What is a purchase requisition?
A purchase requisition is a formal document used to purchase something needed at your company. The purchase requisition is filed with the department manager or procurement team to kick off the process of purchasing the good or service. The finance and accounting teams also use the purchase requisition for reporting and compliance purposes.
Completing a purchase requisition is the first step in the purchasing process. Unfortunately, a purchase requisition is sometimes confused with a purchase order. Understanding the difference between these two documents, as well as why they’re useful, can keep your purchasing, sourcing, and procurement function organized and efficient.
Purchase requisition vs. purchase order
A purchase requisition is commonly used to initiate the purchasing process for goods over a certain dollar amount. This threshold varies by organization: some companies allow departments directly buy the items they need under $500; others set the limit to $2,000 and up. Some companies create different approval processes for different dollar amounts. For instance, purchases of $500 - $1,000 need the approval of one manager; $1,001 - $5,000 need two managers to sign off, etc.
Each purchase requisition form has a unique number that can be used to track it through the approval process. The purchase requisition form will include information such as the department requesting the good or service, a description of what is needed, the quantity, the name of the vendor, and the price.
A manager or the procurement department will receive the purchase requisition and evaluate quotes for the item needed from vendors. After this step, a purchase order is issued.
The purchase order is a document that triggers the actual purchase of the desired good or service. Whereas the purchase requisition is an internal document, the purchase order issues a purchase order number and is sent to the vendor. The purchase order contains similar information: the goods needed (a description and the quantity), price, mailing address, payment information, and an invoice address, for instance.
Why are purchase requisitions important?
Purchase requisitions are necessary for initiating the purchasing process, which in turn helps organizations improve a variety of procurement-related performance outcomes. When used wisely and strategically, purchase requisitions can help with everything from budgeting to compliance, and even tail spend management.
A well-crafted purchase requisition strategy helps bring transparency to the entire purchasing process. Purchase requisitions give organizations a way to keep track of the purchasing needs across departments, identifying opportunities for bulk ordering (and discounts), preventing duplicate purchases, and ultimately reducing the risk of maverick spend.
Likewise, purchase requisitions reduce the risk of fraud. For companies that work in highly regulated industries, purchase requisitions help track company assets. The requisition form is proof that a specific quantity of products were ordered, and can be used when the products arrive to ensure the delivery was made. Finance, inventory, and accounting teams can refer back to the purchase requisition or purchase order if there’s ever a problem down the line.
Some in an organization may view purchase requisitions as an added burden. Without a clear purchase requisition strategy, purchase requisitions can be seen as increasing bureaucracy, rather than creating an efficient way to track spending. A purchase requisition strategy can help organizations take advantage of interconnected ERPs and procurement platforms to create a speedy and organized approval workflow that keeps everyone in the process informed — but only involves those who need to provide oversight.
Purchase requisition management best practices
Simply adding purchase requisitions to your procurement process won’t help you reduce maverick spend overnight. Organizations need a robust strategy that defines the approval process and adds value not only to the lifecycle of a single purchase, but to the procurement process as a whole. The purchase requisition strategy should simplify approvals, streamline workflows, keep records of individual purchases, and bring all purchasing into one database to create a user-friendly repository of information.
This is where purchase requisition technology can help. Fairmarkit’s platform manages the purchasing process by collecting purchase requisitions, collecting and analyzing bids, and updating the purchase requisition to include the chosen supplier and pricing before issuing the purchase order. For purchasing leads, this means less time spent on tail spend and more high-value tasks.
Digitizing purchase requisitions allows teams to take advantage of automation to help save time and create a paper trail for record-keeping and auditing purposes. Automating approvals to move the initial purchase requisition through the workflow to the purchase order system and eventually to the procurement process saves everyone time and effort. 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. It discourages off-book spend by making the entire process seamless and easy.