PO Systems, Explained: What Are They & How To Use One

PO Systems, Explained: What Are They & How To Use One

Here’s how your ecommerce brand can accomplish more with less effort, using a PO system.

Every direct-to-consumer (DTC) brand depends on placing well-timed purchase orders to keep its shelves stocked. No exceptions.

But you can tackle this purchase order process in a few different ways. Namely, you can generate POs by hand, or you can create them with an automated purchase order system.

But simply put, it’s way less time-consuming, error-prone, and expensive to manage your orders with the right procurement system. Here’s why.

What is a PO system?

A purchase order system is an automated (typically cloud-based) software that helps brands manage and build a seamless purchasing process.

In other words, this purchase order software makes it a cinch for retailers to order and buy products from suppliers.

That’s because the top tools on the market serve up automated workflows to take tasks off your plate and are typically based in the cloud. And they are chock-full of helpful features (like restock recommendations and replenish alerts) to streamline your workflows.

Because of automation and the ability to access the software anywhere, PO systems improve efficiency and remove redundancies (and errors) from the purchasing process.

Not only can automated PO systems create orders on your behalf, but they securely track purchase order paperwork and offer better visibility into what you’re spending and where.

Overall, PO systems simplify how you order inventory. That way, you can ensure you’re always well-stocked to meet customer demand.

Why ecommerce brands should use PO system software

For growing ecommerce brands, using a PO system is quickly becoming table stakes. As you scale, your PO process can become more convoluted and complex—and manual processes aren’t up to the task.

However, these PO systems come with handy automation, offer unmatched visibility, and help you save both time and money.

Automate PO processes

Manual processes are no match for PO systems. Period.

That’s because the unfortunate reality is: Manual POs are susceptible to errors, inaccuracies, and lots of wasted time. So, even when you have a great team in place, doing tasks by hand can’t hold a candle to the efficiency of PO software.

Purchase order systems, on the other hand, can quickly shorten your to-do list with little human interference.

For example, a PO system can send automated, custom replenishment recommendations on what to order and when. That way, there’s no more hunting down crucial sales data or guessing which items need restocking.

Increase PO accuracy

Anyone can easily make ham-fisted errors when manually entering info on important paperwork. But accuracy is bound to increase when inventory purchasing relies less on manual entry (and more on automation).

And that improved accuracy shouldn’t be taken lightly. After all, purchasing the wrong SKUs (or quantities) is a costly mistake for your brand.

For example, stockouts cost retailers an average of $1 trillion annually. Meanwhile, dead stock costs an average of 30% more than the inventory’s value.

Meaning, having either too much or too little stock is a hassle for many retailers. Fortunately, PO systems can bypass purchasing errors, so you always order the right amount and maintain optimal inventory levels.

Greater inventory visibility

Inventory visibility is critical to the PO process. After all, you can’t place accurate orders if you don’t know how much inventory you already have on hand (and, consequently, which products are running low).

That said, paper POs don’t offer anywhere near the same visibility as a PO system.

Our proof? The best purchase order software tracks what products you have on hand, where, and how much in real-time. And using this information, it calculates exactly how many units to reorder (and when).

Plus, PO systems store all digital versions of your purchase orders in a centralized place. No more rifling through file cabinets to find the necessary PO paperwork.

This level of visibility helps you avoid discrepancies and duplicate orders. A good PO system moves the process along so every order is completed and approved as efficiently as possible.

Lower processing costs

If you have experience with manual purchase order processing, you likely know how expensive it can get.

According to a 2020 American Productivity & Quality Center (APQC) study, manual PO processing can drain businesses’ budgets by as much as $506.52 per purchase order.

So, if you place one purchase order per month, you’ll spend roughly $6,000 annually just to place POs. (Yes, it adds up that fast.)

But that’s not where the sticker shock stops. Paper POs also come with additional storage costs and require extra time for your team to process.

In contrast, PO systems lower your processing costs in a big way. After you’ve paid for the system, you won’t run into sneaky surcharges each time you create a new order. So, you can expect the processing cost per PO to sit closer to $35.88 per APQC.

Save time

Your brand can save countless hours by eliminating manual POs and implementing an automated system instead.

Remember how we said PO systems store all your paperwork (like all those previous orders and inventory records) in one convenient place?

That makes these systems a one-stop shop for all your valuable purchasing information.

With PO software, you’ll stop wasting time searching for relevant SKU data. And as a result, you can radically speed up PO creation and approval workflow.

Plus, approving digital POs tends to happen much faster since your team can communicate and collaborate in real-time—rather than leaving you waiting for a response. So, you can replenish more quickly than brands placing POs the old-fashioned way.

And what’s the best time-saving hack of all? When you partner with a platform like Cogsy, you’ll receive custom, data-backed restock suggestions that you can bulk-add to your orders.

From there, Cogsy will auto-fill vendor information based on your selected SKUs. (You can even add SKUs in bulk to further streamline the workflow.)

Cogsy also helps you place fewer POs by adding multiple shipments (going to different locations) to a single order. How’s that for getting more hours back in your workday?

Improved vendor relationships

One of the most effective (and simplest) ways to forge a stronger working relationship with your suppliers is to reduce mistakes and unnecessary back-and-forth around POs.

And adding a PO system like Cogsy to your tech stack does just that.

Cogsy boasts an intuitive planning feature to help you plan for your inventory needs up to 12 months in advance. This foresight is handy for order management and gives you leverage to negotiate better terms with your vendors.

When you provide this level of consistency and transparency with your orders, vendors are more likely to cut you a deal. Why? Because they can count on your ongoing orders.

For example, after baby brand Lalo partnered with Cogsy, they cut PO down payments by 50% by sharing their production plans with suppliers. This move alone freed up a ton of working capital and strengthened Lalo’s vendor relationships at the same time—a textbook win-win!

How to adopt a purchase order system

Now that you’re well-versed in the advantages of PO systems, you may be ready to jump in and implement one. Here, you’ll find a step-by-step guide to rolling out a PO system for your own ecommerce brand.

Step 1: Create forms and templates

The first order of business? Start by creating two digital purchase order forms:

  • Purchase requisition. You submit this form to your finance team to get approval to restock your inventory.
  • PO template. This is a blank version of your purchase order, so you don’t have to rebuild it every time you need to send a PO.

Feel free to build these forms from scratch or use pre-existing templates to collect the necessary information, like order details and payment terms.

Taking the time to create digital forms means all your POs will have the same format. And this consistency keeps you organized while also minimizing order errors.

To simplify things even further, you can use your PO template as a purchase request by noting that it’s “in draft” when you seek approval.

This ensures you’re not doing more work than needed for yourself and your team.

🔥 Tip
When you build purchase orders in Cogsy, you get a granular view of every edit for extra accountability. See who added what SKUs, adjusted quantities, and submitted the official purchase order. Try for free.


Step 2: Craft your PO workflows

Once you iron out your PO templates, you’re ready to craft your purchase order workflows.

Here, you’ll set up a replicable process for:

  • Filling out your purchase order
  • Getting these drafts approved
  • Officially placing orders with vendors
  • Preventing procurement fraud
📝 Note
Procurement fraud is an expensive problem where businesses try to get an unfair advantage during the purchase order process (like when suppliers send inflated invoices).

Sound like a lot? No worries—Cogsy offers one of the simplest, most streamlined-iest purchase order workflows for Shopify and Amazon brands.

(Psst—Adapt Naturals said adopting Cogsy’s workflow “made [their] purchasing procedures faster, more efficient, and more accurate.”)

Here are some of the highlights:

  • Cogsy’s rule-based checkpoints prevent silly mistakes and improve your data quality. For instance, the tool automatically reviews your data formatting, and flags duplicate line items.
  • Once you submit your PO, Cogsy automatically files that document inside your system of record. That way, all your order history is achieved properly and easy to reference.
  • With the ShipBob integration, you can prevent procurement fraud. How? By linking your warehouse receiving order (WRO) to the corresponding PO. That way, you can automate 3-way matching and confirm that you actually got what you ordered.

Step 3: Grant permissions

Next, you’ll need to assign roles and grant permissions for the approval process.

Roles dictate which team members can create drafts, approve requests, and order products from your suppliers. Meanwhile, permission levels inform how much control and access to confidential data each role has.

🧠 Keep in mind
Your approval stakeholders are the ones who hold the purse strings and authorize your inventory purchasing. Typically, this stakeholder is the business owner for small brands or an appointed budget holder at bigger retailers.

Regardless of who your stakeholders are, they’ll validate your POs and pass them on to your suppliers. So, for your POs to become legally binding contracts, they must receive internal approval from said stakeholders.

That’s why stakeholders are usually granted the highest permission level—since they directly approve your orders.

Step 4: Test and implement

You’ve created your purchase forms, designed PO workflows, and granted all the necessary permissions. Now, you’re ready to test and implement your system.

Before your PO system goes live, share the new tool with your purchasing team. These folks can help identify any errors within the workflows and confirm whether they receive real-time notifications.

Based on your team’s feedback, you can make any necessary changes or adjustments to your ordering system.

Even after you’ve made these changes, test your system again to double-check that things are running smoothly. If everything looks good, you’re ready to get the ball rolling with your new PO system!

Step 5: Look for ways to improve

No matter how carefully you roll out your PO system, there will always be room to improve. In fact, you can (and should) continually iterate on the whole process.

The good news is this: Once your broader team begins using your new PO system, you can collect useful feedback—like where you have gaps or lags in functionality.

If you’ve got major issues (like lots of duplicate orders), it might be best to withdraw your POs while you make the necessary updates.

On the flip side, if your PO system is just a little off on data formatting, feel free to make those changes as you go along.

How to optimize ecommerce operations with your PO system

While we already touched on some benefits of a PO system, we only hit the tip of the iceberg when it comes to how software can streamline your operations. The right PO system helps with demand forecasting, simplifies inventory planning, and cuts down on waste.

Keep an eye on demand

If you don’t understand your customer demand intimately, how will you know when, what, and how much stock to reorder?

Generating demand forecasts can tell you what products you need and roughly what date you’ll need those items.

Thankfully, Cogsy makes analyzing demand trends super easy.

That’s because Cogsy gives you 24/7 visibility into everything going on with your product catalog. That way, you can see what SKUs your brand needs to restock—at any moment.

Plus, Cogsy’s always analyzing your historical and real-time sales data to identify emerging trends. Whenever it discovers something new, it then filters these findings into your demand planning.

Cogsy’s forecasts provide an accurate picture of your replenishment needs so you only order what will actually sell—nothing more, nothing less. Try for free.


Avoid dead inventory

As you already know, dead stock costs an average of 30% more than its value, making it a hefty expense you’ll want to avoid.

The golden ticket to preventing excess inventory (and stockouts, while you’re at it)? Accurate demand forecasting.

Once again, Cogsy comes to the rescue. As mentioned, the platform pairs real-time data with historical insights to deliver accurate demand forecasts.

Then it uses your historical data to build 12-month demand forecasts with pinpoint precision. You can even run “what-if” scenarios to find your best-case, worst-case, and most probable inventory strategies.

In addition, Cogsy automatically updates your demand forecasts as new info streams in. That way, you always work with the most up-to-date data and only order what’s needed to satisfy demand. Nothing more, nothing less.

Improve your inventory planning

Inventory planning helps you turn your demand forecasts into informed purchasing decisions. That way, you avoid overstock and stockouts.

For instance, Cogsy has become the go-to inventory planning software for several big-name Shopify brands (including Caraway, Lalo, and Tushy).

Why? Because Cogsy not only creates super accurate forecasts. It also offers restock recommendations to ensure your POs are always on the nose.

The best part? By working with spot-on plans, you can make better inventory investments, outperform the competition, and reach your revenue goals in no time.

✨ Here’s our proof
Caraway started generating 40% more revenue and saving 20+ hours per week simply by managing their inventory smarter with Cogsy. Try for yourself.


Time your replenishments

Inventory replenishment is a delicate dance. Reorder too soon, and your warehouse ends up overstocked. But reorder too late, and you might not have the products customers want when they want them.

What’s a brand to do? Streamline replenishment so you get restocked with the right products in the right quantities at the right time.

The easiest way to do this is with Cogsy’s replenish alerts.

This feature automatically notifies you when it’s the ideal time to order more stock. These notifications remove all the guesswork and minimize your risk of human error.

But if you like babysitting your inventory levels (we get it), you can check your actionable dashboard anytime.

There, you’ll see what SKUs need to be reordered in the next few months (and roughly when you’ll want to place those purchase orders). Hopefully, seeing that you’re fully stocked will give you some peace of mind.

Make the most of your money

Let’s chat about unit economics. That is, the revenue brought in by a single SKU or generated by a single customer.

By prioritizing unit economics, you can increase profitability, make long-term growth projections, and leverage inventory optimization. And surprise—again, Cogsy can help.

Cogsy excels at calculating (and growing) unit economics for every product you sell by making it easy to only order the products you need. This naturally lowers your cost per unit since you’re not paying extra to hold or write off inventory.

Plus, Cogsy’s planning feature is the best tool for smart product development. Meaning, you can map out different growth scenarios and plan accordingly to maximize profit margins and improve spend management.

Plus, Cogsy’s actionable dashboard (and automatic replenishment notifications) ensure you don’t miss the ideal window to restock.

This is super important because missing your reordering window could lead to higher unit economics since you might end up stocking out or paying extra to rush a PO.

👋 TL;DR 
Cogsy helps you make purchasing decisions that pay off in the short term and the long term. Try for free.


Why Cogsy is the best PO system

While we’ve covered a lot of ground on what makes Cogsy the best PO system. But let’s zoom out for a big-picture view.

DTC brands that partner with Cogsy can:

  • Receive custom, data-backed restock recommendations to guide PO creation
  • Bulk-add these restock recommendations to save tons of time
  • Auto-fill vendor info based on the SKUs selected (no more manual entry!)
  • Demand plan with pinpoint accuracy to improve replenishment

And while that short list packs a punch, it doesn’t even tell the full story.

We didn’t even mention that Cogsy tracks which milestone purchase orders are at—from draft to delivery.

Cogsy even allows you to add multiple shipments to a single purchase order. (You can then track milestones at the shipment level for added color.)

Even better, the PO overview screen offers a quick, 10,000-foot view of all your outstanding POs, so you never lose sight of where your incoming inventory is.

Sound too good to be true? See for yourself—try Cogsy free for 14 days.

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PO system FAQs

  • How does a PO system work?

    A purchase order management system is an automated software that streamlines the inventory procurement process. The best PO systems are cloud-based—meaning the software exists online and can be accessed from anywhere. This improves efficiency, removes redundancies, and reduces errors related to inventory purchasing.

  • What are the four types of purchase orders?

    There are four types of purchase orders:

    1. Standard purchase order
    2. Contract purchase order
    3. Planned purchase order
    4. Blanket purchase order (AKA, standing order)

    Of these different types of purchase orders, standard POs are definitely the most popular among small businesses and established enterprises.