Monday, October 11, 2010

Eeny, meeny, miny, moe; Purchase Orders save Lots o' Dough!

It is an undeniable fact! Just pick 3 of your best suppliers and implement a Purchase Order system with them and see what happens. Two weeks ago I was talking with a great customer, Dave Tucker from Sedgewick Homes in North Carolina. I paraprhase, "Every month when I review my xxxxx supplier invoices, I find billing mistakes and I wouldn't catch nearly all of those without our purchase orders as a control."

Is it that difficult to believe that our subs and suppliers make billing mistakes? It's not intentional on their part (at least we hope it's not), but the reality is that it happens. If you don't already use some form of purchase orders or subcontract documents, then are you not assuming that your vendors never make billing mistakes? We all know what happens when we assume, yet it continues on this way in many construction companies. For Dave Tucker, the amount is really irrelevant because it is still in his pocket! I guarantee you that he sleeps well at night knowing that he has not mistakenly overpaid one dime and that his jobs are on budget and will continue to be so.

A system such as this doesn't take long to implement and once it's in place, everyone in the company knows it and uses it, I promise you will never go back to the old "giving extra money away system"(GEMAS) that was in place prior to. You are already doing this work once when you are bidding, pricing and estimating your jobs, so why not take it one small step further and put it on paper. Then, use that paper to compare the bill to. I have seen too many situations where a bookkeeper is left to compare bills to a budget. You absolutely have to have a budget and there is nothing bad with this way, but my thought is that it's just a little incomplete. How much more control is there in this situation when the bookkeeper or accountant compares that bill to, hopefully, an almost duplicate details purchase order or subcontract? Hundreds times more, thousands times more? I guess that depends on how many mistakes your vendors make on their bills.

So, the question of why you would not keep GEMAS in place in your company should now be answered. The only question left is WHEN are you going to replace it?


  1. This is great, Steve you should do a webnar on this with your system?

  2. Thanks Bryan. I will definitely put something together on that.