Dec 01, 2020

Purchase Requisition: What it is and why it’s important

by Dor Beglaubter

purchase reuisition

The purchase requisition, or purchase request, is the launchpad of the purchasing process. As such, it’s super important to understand what it is! 

Here, we’ll elaborate on the differences between a purchase requisition and a purchase order. We’ll also explain why more organizations are deploying a proper requisition management system, and why this is arguably the most important part of the procure to pay process.

So let’s dive in!

What is a purchase requisition?

A purchase requisition is a simple form that’s filled by a requester when they want to purchase a good or service. The form contains all of the information needed to trigger the right approval process. Once it’s submitted, the required approvers are notified. Then, they can either approve or reject the requisition depending on factors such as the validity of the need, or the budget status. An approved requisition is flipped into a purchase order (PO).

A typical requisition form will contain general information and item information, and also allow requesters to attach any relevant documents or files.

General information
FieldExample
TitleMacbooks for new hires
DescriptionOur team is growing and we need 10 new Macbook Pro 15 laptops.
SubsidiaryCompany, Inc.
DepartmentR&D
Account codeComputers & equipment
Item information
ItemMacbook Pro 15”
Quantity10
Unit price$1,399
Expected date11/15/2020
CurrencyUSD

Attachments included with a purchase requisition may be a quote or agreement, or any other file. 

The information entered in the requisition form will be logged in the purchasing system. All subsequent actions on the requisition—such as approvals, or questions being asked—take place within the system, ensuring that approvers have all of the context they need to make a decision, and that no misconduct is done by any stakeholder. 

Once the requisition is approved, a PO is issued. A PO is a legally binding document that is sent to the vendor. It lists the high-level details of the purchase.

The importance of a purchase requisition

The purchase requisition separates the need a requester has from the actual order. It’s also the part of the purchasing process that involves the most stakeholders, and where the most important decisions (which can have the highest impact on price) are made. These decisions include rejecting a requisition, changing or assigning a vendor, and negotiating. Each of these naturally happens during the requisition process. Compared to a proper requisitions approval process, which is dynamic and effective, a PO approval process is often merely a rubber stamp.

Here are some other key elements that make purchase requisitions so important:

An abundance of stakeholders. First and foremost, the requisition reflects the need of the requester. In some organizations, a large chunk of employees can submit a requisition. Establishing a proper requisition process eliminates all of the emails, phone calls, spreadsheets and even Slack messages that are otherwise sent by the requester to various different parties before a PO is finally opened. With this, a requisition process alone can eliminate the need for hundreds of email threads per month. 

Indeed, with so many stakeholders involved in this specific process, having a more effective and streamlined process in place is paramount. Note that a requisition process is used for both direct and indirect procurement needs—from machines to transportation, to computers, software, office supplies and beyond. Learn more about the stakeholders of a purchasing process here.

Early involvement. Unlike POs, a requisition can be submitted without a vendor listed. This means the vendor can be assigned after the need has been approved. It also means that procurement can get involved early on in the process and help source the right vendor, enabling them to achieve better terms. 

A requisition approval process often includes: budget owners who ensure there’s sufficient budget; infosec who ensure the vendor is compliant; and legal that ensures there’s a contract in place. Another advantage of early involvement is that, even if the requester chose a vendor,  procurement or finance still have the ability to change to a better vendor while the requisition is still pending approval. 

Another dimension to budget. Without a PO, the budget has only two layers: planned, and used. This allows for very limited planning ability and often results in budget plans not being met. 

With a PO, a third dimension is added: encumbrance, or money pending to be paid but not yet invoiced (where a PO has already been generated). This allows for better planning and budget control.

With a requisition process, a fourth dimension is added: pending approval. This dimension is extremely valuable, since the requisitions that are not yet approved represent a savings opportunity. This is the only chunk of the budget that the procurement and finance team can immediately impact since it’s not committed yet.

Vendor onboarding. It should be clear by now that allowing requesters to submit requests is a great way to achieve early involvement for procurement and avoid numerous email threads that aren’t directly associated with a purchase request. 

Another important element that a proper purchase requisition process enables is that requesters can request that a new vendor be onboarded in parallel to submitting their purchase request. In this scenario, a vendor onboarding process is always triggered from the purchase request. As such, it should be treated as a sub-process of a purchase request which leads to faster processing and improves tracking. A great requisition management tool will also offer vendor onboarding capabilities, allowing requesters full visibility into their purchases, and giving finance, procurement, IT and other approvers a command center of all the processes that are going on before they reach the ERP.

Reduced chances of fraud. When there’s a requisition form on file, there’s a complete documentation of who approved what, when, and why. Furthermore, a requisition process removes the need for broad access to the PO tool (often the ERP’s PO module), which serves as a barrier preventing non-finance and procurement people from entering the ERP system and generating binding documents like POs. If you’re using NetSuite POs or another cloud-based ERP, read more about managing requisitions.

Great purchase request experiences are crucial for proper purchasing processes. They make the purchasing process much easier and faster for those needing to buy, while granting more control and involvement to those needing to approve. 

Launching purchase requisitions also protects your organization from misconduct and fraud by keeping a complete record of what led to a purchase, and keeping sensitive actions inaccessible to non-finance and procurement team members.

Approve.com is a modern spend management tool that helps companies take control of business spend by simplifying purchase requests, streamlining approvals, and providing data-driven insights. 

Schedule a demo and see what modern purchasing looks like.

Interested in implementing a spend management system that simplifies and streamlines your business’s existing process? Check out Approve.com and request a free demo today!

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