Delivering value through procurement can be challenging without the use of purchase requisition process. Depending solely on purchase orders can hold your team back as you scale. Having purchase requisition process helps you to gain visibility and enable employees to be part of the purchase activities.
Several businesses are unwilling to update their procurement process, even though it directly affects their bottom line. These organizations fail to understand that the more employees start involving in procurement activities, the less control and visibility they have on their spend.
To ensure spend visibility and eliminate maverick spending, businesses must streamline their requisition processes.
Here is everything you need to understand to streamline your requisition process.
What is a purchase requisition?
A purchase requisition is an internal request form that employees or departments use to share their requirements to purchase goods or services. It usually includes things like the requestor’s name, what they need, how much they need, when they need it, and an estimated cost. The key reason it matters? It keeps purchases organized, ensures proper approvals, and helps stick to the company’s budget and policies.
Key Elements of a purchase requisition
- Requestor’s Information: Name and department of the person making the request.
- Description of Items/Services: Detailed information about the required goods or services.
- Quantity and Estimated Cost: The amount needed and the anticipated price.
- Purpose/Justification: Reason for the purchase or how it aligns with the organization’s needs.
- Required Delivery Date: When the items are needed.
- Approval Workflow: A process that ensures the requisition complies with budgets and policies.
Example Purchase Requisition Form
A purchase requisition form includes details such as the requisition number, date, requestor's name and department, along with a list of requested items (e.g., software subscription), quantities, estimated costs, and total value. It serves as an internal document to seek approval before procurement. Below is the image of a sample PR form.
What is the difference between a PR and PO?
A purchase requisition is an internal request to procure goods or services, while a purchase order (PO) is a formal, legally binding agreement sent to a supplier. The requisition seeks approval before procurement, whereas the PO finalizes the transaction after approval, ensuring the order is fulfilled under agreed terms.
| Purchase Requisition |
Purchase Order
|
| A formal request to obtain goods or services, initiated by an employee or department within an organization. |
A formal document issued by the buyer to the supplier, detailing the items to be purchased, including quantities and prices.
|
| To seek internal approval and budgetary authorization before proceeding with a purchase. |
To officially authorize a purchase and create a legal contract between the buyer and supplier.
|
| Employee or department in need of goods or services. |
Procurement or purchasing department based on approved requisitions.
|
| Requires internal approvals from relevant departments (e.g., finance, management). |
Generally does not require further approval once issued, but must align with the approved requisition.
|
| Description of requested items, quantities, estimated costs, and justifications for the purchase. |
Detailed list of items to be purchased, quantities, agreed prices, delivery dates, and terms of payment.
|
| Initial step to ensure the need and budget for a purchase are validated internally. |
Subsequent step that finalizes the purchase decision and communicates it to the supplier.
|
| Not legally binding; serves as an internal document. |
Legally binding; serves as a contractual agreement with the supplier.
|
| Used for internal tracking and budget control. |
Used for external tracking, order fulfillment, and financial accounting.
|
| No direct interaction; purely internal. |
Direct interaction with suppliers; specifies the terms of the transaction.
|
| An employee requests new office chairs, detailing quantity and justification for approval. |
After approval, the purchasing department issues a purchase order to the supplier specifying the type, number, and price of the chairs.
|
What is the purchase requisition process?
The purchase requisition process is the series of steps an organization follows to request, review, and approve the procurement of goods or services. Here's a simplified breakdown:
Steps in the PR Workflow
1. Request Creation
Employees or departments identify a need and submit a Purchase Requisition (PR) form with details like item description, quantity, estimated cost, and delivery requirements.2. Approval Workflow
The requisition moves through an approval process to confirm budget availability and compliance with procurement policies. This may involve department heads, finance, or procurement teams.
3. Budget Verification
Finance ensures that the requested purchase fits within the allocated budget.
4. Procurement Team Review
The procurement team evaluates the requisition, checks for preferred suppliers, or identifies sourcing requirements.
5. Requisition Approval or Rejection
If the request aligns with budgets and policies, it is approved and forwarded for further processing. If not, it may be rejected or sent back for revision.
6. Conversion to Purchase Order
After approval, the PR may be converted into a Purchase Order (PO) for supplier engagement.
Why Do You Need Purchase Requisitions?
Organizations can build an accountable spend culture and maximize spend effectiveness through purchase requisition processes. It also greatly eliminate unapproved spending while enabling employees to be part of the purchasing process.
Transparency in Procurement
Purchase requisitions enhance transparency by clearly documenting each step of the approval process. From the moment a request is submitted to when it's authorized, all activities are tracked. This visibility ensures that each purchase is aligned with the business needs and allocated budget. It helps employees and managers understand how their requests are being handled, providing clear insights into why certain items are prioritized or approved, and reducing any potential confusion or ambiguity.
Streamlined Purchasing Process
Requisitions help centralize and standardize the procurement process, making it easier for departments to submit and track requests. This centralization eliminates duplicate orders, improves efficiency in managing inventory and ensures that resources are allocated effectively. By creating a clear and standardized flow of requests, organizations can prioritize and process orders faster, saving time and reducing operational bottlenecks.
Increased Accountability
One of the most important benefits of a purchase requisition is creating a detailed audit trail. Every request, from initiation to approval, is documented, ensuring full accountability. It becomes essential when it comes time for financial audits, as it is concrete evidence of managerial oversight and approval. This level of documentation ensures that purchasing decisions are transparent and traceable.
Fraud Prevention
Requiring multiple layers of approval before a purchase is finalized adds a layer of protection against fraud or unauthorized transactions. By involving several stakeholders - often across different departments or management levels - the process significantly reduces the risk of internal or external fraud. This built-in approval process ensures that each purchase is legitimate and necessary, providing checks and balances that safeguard the organization’s finances.
Cost Control
The approval process embedded within purchase requisitions plays a critical role in controlling costs. By requiring justification and budget checks before a purchase is made, requisitions ensure that spending stays within the allocated budget. It not only ensures that purchases are essential but also facilitates better vendor negotiations. With approval tied to budget constraints, procurement teams are in a stronger position to negotiate better deals, ultimately saving money for the business.
Risk Mitigation
Purchase requisitions are designed to ensure that all purchasing activities comply with both internal policies and external regulations. By enforcing structured approval processes and maintaining comprehensive records, they help mitigate risks related to non-compliance. This reduces the likelihood of errors, mismanagement, or legal issues down the line, ensuring that the procurement process is both efficient and compliant with industry standards.
Feedback Mechanism
An effective purchase requisition process provides an opportunity for feedback and continuous improvement. By reviewing past requisitions, organizations can assess the efficiency of their approval process, identify any bottlenecks, and adjust as necessary. This ongoing feedback loop allows companies to refine their purchasing strategy, ensuring they adapt to changing business needs or procurement trends, thus optimizing the process over time.
Enhanced Supplier Relationships
By streamlining the procurement process through purchase requisitions, companies can foster better relationships with their suppliers. With clearer, more organized communication, suppliers are better informed about order details, timelines, and expectations. This consistency helps build trust and improve collaboration between the company and its suppliers, which can lead to more favourable terms, better service, and stronger long-term partnerships.
How to Tell if You Need a Purchase Requisition Process
Figuring out if your organization needs a purchase requisition process comes down to assessing your current procurement practices and spotting any weak spots. If you’re dealing with uncontrolled spending, limited visibility, frequent errors, trouble tracking orders, inefficient workflows, compliance headaches, or challenges as you scale, it’s a clear sign that implementing a formal purchase requisition process could bring structure and efficiency to your operations.
- Uncontrolled spending and budget overruns.
- Lack of visibility into procurement activities.
- Frequent purchasing errors and discrepancies.
- Difficulty in tracking and documenting purchases.
- Inefficiencies in Approval Workflows
- Issues with Compliance and Accountability
Benefits of Automating the Purchase Requisition Process
Automating the purchase requisition process can revolutionize procurement by addressing inefficiencies and enhancing accuracy. It saves time and reduces costs by eliminating repetitive manual tasks like entering data or routing approvals. Additionally, automated purchasing systems speed up the processes and ensure accuracy by cross-checking requisition details with company policies and preventing data entry errors.
Time and Cost Savings
- Automation eliminates repetitive manual tasks like data entry and routing approvals.
- It speeds up processing times, reducing delays and operational costs.
- Replacing paper-based processes with digital workflows minimizes expenses associated with printing, storage, and physical records management.
Enhanced Accuracy
- Procurement softwares validate requisition details to ensure they comply with organizational rules.
- By reducing human error, automation helps maintain cleaner, more reliable data.
- Fewer discrepancies mean less time spent on resolving errors or reconciling records.
Streamlined Workflows
- Automation creates standardized processes, ensuring consistent handling of requisitions.
- It eliminates bottlenecks by clearly defining responsibilities and automating task assignments.
- Improved collaboration between requesters, approvers, and procurement teams boosts overall efficiency.
Faster Approval Processes
- Real-time notifications alert stakeholders when actions are required, reducing wait times.
- Automated workflows eliminate manual routing, accelerating the approval cycle.
- Faster approvals lead to quicker order placements and timely deliveries.
Improved Compliance and Control
- Automation enforces organizational policies, ensuring requisitions follow predefined approval hierarchies.
- Spending limits and controls are automatically applied, reducing unauthorized purchases.
- Compliance with regulatory standards is easier to maintain, minimizing risks.
Better Visibility and Transparency
- Automated procurement systems provide real-time tracking of requisitions, offering a clear view of each request's status.
- Comprehensive reports and analytics reveal spending patterns and areas for improvement.
- Transparency helps stakeholders make more informed decisions and enhances accountability.
Best Practices for Managing Purchase Requisitions
Here are the recommendations for effectively creating and managing purchase requisitions to optimize your procurement processes.
- Develop a clear and standardized format for requisitions to ensure consistency across departments.
- Include all necessary details, such as item descriptions, quantities, estimated costs, and required delivery dates, to minimize back-and-forth communication.
- Define approval hierarchies and ensure approvers understand their roles and responsibilities.
- Use procurement software to automate the creation, submission, and approval of purchase requisitions.
- Integrate company policies, budgets, and approval thresholds into the requisition system.
- Provide real-time tracking of requisitions to keep stakeholders informed about their status.
- Link requisitions with inventory management tools to avoid duplicate orders or overstocking.
- Provide regular training to employees on how to create and manage requisitions effectively.
- Conduct periodic audits of requisitions to ensure compliance and identify areas for improvement.
Take advantage of purchase requisition process
In summary, a purchase requisition is a vital component of an efficient procurement process, ensuring that every purchase is justified, approved, and adheres to budgets and company policies. As the starting point of procurement, it promotes transparency, curbs unauthorized spending, and supports precise record-keeping. When paired with a streamlined approval system, purchase requisitions empower organizations to maintain financial discipline and operational effectiveness, forming a solid foundation for sound purchasing decisions.
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