Accelerating and Streamlining the Purchase Requisition Management Process
The way Generation Z looks at shopping interacts with brands and makes purchases is markedly different. They expect more innovation in products and services and a seamless omnichannel customer experience. If companies have to meet Gen Z expectations, they need to spruce up their business processes to deliver pragmatic and innovative products and services.
The procurement process is one of the most important business processes that has a direct bearing on the quality of goods and services delivered by the company. Streamlined and orderly management of purchase requisitions, purchase orders, and payment invoices ensure better business outcomes. From supply market analysis to spend analysis; from category market intelligence to cost-modeling analysis; and from supplier risk analysis to commodity price forecasting – modern procurement management systems must be robust enough to perform such intuitive functions.
What is a Purchase Requisition?
The procurement function takes care of all the purchases undertaken by the organization. Purchase requisitions and purchase orders are important parts of the procurement function. What is a purchase requisition? A purchase requisition may be defined as a formal document that is used by employees to purchase or order something for the organization. The purchase request informs the department managers or the purchasing department of the decision to buy goods or services. Issuing the purchase requisition (PR) initiates the process of purchasing products or services. The finance department uses the purchase requisition to coordinate reports in the accounting department.
When a purchase requisition is approved, the purchase process begins. The purchase request is a document that is developed by the purchaser and submitted to the finance department. Once the finance department approves the purchase order, a contract with an outside vendor is signed. The content of the purchase requisition varies with the business requirements of each company.
Typical data in the purchase requisition are:
- Name of the department creating a purchase requisition
- Requisition name and number
- Purchaser’s location and communication address
- Quantity of items required
- Description of items
- Name of the outside vendor (legal identity)
- The estimated price of purchase
- Date of delivery
Apart from the above details, the purchasing department can add information specific to the purchase as the case may be. Why do you need a purchase requisition? When a proposed purchase exceeds the limit set by the finance department, a legal document is a must for tax and auditing purposes. Every organization makes several purchases to run the business, and each purchase needs to be duly recorded for future reference and audits. The business requires a system that keeps track of all purchases for effective spend analysis. The data gathered through the procurement process helps in identifying areas of large spends and analyzing if the expense is validated. The procurement budget is also based on the data gathered.
How Important is Purchase Requisition for your Business?
Does your business need a purchase requisition process? For small businesses, where the volume of purchases is low, managing and tracking the expenses may not be a challenge. Medium to large organizations where the volume of purchases is high, a proper method for tracking the expenses is required. Irrespective of whether the business is small or large, having a standardized purchase requisition and purchase order procedure is important for smooth and efficient operations.
The purchase request form is an internal document that is generated by the department that requires goods and services. Routing your purchases through a PR ensures that goods are not directly ordered from the vendor. A purchase requisition helps you keep your purchase orders and invoices in check.
Here is why a Purchase Requisition process is important for your business-
1. Initiates the purchase process:
The creation of the PR is the first step in the purchase process. This initiates the buying process.
2. Tracks every purchase order:
every purchase requisition is assigned a unique PR number. The status of the purchase requisition can be tracked by this number. The data in purchase requisitions, purchase orders, and purchase invoices are matched before payout in order to ensure that there are no duplicates.
3. Improves transparency of the purchase process:
Once the purchase is documented by creating a PR, it becomes easy to track its status. Using purchase requests improves the transparency of processing purchases.
4. Centralizes purchase management:
access to data pertaining to purchase requests and purchase orders is available in a centralized purchasing system. This in turn minimizes delays in approval of PRs, POs, and pay invoices.
5. Brings authenticity into the purchase process:
the department that requires goods or services raises a purchase requisition, which is sent for approval to the concerned authority. The approver validates the authenticity of the PR and checks if the price quoted is within the approved budget limit.
6. Prevents fraud and malpractices:
going through a purchase by raising a PR ensures that there is no fraud or malpractice. In the absence of a PR, the concerned department directly interacts with the vendor, paving the way for overpricing or duplication.
7. Maintains the communication trail:
each PR is assigned a unique identification number. Any communication related to the purchase can be easily tracked by quoting this unique number. Maintaining a seamless communication trail is easy with a formal purchase requisition process.
8. Establishes an audit trail:
Financial and compliance audits require businesses to follow standard operating procedures. Routing a purchase through formal purchase requisitions and purchase orders ensures accurate audit trails and adherence to compliance checks.
9. Safeguards from price fluctuations:
the price details mentioned in the PR and PO safeguard the buyer from price fluctuations or any changes in price by vendors.
10. Improves inventory management:
the purchase request process keeps your orders and invoices on track. Helps the procurement team identify the time of product delivery, which helps in inventory management.
A purchase request form is a formal document used by department heads to make requests for materials required. Once the purchasing department receives the PR, it either approves, rejects, or sends it back for additional information.
Steps in the Purchase Requisition Process
Irrespective of the type of business, the basic outline of the PR process remains the same. The individual steps and the order of execution may vary depending on the type and size of the business. Having a formal purchase requisition and purchase order process helps businesses optimize the procurement function. There are 3 stakeholders involved in the internal purchase requisition and order process, namely, requestor, purchasing agent, and manager or finance team.
Here are the steps in the purchase requisition process:
- Raise the purchase requisition: Whenever the need for material arises, a purchase requisition may be raised. A requisition form is usually used for recording the details of the materials or services required. It is important to fill in clear and accurate information in the requisition form. A requisitioner on a purchase request is the person requesting goods or services.
- Review of purchase requisition: Once a requisition request is logged into the system by the requisitioning department, the next step is a review of the details by a higher authority in the procurement team. The purchasing officer will verify the information filled in the purchase request form. If the PO requisition form is incomplete, the reviewer may either fill in the missing information or send it back to the requestor asking for details. If all the details are correct, the reviewer may forward the PR to the next step in the approval process. In cases where no further approval is required, the reviewer may generate a PO based on the data in the PR form.
- Manager level review: The final approval of the PR is given either by the requestor’s manager or the Finance team. Once the review of the PR form is complete, it may be forwarded to the requestor’s manager to ensure that the purchase value does not exceed the spending budget limit of the department. If the expense is under the limit and other data is accurate, the manager may forward it to the finance team for generating the PO or return the PR with reasons for rejection mentioned in the document.
Types of Requisitions
Business requisitions are classified into different types based on the requirement type.
Purchase requisitions are raised when the requisitioner wants a specific order to be released. The purchase requisition contains most or all of the details that will be contained in the purchase order. Purchase requisitions may be used in a centralized or non-centralized purchasing environment.
Item requisitions on the other hand are used when the source from which the required goods or services come from does not matter. The requisitioner lists down the items that are required, some of them may be sourced from the Stock Room, while the items not available in the stockroom may be acquired through a purchase order to be sourced from an external vendor.
Expense reimbursement requisitions are raised by employees to get paid back by the company for business-related travel or other expenses that they paid from their own money. Traveling purchase requisitions are raised to get reimbursement for the travel and accommodation expenses undertaken by the employee. Expense reimbursement requisitions require expense proofs to be submitted along with the PR firm.
Processing of each type of business requisition requires documentation and PR form details according to the type of expense.
Is a check request also a type of Purchase Requisition? A check (cheque) requisition is a standardized form that is used to request payment against a purchase order. A cheque requisition is raised for payments valued at less than 10,000 USD.
Difference between Purchase Requisition and Purchase Order
Purchase requisition and purchase order are two important documents for the efficient functioning of the procurement process in any business. These documents enable orderly planning of the expenses, creation of budgets, and provide proof of spend for financial audits. These documents are often mistaken to be the same by many businesses. Let us differentiate between a purchase requisition and a purchase order. The below table compares purchase requisition vs purchase order based on their definition, purpose, and other features.
|What it is
||Request for a purchase
||Confirmation of an order
||Purchasing department head or the head of requisitioning department
|When is it sent
||When the need for material or service arises
||When an order needs to be placed to an external vendor
|Who receives it
||Department head of purchase
- Date of requisition
- Requisition number
- Name of department or employee requesting material
- Description of items required
- Number of items and their price
- Date of creation of PO
- PO number
- Name of buyer
- Description of items
- Number of items and price
- Payment terms
- Billing and shipping address
- Delivery time and date
Efficient procurement workflows must-have purchase requisitions and purchase orders. Whether you are a vendor or a buyer, having a formal procurement process benefits all the parties involved. One of the main benefits of a purchase requisition process is the elimination of errors and fraudulent transactions.