My History with Web-based Purchase Orders

PO was the first web-based program I had ever bought as the CFO of a multi-store retailer. Prior to that, we used fax machines for the stores to send product requests to purchasing. Sometimes these requests where on a Company form and other times it was simply written out on plain paper in long-hand. The Purchasing Department would take these incoming faxes and make a decision to either issue a PO, transfer the products from another store, or send it back to the store manager with an explanation of why they could not order the requested product. There was constant bickering between store managers and the purchasing people about whether or not the request had been sent timely by the store manager, whether the right products were ordered, and who's fault it was when products ran out.

More importantly, purchasing mistakes were costing us big time in several ways:

  • Running out of product produced lost sales.
  • Over-ordering, to avoid running out, was requiring a much larger investment in inventory and eating into our cash.
  • Over-ordering also led to higher shrinkage as some products deteriorated in our warehouses.
  • Store managers, operating on the theory that faxing an order more than once would speed up the resupply process, would hit the send button on the fax machine more than once. Sometimes the Purchasing Department would catch it, other times not. The inevitable result was over-ordering that was especially painful when the product was a special order for something we did not normally carry.
  • Faxes are not always very easy to read and occasionally the wrong products were ordered due to the original blur ed fax.
  • Sometimes, the products were slow coming from the vendor and the store manager would order again after waiting for a week. This almost always led to duplicate orders.

Most of these errors were relatively small in amount. But, they were happening with such frequency that in the aggregate it was worth at least one percent of our shrinkage rate and probably producing an inventory level that was twenty percent higher than necessary. Something had to be done.

Our president suggested we check out a relatively new technology at the time called ‘email’ to replace the fax machine. The owner of the web-hosting company that provided our email service said that he could do even better than email by providing us with a software program that would allow the store people to fill out a form on the Internet. Even better, everybody see the lists of outstanding PO's and determine there status. This on-line ordering system eliminated 80% of our purchasing errors almost overnight.

Later I realized that it had also reduced our overhead significantly:

  • The cost of long-distance phone calls went down. This meant that people costing the Company between $15 and $25 per hour were not wasting as much time trying to determine whether products had been purchased or not.
  • The Accounting Department was processing vendor invoices faster than ever. Instead of trying to read through batches of receiving documents, they simply looked at the receivers list on the web to see if the products had actually been received.
  • Returns were significantly reduced which resulted in lower warehouse costs plus lower shipping costs from those returns.

I learned a lot of lessons from this experience to include:

  • The way to keep overhead costs down is to make your business processes as efficient as possible. Spending a lot of time scrutinizing phone records or office supply bills simply does not do it. Concentrate on the processes instead.
  • Eliminating errors is easiest when everybody that is part of the process can see the same data.
  • Making the people who are closest to a transaction the same people responsible for the data entry of that transaction produces better results.

I was so impressed with web-based software's potential to save money that I went into the business. That was over 10 years ago and the current program is in it's third major revision.

Learn More>> Web-based Software Advantages/Disadvantages