6 Benefits of Using Purchase Orders for Small Manufacturers

Jan 28, 2022 | Procurement for small and medium businesses

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Jan 28, 20222 min read

Small manufacturers can improve accuracy, control spending, strengthen supplier relationships, and enhance cash flow management by using purchase orders. A legally binding document, POs standardize the ordering process, provide a record of transactions, and improve inventory management while increasing security

Small manufacturers often face a range of challenges, including managing costs, streamlining operations, and establishing strong relationships with suppliers. One way to address these challenges is using purchase orders. A purchase order is a legally binding document that outlines the terms and details of a transaction between a manufacturer and a supplier. By using purchase orders, small manufacturers can gain control over spending, improve accuracy and efficiency in their ordering processes, and establish clear lines of communication with suppliers. 

  • Improved accuracy and efficiency in ordering processes: Purchase orders standardize the ordering process and reduce the risk of errors or misunderstandings between suppliers and manufacturers. 
  • Better control over spending: Purchase orders allow manufacturers to track and control their spending, as they provide a clear record of all the products or services they have ordered and the costs associated with each order. 
  • Enhanced supplier relationships: By using purchase orders, manufacturers can establish clear communication and expectations with suppliers, leading to stronger, more collaborative relationships. 
  • Improved cash flow management: Purchase orders help manufacturers manage their cash flow more effectively by specifying payment terms and ensuring that suppliers are paid on time. 
  • Better inventory management: By using purchase orders, manufacturers can accurately track their inventory levels and avoid overstocking or stock shortages. 
  • Increased security: Purchase orders provide a secure and auditable record of all transactions, which can be useful for internal and external audits, tax purposes, and dispute resolution. 

Some user stories and data supporting the benefits of using purchase orders for small manufacturers include: 

  • A small manufacturer in the automotive industry reported a 50% reduction in order processing time and a 10% decrease in product lead times after implementing a purchase order system. 
  • A small manufacturer in the electronics industry reported improved supplier relationships and reduced supplier disputes after implementing purchase orders, leading to a 5% reduction in the cost of goods sold. 
  • A small manufacturer in the construction industry reported improved cash flow management and reduced overdue payments to suppliers after implementing a purchase order system, leading to a 20% increase in net profit margins. 

On FactWise source-to-pay, an end-to-end comprehensive procurement platform for small and medium sized product manufacturers, purchase order creation is simplified and can be automated to ensure accuracy and efficiency. With our holistic supplier analytics and RfX management analytics, teams can negotiate lower costs and payment terms to maximize their cash flow. Organizations can also benefit from our automated quadruple matching, which ensures consistency across PO, invoices, goods receipts and quality check notes, to enable accurate, on-time payments. FactWise increases savings by up to 25% and efficiency by up to 20%. 

The use of purchase orders can bring numerous benefits to small manufacturers. By providing a clear record of all transactions, improved cash flow management, better inventory management, and increased security, purchase orders can help small manufacturers to grow and succeed. By avoiding common pitfalls and implementing a well-designed purchase order process, small manufacturers can reap the benefits of this powerful tool and achieve their business goals. 

About the Author

Stawan is the founder and CEO of FactWise. Before founding FactWise, Stawan was the NA TMT-Procurement Leader at McKinsey. Passionate about procurement, Stawan has 15 years’ experience in enabling clients of all sizes to achieve business impact via procurement.


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