What is Purchase Requisitions Process, Format, and Importance?

Purchasing and procurement are universal in every business or company. The need for office supplies, equipment, raw materials, products, and other items surfaces from time to time across diverse departments, teams, and projects within an organization.

But how are these needs met?

Do the department heads or employees identify these needs, order the required items and fulfill the requirement directly from a vendor? Yes, but instead of directly approaching the vendor, the employees or department ensures the company knows about these requirements and raises an official purchase request on its behalf.

This is where purchase requisitions come into play. This blog will detail the purchase requisition meaning, their needs, benefits, difference between purchase requisition and purchase order, the requisition process workflow, and how to automate the requisition process.

Let's dig in.

What is a purchase requisition?

A purchase requisition is a document issued internally by an employee in a company, business, or organization concerning purchasing of goods, services, or raw materials. Purchase requisitions are submitted to the purchasing department, which must be approved for the purchase order to be issued.

The first step in purchasing begins with purchase requisitions. When an employee or department need any product, item, or service for daily operations or project-specific requirement, purchase requisitions are submitted on behalf of the firm/ company/ organization respective to the requirements.

Need for purchase requisition

Why are purchase requisitions needed when orders could be placed directly with the supplier? The reason why purchase requisitions are relevant is due to the following:

1) To prevent fraud from taking place in the form of:

• Employees misusing the company's fund
• Duplicate orders created on purpose
• Cost-efficient vender selection is not considered

2)  To establish a transparent procurement process

3) For direct control of finance over purchasing and procurement process

Types of Purchase requisitions

Standard Purchase Order

In a standard purchase order (SPO), the purchase request is placed for goods or services. The purchase order request will contain the items required quantity, vendor details, price per item, etc. An actual purchase order is generated once this purchase request is internally accepted or approved by the concerned department (i.e., finance or procuring team).

Subcontracting

Subcontracting purchase requisitions consist of the subcontracting details a company, organization, or business is availing from a third party. When the purchase subcontracting requisitions are approved, they are converted into subcontracting purchase orders.  

Stock transfer

A stock transfer purchase requisition comprises details on the transfer of stock, including quantity or boxes of items transferred, source and destination of transfer, date, etc. For the goods or stock to officially move from source to destination, the stock transfer purchase requisitions have to be converted into a purchase order.

Purchase requisition workflow/Process                 

Purchase requisitions follow a workflow to standardize the process, streamline the purchasing, and have easier visibility. Different companies or business's requisition orders may differ, but the most commonly observed 7 steps of requisition procedure are:

Requisition form submission

Once the need for goods or services is identified by an employee, submitting the requisition form is the first step in the requisition procedure. The requisition order will detail the items or goods required, their quantity, price, vendor suggestion, product description, name of the requestor, submission date, etc. Based on the level of digitization in a company, requisition orders could be created online or offline.

Line Manager Approval

The requisition order is submitted to the line manager of the requestor's department to check for its legitimacy to ensure the budget is within the allotted spending budget and the request raised keeps in line with the department's needs.

Stock checking by the inventory department

Now, this purchase request is sent to the inventory to check the company's existing inventory for the requested products or items. If the items are not in the inventory, the requisition order is passed to the purchasing department.

Screening by purchasing department

Once the requisition order reaches the purchasing department, the content of the form is screened thoroughly by the concerned officer, mostly the purchasing manager. The purchasing manager checks the legitimacy of the purchase request, the need for the products/ services demanded, the authorization of the request, missing details, etc. The purchasing manager or officer fills in the missing vital details and based on the purchasing limits, and the requisition order is approved or rejected. If the request the rejected, it's sent back to the requestor with justifying reason.

Purchase order generation

The key difference between purchase requisition and purchase order is brought to light in this step of the requisition procedure. If the officer approves the purchase request, a purchase order is generated and sent to the supplier or vendor. Once the vendor accepts the purchase order acts like a legally binding contract.

Order delivery and assessment

Once the vendor delivers the products or items, the receiving department matches them with the purchase order. The product's quality and quantity are checked. Then using a three-way matching process, the accuracy of the order is assessed by matching the purchase order, packaging slip/ order receipt, and invoice. The three-way matching ensures the payment is done only for the ordered and received items, and no extra or additional money is being charged or wasted. In the case of returns, the warehouse team or receiving team processes it.

Payment invoice

The last and crucial step is invoice settlement. The purchase order is closed once the required documentation is updated. Then the finance team receives the invoice generated by the vendor for approval. The invoice is checked thoroughly by account payable, and payment is made according to the terms and conditions of the pre-existing contract between the company and vendor.

You could learn more about creating a purchasing workflow check with the Amazon Business blog.  

What is a purchase requisition form?

Depending on the need of the employee, department, team, or project, a purchase requisition form is filled out with the details of required items, suggested vendor, product quantity, and description. It is an internally generated document submitted by an employee to the relevant department for approval. The purchase requisition must be approved for the purchase order to be placed, and the official purchase order is then sent to the vendor or supplier.

A requisition form is used across industries for purchasing and procuring products, raw materials, goods, and services. The content of the purchasing requisition form will be discussed in the coming section. Refer to the below image to get an idea about the purchase requisition form:

Contents of a purchase requisition form

The content of the purchase requisition form would vary with the types of purchase requestions, requirements, company, and services. But the following information is included in most of the requisition forms:

Benefits of using purchase requisition forms in your procurement process

Transparent procurement process

A purchase requisition process would enhance the visibility and transparency of the procurement process. Based on the organization or company's demand, modifications could be made to the requisition order, and steps could be added or deducted to further enhance and streamline the procurement process.

Prevents fraud

Purchase requisitions are essential to prevent fraud and misuse of the company's funds. Getting the approval through purchase order request ensures the demands raised through the purchase request are legit, i.e., the items ordered, vendors selected, product's quantity, etc. Thus, the money is not wasted on false needs.

Avoid duplicate orders

Purchase requisitions also prevent duplicate orders from being created. The requisition process workflow ensures the submitted request is thoroughly checked to eliminate the possibility that another employee from the same department, team, or project has raised the same order.

Streamlines the purchasing process

A centralized purchase requisition process helps to streamline the purchasing process. With a pre-fixed process, employees know how to raise the request, get approval, and how long it will take for the purchase order to be fulfilled. This streamlines the overall purchasing process.

Increases business security and accountability

Purchase requisitions serve as proof for the material, goods, service, or items demanded and ordered by a department or team, holding them accountable. Upon receiving the order, they are matched with the requisition request ensuring business security. Also, the purchase requisition document would serve as a record in case a future problem arises concerning the negotiated prices or items ordered with the vendor.

Saves cost

Cost control and savings are yet another benefit of purchase requisitions. An integrated purchase request will help the company monitor the total expenditure, items bought, checking whether cost could be saved in identifying suppliers, pricing negotiation, promoting better business decision-making, etc.

Proof for audit

Purchase requisitions are crucial during audits, as they serve as proof of the items or services orders and are approved by the company, matching the company's finances and expenditure. Purchase requisition document contain all the required information like the date, vendor, items ordered quantity, price, approver's details, etc., to serve while auditing.   

How to automate Purchase Requisition Workflow?

Automating purchase requisition workflow may seem confusing to someone who has not tried their hand at it. An automated requisition process would enhance productivity, minimize errors, and reorganizes the purchasing process. These steps will depict how to achieve automation in purchase requisitions:

Map the process

Some companies or organization don't document their purchase requisition process. The first step toward automating purchase requisitions is to map out the entire process in a detailed and elaborative manner. Then, create a process flow depicting the conditions, checkpoints, and dependencies of the purchase request process. Take out the redundant steps and make a simple and clear process flow.

Create digital forms

The next step is to digitize the mapped-out purchase requisition process flow. Create a digital version of the requisition procedure using any purchase requisition software or tool. You could also take inspiration from the pre-existing templates to create your own.

Customise the app

Now organization or company-based customization could be made in the digital form. The company-specific rules, approvals, additional workflow steps, unique processes, exceptions, etc., could be crafted into the application.

Automate workflows

Choosing any purchase requisition system will enable you to automate business processes like approval, rejection, and process purchase requests seamlessly. Every step of the purchase requisition procedure could be defined, and limitations, and accountability, could be set with the right purchase requisition software or tool.

Publish, integrate and measure

Once the purchase requisition tool or application is customized according to the organizational needs, policy and process, it's all set to launch. Run the application and assess how the requisition process flow and time consumption have been impacted by automation.

Purchase requisition example

Examples of purchase requisition could be seen in every official, organizational, company, or school setting. Suppose your company needs office supplies and chooses Amazon Business as your supplier or vendor for the required supplies. As a concerned employee, you would alert your boss, team leader, or manager about the requirements who will ask you to raise a purchase request. You would make the list of items required, including the quantity, type, size, and cost. This list is converted into a purchase requisition form and sent to the purchasing department. Suppose you have generated a requisition order for about 25000 rupees. Now, the purchasing department will check this request and decide whether to approve it or not. Once the purchase request is approved, it becomes a purchase order which will be sent to the vendor.

Purchase Requisitions are not Purchase Orders- Why?

Purchase orders and purchase requisitions are two vital documents in the procurement process. Most often, they are misunderstood or misused as the same documents. However, they are different. The following table will highlight what makes purchase requisitions and purchase orders unique:

Conclusion

Understanding the relevance and difference between purchase requisitions and purchase orders is vital to seamlessly running the procurement and purchasing process. Any business or company without a defined purchase requisition process would find it difficult to manage finances, budget, and expenditure, especially big corporations or companies. For smooth business operations, procurement, and purchasing, an automated purchase requisition procedure would be extremely beneficial.

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