It's an oft overlooked area of procurement, but the humble purchase requisition is a valuable asset to any company procurement function. The purchase requisition is the very beginning of the purchasing process, and if used wisely and strategically, these simple tools can help in a wide variety of procurement challenges—budgeting, compliance, and even tail spend management. A well-crafted purchase requisition strategy helps bring transparency to the entire purchasing process.
Yet procurement processes haven’t always dealt well with purchase requisitions. They’re often seen as an impediment to the smooth flow of business, rather than an asset. Because of this, many organizations ignore them altogether, preferring to forgo the perceived administrative burden and extra paperwork of yet another step in the purchase process. But a strong purchase requisition release strategy not only does away with unnecessary bureaucracy, it also adds value to the procurement function and the wider organization. Here’s what a best practice purchase requisition strategy entails and why smart procurement teams use them.
Purchase requisitions are documents employees use to inform the organization that they wish to buy something. The document, usually submitted to their department manager, finance and the procurement team for approval, signals the start of a purchase.
These documents are closely related to—but not at all the same as—a purchase order. A requisition internally signals the intent to purchase an item. Once it is approved, a purchase order may be raised by supply to fulfill the purchase.
As well as keeping track of the purchasing needs of employees and departments, purchase requisitions also help to prevent multiple people in the organization from orders directly from a supplier without first having their purchase approved internally. This is a great way to reduce so-called maverick spend—the “off-the-books” or indirect spend that isn’t handled by the procurement team.
In the old days, purchase requisitions were done by hand. Employees would print them out, write them up and give them to their department manager for approval. Once approved, the department manager would wander over to the procurement team and give them a copy. These days, most enterprise resource planning platforms (ERPs), like SAP, have a purchase requisition option baked into their procurement systems.
But purchase requisitions shouldn’t simply be added to the procurement process without coming up with a robust strategy that defines the approval process and adds value not only to the lifecycle of a single purchase, but of the procurement process as a whole.
The aim of the strategy should be to simplify approvals, streamline the workflow, document individual purchases, and feed the data into a repository of information on all purchases.
When it comes to procurement, the goal for many organizations is twofold: Reduce the time it takes to complete purchases and bring more purchases into the control of the procurement department for greater transparency and cost savings.
A big part of reducing the bureaucracy in a purchase process is identifying the people who need to be involved at any one time, while also leaving a clear record—a digital paper trail—of purchases that anyone in procurement, finance or management can follow when they need to.
A well thought out purchase requisition release strategy that takes advantage of interconnected digital systems like ERPs and procurement platforms, creates a clear and speedy approval workflow that keeps everyone in the process informed but only involves those members of the organization who need to provide oversight.
A system that is easy for buyers to access, notifies approvers and keeps a digital record, reduces wasted time and confusion around who is responsible for what part of the approval process. It also adds transparency, helping organizations identify bottlenecks and overcome communication breakdowns.
When designing a purchase requisition release strategy, automation is a powerful tool, helping save time and creating the desired paper trail.
Automating sourcing via procurement platforms like Fairmarkit can dramatically speed up purchase requisition approvals and help consolidate purchase data that is easy to audit and adds value to an organization.
The key to implementing a robust strategy is to begin by identifying who needs to approve which types of purchases. There are a number of models you can use. SAP breaks down purchase approval responsibility by value. For instance, purchases less than $500 might only need to be approved by a single purchase manager, whereas $1,000-plus purchases might also need approval from a head of department. Large purchases of $50,000 might need further approval by a senior manager.
Customization is also key. The strategy needs to fit your specific organization. For instance, organizations with high tech procurement requirements might need managers with specialist subject knowledge to be the first reviewer.
Whatever approval process you choose, make sure to find as many opportunities for automation as possible—including automating the journey of the initial purchase requisition into the purchase order system and eventually to the procurement process. The key is to intelligently source all the things you need.
For more advice on the purchase process, check out Fairmarkit’s blog, The Source.