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Mar 30, 2021

Purchase Requisitions: What They Are and Why They’re so Important

by Arielle Kushner

purchase requisition

The purchase requisition, or purchase request, is the launchpad of the whole purchasing process. As such, it’s very important to have a true understanding of what it is! Also referred to as a PR, it often gets mentioned in the same breath as a PO, or purchase order. While it may seem like these are the same thing, they are very different and each has its own specific role in the purchasing process. 

Here, we’ll elaborate on the role of the purchase requisition and discuss the purchase requisition process, as well as illustrate the difference 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 formal request prepared by an employee to purchase a good or service. It usually includes a form containing a description of the purchase need (product description), the relevant department and budget item, the specific item(s) being requested and any related files/quotes/agreements that approvers should review.

What is a purchase requisition process?

The purchase requisition process starts with a formal request prepared by an employee to purchase a good or a service. It’s usually a simple form which contains all of the information needed to trigger the right approval process. This includes a description of the purchase need (product description), the relevant department and budget item, the specific item(s) being requested and any related files/quotes/agreements that approvers should review. Once submitted, the purchase requisition (PR) is routed to the appropriate approvers. This typically happens through a requisition system in place. Eventually, the purchase requisition gets approved and turned into what’s called a purchase order (PO).

A typical purchase requisition form will contain general information as well as 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, a question, or any other note or 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.

Why are purchase requisitions so important to the procurement process?

The P2P (procure-to-pay) process is one of the two core processes of any business (the second being quote-to-cash), and it begins with the purchase requisition. Because the PR is the first step of the P2P process—and, like the popular phrase “good data in, good data out”—the quality of the entire P2P process relies on the quality of the requisition. 

If we take a closer look at the other areas of the P2P process, it becomes clear that the purchase requisition stage is where:

  • The most stakeholders are involved. In some organizations, a large portion of employees have the ability, or authorization, to submit purchase requisitions.This includes requesters (employees), approvers (supervisors), the legal team, finance department and accounting department, procurement department, IT and others. With so many stakeholders involved, 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.
  • The highest-value decisions happen. To buy, or not to buy? From which vendor? And from which department’s budget should the cost be deducted?
  • Real budget transparency can be achieved. Businesses aiming to optimize their finance management must start with achieving visibility into their spend pipeline. This means knowing what they’re going to spend and where there is wiggle room. This type of visibility can only be achieved at the requisition stage.

Streamlined purchase requisition workflows also positively contribute to:

Early involvement: Unlike purchase orders, requisitions can be submitted without a vendor listed. This means that a vendor can be assigned after the purchase need has already been approved. It also means that the procurement department can get involved early on in the requisition process and help source the right vendor, enabling them to achieve better terms, negotiate beneficial contracts, and continue working with them into the future. 

A requisition approval process often includes: budget owners who ensure there is sufficient budget for the request; security or infosec who ensure the vendor is compliant; and the legal team who ensures there’s an appropriate 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. 

Added dimensions to the budget: Without a purchase order issued, 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 purchase order, a third dimension is added: encumbrance, or money pending future payment but not yet invoiced (in the case that 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.

Purchase requisitions also provide the organization with complete documentation and audit history of who requested or approved what, when, and why. This is a valuable defense mechanism against misconduct and fraud. Furthermore, a requisition process removes the need for broad company access to the PO tool (often the ERP’s PO module). This smartly serves as a barrier preventing non-finance and procurement team members 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 here. 

The benefits of purchase requisitions

It’s important to understand that the act of making an official business purchase always involves another process in tandem. With this, the question that needs to be asked is, “Should this process rely on a simple email or Slack message to the manager saying ‘I’m buying this,’ or should the process be more formal?” 

The choice to embrace purchase requisitions aligns with the choice to treat purchasing as a serious, important process that needs to be properly monitored and managed. The benefits of purchase requisitions are quite obvious:

  • Early involvement from key stakeholders
  • Better control and visibility into the spend pipeline
  • Elimination of fraud and misconduct
  • Better financial and budget planning capabilities

All of these benefits ultimately result in saving companies time and money. 

There are also some elements of purchase requisitions that can initially be viewed as obstacles. For starters, deploying any new process can make the organization seem “heavier,” with yet another formal procedure employees need to follow. In general, this can frustrate employees who don’t love change. Research shows that people are generally change averse. With this, deploying a new process—regardless of how valuable it is—can be challenging. But if the process is easy to understand and user friendly, it will be a lot easier to encourage employee adoption from the start. 

When it comes to purchase requisitions, the pros far outweigh the cons. If you already have a purchasing process in place that involves emails, phone calls, spreadsheets, or a generic workflow or task management system, your employees are already involved in a process that surrounds purchasing. Purchase requisitions simply make this process faster, more transparent and less frustrating.

Purchase requisitions vs. purchase orders

What is the difference between a purchase requisition and a purchase order? The purchase requisition is simply the formal request to purchase goods or services, whereas the purchase order is a legally binding document that gets issued to suppliers or vendors only once the purchase requisition has been approved. The purchase order is usually referred to as a PO, and is typically generated on the PO module of the company’s ERP or on a P2P suite. 

Beyond its function as a formal document that’s sent to the supplier, the PO is important for budget planning and management, since it acts as a “lock” on a budget or spending limit before an invoice is received from the vendor.

Some businesses run their purchasing approval process on the PO itself, rather than on a purchase requisition. This approach is problematic for a number of reasons, among them:

  • Not all employees, or relevant users, have access to the system that generates POs. This breaks the process into several systems and creates data silos, resulting in friction, errors and processing delays.
  • POs usually require a vendor to get approved. If the requester isn’t sure about which vendor they want to use, this poses a problem. On the other hand, “vendorless” purchase requisitions offer a great opportunity to guide purchases to preferred vendors, increase buying power, and lower the risks and time involved in onboarding new vendors.
  • PO systems usually support rigid and limited approval flows, and are relatively technical and difficult to use. This results in low adoption, which keeps purchasing processes happening in a manual, siloed fashion that isn’t easily tracked or managed.

How to tell if you need a purchase requisition process

You may be unsure about whether your business really needs to transition to purchase requisitions. Fortunately, there are some clear signs indicating that your organization is in need of a purchase requisition process using a proper, purpose-built solution. These include: 

  • It’s becoming difficult to plan and monitor budgets company-wide
  • Purchase requests and approvals are clogging up employees’ inboxes
  • There is a growing number of stakeholders involved in purchasing and approving
  • Employees are frustrated with the time it takes to get a purchase approved
  • There is a lack of context when approving purchases
  • Legal and security get involved too late in the game, stalling processes
  • Procurement isn’t able to source and negotiate the way they would like, so money-saving opportunities are wasted
  • Finance lacks visibility into the spend pipeline

Great purchase request experiences are crucial for proper purchasing processes. They make the purchasing process easier and faster for those needing to buy, while granting more control and involvement to those needing to approve. Healthy growing businesses experience an increasing number of stakeholders regularly needing to approve an increasing number of goods and services. In order to keep the business running smoothly, they need to be making these approvals fast. 

Launching an official way to make purchase requisitions also protects your organization from misconduct and fraud with an easy-access record of each purchasing activity. Likewise, sensitive data and actions are kept inaccessible to non-finance and procurement team members .

Deploying a purchase requisition process, especially one that’s founded on a purpose-built requisition system like Approve.com, results in higher and quicker employee adoption, accelerated approval cycles, greater visibility and control over the organizational spend pipeline, and overall optimized financial management. 

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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