What is a Non-PO (Non Purchase Order)?
If you are curious to find out what a non-PO or Non Purchase Order is, you are probably already familiar with its opposite — the PO (Purchase Order).
Understanding PO vs Non-PO: A Basic Overview
The most crucial difference between a PO (Purchase Order) and a non-PO (Non Purchase Order) is the approval mechanism preceding the creation of the order. Typically, multiple approvals are sought before a Purchase Order is created.
Whereas, a Non-PO or Non Purchase Order is typically used when something is needed urgently, and the person, who intends to purchase the good or service, cannot afford to waste any time in seeking approvals from multiple parties before placing the order.
Case Study: Traditional PO Process in Action
Let’s try to understand the differences between the two by considering a practical example:
John heads a small team at a mid-sized construction company. Because the company is expanding, John has been asked to hire another member to his team. After weeks of interviewing a long list of candidates, John has made a decision. The new employee will be joining in two weeks, and John needs to make sure that he is able to onboard him without any hiccups.
John tells his immediate boss that the company would need to set up the new employee with a desk and a laptop before he can be expected to begin working. John’s request for the purchase of these goods is approved by his boss, who then forwards the request to his own superior for approval. A few days later, the same request is approved, and is ultimately sent to someone in the Finance department for a final approval. By the time the final approval is given, a week has already passed.
Now that all the approvals are in place, John contacts the purchasing manager and asks him to purchase the approved goods. The purchasing manager swings into action, and, soon enough, he prepares a Purchase Order — with all the relevant details — to send to the vendor.
By the time the new employee joins the company, his desk and laptop are already waiting for him in the office, and everything proceeds smoothly.
Urgency and the Non-PO Approach: A Real-Life Scenario
Let us now consider a more adverse scenario. John has just been informed by his team that one of their construction sites is running short of cement. The construction crew needs to obtain 800 pounds of cement within 12 hours; the cement needs to be procured within 12 hours because the crew will be unable to proceed with their work without it. Unless the required quantity of cement is obtained, the crew would be unable to complete the project in time.
Given the urgency of the situation, John cannot afford to follow the standard approval route preceding the actual purchase of the cement. And so, he takes matters in his own hands: he contacts his boss, and explains the situation to him. After receiving his boss’ approval, he, himself, writes a Purchase Order and sends it to the cement vendor. The cement is obtained just in time, and the construction crew is able to finish their project in time. Here, it’s crucial to note that the Purchase Order created by John is actually a non-Po or a Non Purchase Order (Non Purchase Orders are also called Self Purchase Orders — a term that is arguably more apt given the fact that the requester creates the Purchase Order himself).
Now that we have been able to draw a distinction between the two, let’s consider the implications of using a non-Po (Non Purchase Order) over a Purchase Order because, in this situation, it’s the implications that matter the most.
The Risks and Challenges of Using Non-POs
In the first example, John went through the traditional approval route; ultimately, it was the Purchasing Manager who created the Purchase Order. When the vendor finally sends an invoice for the order to the construction company, it is received by the Accounts Payable department. Before paying the invoice, the Accounts Payable Clerk needs to make sure the invoice is actually legitimate. In order to do this, the clerk checks with the company’s Purchasing Manager. The Purchasing Manager goes through his record of all the Purchase Orders he has created, picks out the one that relates to the order, makes sure that everything checks out with the invoice, and then reassures the clerk that he can go ahead and pay the invoice.
In the latter case, John created the Purchase Order (again, note here that the Purchase Order is really a non-PO or Non Purchase Order) himself; he alone has the Purchase Order. When the cement vendor sends the invoice for the order, the Accounts Payable clerk will check with the Purchasing Manager. Naturally, the Purchasing Manager does not have the Purchase Order, and probably has no knowledge that it was John who ordered the cement. Because no one tracked the Purchase Order, both the Accounts Payable clerk and the Purchasing Manager will be unable to establish if the cement was actually ordered. Predictably, they would have to check with each and every member of the company — a time consuming, not to mention frustrating and inconvenient process — if they ordered the cement.
Debunking Myths: The Efficiency of Approval Routing
And this is only one unpleasant outcome of using a non-PO (Non Purchase Order); in practice, its use runs several other risks — the lack of an audit trail associated with the purchase, delayed payments and ensuing penalties, and the breakdown of trust in purchaser-vendor relationships.
The truth is that Approvals aren’t meant to keep you waiting
The notion that approval routing — stated more simply, the process of getting all stakeholders to approve a planned purchase — is a time-consuming process does not really hold water; Of course, it’s true that the process can take time if your company uses antiquated paper or email processes. And naturally so — a request for a purchase, when written on paper, would need the signature of every stakeholder who has to approve the purchase; the same piece of paper would be circulated across departments and different corners of the office. The process would be even more time consuming if these stakeholders work in different areas or offices.
The Role of Technology in Streamlining Approval Processes
But approvals do not have to take time if your company uses an agile and user-friendly spend management software; with real-time notifications, every stakeholder would be alerted every time their approval is sought, irrespective of whether they are in the office, or on the go.
As such, the non-PO (Non Purchase Order) isn’t really an industry term. It only became popular after ERPs and accounting systems coined it.