A purchase requisition is a formal, internal document used by employees within an organization to request the purchase of goods or services. It serves as the initial step in the procurement process, preceding the creation of a purchase order. The process involves submitting the requisition for approval, which ensures that the purchase aligns with the company’s budget and policies. Once approved, the requisition is converted into a purchase order, a legally binding document sent to the supplier to finalize the transaction
Key Differences between a Purchase Requisition and Purchase Order
| Characteristics | Purchase Requisition | Purchase Order |
| Purpose | Internal request for approval to purchase goods or services. | Legally binding document to confirm purchase details with a supplier. |
| Scope | Internal document within the organization. | External document sent to vendors. |
| Process Steps | Initiation of procurement process; approval from management. | Follows approval of requisition; creation of formal order with detailed terms. |
| Approval and Creation | Created by employee requesting purchase; approved by manager or department head. | Created by procurement team; approved by higher authorities (e.g., procurement director or CFO). |
| Benefits | Provides transparency and audit trail in procurement. | Offers a legally binding agreement; aids in maintaining organized accounting records. |
| Content | Item description, quantity, budget, justification. | Detailed purchase information: price, quantity, delivery date, payment terms. |
Importance of a Purchase Requisition
Financial Control
Ensuring financial control is crucial for maintaining organizational stability. By requiring prior approval for purchases, companies can align their spending with budgetary constraints and prevent unauthorized or unnecessary expenditures, thereby safeguarding their resources.
Streamlined Procurement Process
Streamlining the procurement process involves standardizing and organizing purchase requests, which enables smoother workflows and reduces delays in approvals. This streamlined approach also facilitates bulk purchasing opportunities, potentially leading to cost savings through volume discounts.
Enhanced Accountability and Fraud Prevention
Enhancing accountability in procurement is achieved through creating an audit trail that documents every request, approval, or denial, ensuring transparency in all activities. This documentation acts as a gatekeeping mechanism to prevent unauthorized or redundant purchases, further reducing the risk of fraud.
Improved Planning and Forecasting
Improving planning and forecasting involves analyzing spending trends to better manage budgets and predict future needs. By identifying and minimizing redundant or overlapping purchases, organizations can optimize their procurement strategies and allocate resources more effectively.
Compliance and Risk Management
Ensuring compliance with internal policies and external regulations is vital for reducing risks associated with non-compliance. Documenting purchasing decisions strengthens security by providing a clear record for future reference or audits, helping organizations maintain regulatory adherence.
Operational Efficiency
Maintaining operational efficiency requires ensuring that departments receive the necessary goods or services to function effectively, thereby avoiding operational delays. Detailed documentation of purchase requirements minimizes miscommunication, ensuring that procurement aligns with organizational needs and objectives.
Steps in the Purchase Requisition Process
Identifying a Need: The process begins when an employee or department recognizes the need for goods or services to fulfill operational requirements. This could be due to a shortage of supplies, maintenance needs, or new project requirements.
Submission of Request: The employee fills out and submits a purchase requisition form with detailed information such as item description, quantity, budget, and justification for the purchase. This form is typically standardized to ensure consistency across the organization.
Managerial Approval: The requisition is reviewed by the line manager or department head to verify the necessity of the purchase and ensure compliance with budget limits. This step helps prevent unauthorized or unnecessary spending.
Stock Verification: The inventory department checks if the requested items are already available in stock to avoid unnecessary purchases. This step helps in maintaining efficient inventory levels and reducing waste.
Review by Purchasing Team: The purchasing department evaluates the requisition, ensures all required details are complete, and confirms the legitimacy of the request. They may also verify if the purchase aligns with company policies and procurement guidelines.
Supplier Selection: If the requisition is approved, the purchasing team sources suppliers, compares quotes, and selects the most suitable vendor based on factors such as price, quality, and delivery time.
Final Approval: Before proceeding with the purchase, the purchasing team may need to obtain final approval from higher management or financial authorities, especially for large or critical purchases. This ensures that all stakeholders are aligned with the procurement decision.
Purchase Order Creation: Once all approvals are secured and a supplier is selected, a purchase order is generated and sent to the vendor to formalize the transaction. This purchase order serves as a legally binding contract outlining the terms of the purchase.
Why Businesses Should Move to a Digital Process
Streamlined Procurement
A digital purchase requisition process simplifies and accelerates the procurement workflow by automating repetitive tasks. Employees can quickly create requests using standard templates, while automated routing ensures faster approvals, reducing delays in purchasing.
Error Reduction
Automation minimizes human errors by ensuring all required information is entered before submission. Approved requisitions are automatically converted into purchase orders, eliminating issues caused by manual data entry.
Cost Savings
By consolidating requests and enabling better oversight, businesses can negotiate better vendor terms and avoid unnecessary purchases. Automation also reduces administrative costs associated with manual processes.
Enhanced Compliance and Fraud Prevention
Digital systems enforce purchasing guidelines by routing requests through proper approval channels. This reduces the risk of unauthorized purchases or fraud and ensures compliance with internal policies and external regulations.
Improved Visibility and Accountability
A centralized digital system provides real-time tracking of requests, approvals, and spending trends. This transparency enhances accountability and supports better decision-making during audits or budget planning.
Faster Decision-Making
Automated notifications and reminders ensure that approvers act promptly, accelerating the overall cycle from request submission to purchase completion. This reduces bottlenecks and improves operational efficiency.
Integration with Core Systems
Digital requisition systems can integrate seamlessly with other business tools like ERP or inventory management software. This integration centralizes data, eliminates silos, and provides a holistic view of procurement activities.
Scalability for Growth
As businesses grow, manual processes become increasingly inefficient. A digital system can handle higher volumes of requests without additional administrative burden, making it scalable for future needs.
Conclusion
A purchase requisition is a vital document that initiates the procurement process, ensuring financial control and compliance. Its importance extends to streamlining procurement, enhancing accountability, and improving operational efficiency. Transitioning to a digital process further optimizes these benefits by reducing errors, increasing transparency, and facilitating scalability. By leveraging digital tools, organizations can enhance their procurement strategies, leading to more efficient and cost-effective purchasing decisions.
