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Not 'How Big?' but'How Complex?', surely
I am surprised that David Carter seems to use the size of a company as an indication of the desireability or necessity for POP. Surely the main criteria should be complexity.
Granted a media company, which I guess is mainly buying services, but with some tangibles as well, could manage without the burden of POP, even if it were turning over tens of millions. However one thing that POP can reduce, used properly, is the potential for fraud.
The company for which I work, although not large, manufactures machinery and has an inventory of 18500+ items. Because we run a semi-just-in-time system, the same items may be ordered multiple times within any given period. Not having a handle on which delivery relates to which order, and ultimately to which order/delivery each invoice relates, would be a recipie for disaster.
Yes, we DID have a manual POP system before we had computers, and the computers have speeded up the process at all levels. So I agree that one shouldn't necessarily relate POP to computers, although to do it any other way in this day and age would be madness!
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Richard,
You are right, in that for stock-based companies POP is fundamental, since it supplies the "On Order" balance in the "Physical-Allocated+On Order=Free" calculation.
It's in service organisations where it fronts the financials that POP is a Cinderella, as I call it. Service POP and Stock POP are different packages, really.
Ron,
I take your point about the primacy of the invoice over the order, actual VAT to be recorded etc. You then go on to say:
"Clearly the ability to match this up with the order and check for discrepancies is a boon, but it's one most often started in the finance department, and only passed on to the originator when it doesn't match up."
Surely this is wrong. Every invoice has to be passed on the originator for approval. Even if the figures match up, there may still be errors, e.g. the item delivered was wrong, quality might be faulty, etc. etc.
Every invoice has to go the originator, who is best at sorting out any discrepancies because he/she knows the facts. In that case, what's the reason for involving Finance at all? None as far as I can see. But Finance insist on involving themselves because they are afraid of losing control.
Purchase Order Invoices
I think it is a little misleading to suggest that a POP system allows finance to pass the entry of the purchase invoice over to the primary order source (because it's just a case of converting the order into an invoice).
UK VAT law requires the data from the invoice as presented from the supplier to be entered into the system (in particular the goods and VAT totals on the invoice must be typed in, not copied from the original order - VAT inspectors are quite hot on this in my experience). Plus of course the invoice is the point where you discover that the supplier has changed his price, or charged for delivery, or something else unexpected.
Clearly the ability to match this up with the order and check for discrepancies is a boon, but it's one most often started in the finance department, and only passed on to the originator when it doesn't match up.
take your point, but
I would contend that your example has POP, but it is simply not computerised. It is a very common mistake to equate systems directly with computers.
I would also contend that your example organisation had its own bureaucracy, but a less formal one, and I believe that there is a similar mistaken belief that equates formality of procedure with bureaucracy, (and also internal control!)
It is most interesting to consider what is the source of that organisations success (and you said it was relatively successful in its sector). Probably, imposing a more formalised POP system would have had little impact on that, although probably it would have in any case been bent in lots of different directions.
i'm not a luddite, honest!
You are spot on about the key benefits, and both of these can have a major impact on a significant area for many small businesses - namely working capital management - particularly when POP is integrated with stock control. This translates into lots of lovely information; something that many small businesses lack. Add the essential element of feedback from an automated Sales Order Processing system, and you have something that will provide comparative advantage. (And it will be interesting to see what microsoft come up with).
The difficulty is in fitting the automated system to the organisation - in practice many fall into the trap of fitting the organisation to the automated system. In my view this is one of the major causes of IT project failures (the other being "scope creep" during the project - or the "wouldn't it be good if" trap).
a very informal system
Alistair, obviously every organisation places orders on suppliers in some way or other and so must have some sort of system for POP. The question is whether you decide to automate it.
In this particular company the designers, production people etc simply talked to their suppliers direct and placed orders over the phone - all manual, word of mouth, no authorisation required. They were free to order whatever they required, as long as they made budget at the end of the day.
As to reasons for their success, what makes a good media company? It has to be people's attitude, I suppose.
Sometimes it seems to me that it is better NOT to computerise and to leave everything manual. In operational areas of the business where flexibility is required, automating systems often turns out to be a hindrance rather than a help, and people lose their enthusiasm.