utilize a purchase order system often do so because of initiatives created by finance personnel.  Similar to specification development, utilization of a purchase order system assumes that certain other best practices have been established, like utilization of budgets.  However, budgets are only effective if they are achieved.  Too often, hotel budgets will be created with the sole expectation of success being that department heads will be held accountable to meeting these objectives.  While accountability is certainly important, it is not enough.  In addition to setting standards and holding personnel accountable to meeting these financial responsibilities, it is equally important to provide personnel with the tools that will help them be successful in achieving the expected results.  Certain purchase order workflow systems help to provide this by:

a) Allowing hotel department personnel to load their budgets into the system so they can track potential purchases against a declining budget.  If a department head creates a purchase order, it will show them exactly what will be left in the budget, customized for your individual chart of accounts.

b) Providing approval customization that uses a workflow strategy to approve purchase orders based on rules tied to the budget, such as whether a purchase order exceeds the period’s budget or approaches a certain percent threshold of it.

3) To improve operational efficiency and productivity.  When you consider everything that goes into the ordering process, it is understandable why purchasing best practices are not always followed—there just isn’t enough time.  A manual process goes something like this: Taking a thorough inventory prior to creating a purchase order, manually writing up a purchase order and getting it to the proper supervisor, waiting for the supervisor to provide back the approval, getting in touch with a supplier representative to place the order, checking in the order when it arrives, transferring the paper invoice to accounting, verifying that there is a purchase order for the invoice and then manually entering the invoice into the accounts payable system. That’s a lot of time and work—especially when you consider that this should happen with every order!  A purchase order workflow system can improve this process by:

a) Creating inventory sheets in the same order as the purchase order system order guides, which can be customized to be in the shelf-to-sheet order of your storage areas.  Using these sheets, personnel can quickly do an inventory to identify necessary product for ordering and then open up the order guide in the purchase order system and enter required quantities of each product.  To save even more time, systems like SevaNet allow users to simply do inventory and ordering from a mobile tablet right in the storage area.

b) Generating purchase orders with all necessary product and pricing information automatically by selecting items to be added to a “cart” once the purchaser enters the desired quantities of products.

c) Immediately transferring the purchase order to supervisors electronically so they can either accept or reject.  If accepted, the order automatically submits electronically to the supplier.  Approvers can review, approve and reject either from a desktop computer or mobile device.

d) Once the order arrives, the purchaser can verify the delivery and note in the purchaser order system that the order has been received—or make modifications if not all product was delivered.  From there, the original purchase order will be matched against the electronic invoice received from the supplier and the updated receiving document entered by the individual that received the order, and if they match, the system will automatically import the electronic invoice into your accounts payable system for payment.

We hope that this week's best practice focus has provided some value to you and your organization.  We welcome you to forward this article to others or download a PDF Whitepaper here to be used internally.  You can also learn more about the SevaNet technology solution that provides access to a purchase order workflow system here.