Procurement 101A Deep Dive into the Purchase Requisition Process
The purchase requisition process can seem like a minefield at times — a complex labyrinth of endless pathways that often intertwine. But the journey to procurement doesn’t have to be so complicated, especially if companies use digital methodologies.
Ninety percent of companies are primarily motivated by increased efficiency and decreased operational costs when pursuing digitization strategies for procurement.
However, many companies still rely on manual methods and inefficient technologies for purchase requisition, such as paper invoices and Excel spreadsheets, which slows down the entire procurement process.
In this guide, we’re going to explain the purchase requisition lifecycle, from start to finish. Then we’re going to highlight the importance of using digital methods for purchase requisition.
- What does requisition mean in procurement?
- Purchase requisition vs. purchase order
- What are the rules for purchase requisitions?
- Purchase requisition example scenarios
- What’s included in purchase requisitions?
- What purpose does a purchase requisition serve?
- Importance of purchase requisition documents for fraud
- How to manage purchase requisition
- Manual methods for purchase requisition
- Purchase requisition software
- The benefits of Tradogram
- Final word
To make this a little less complicated, let’s quickly explain what “buyers” are:
Buyers are the people who buy products for their company to use.
OK, now let’s explain what purchase requisitions are. This is the most simple definition we came up with:
Purchase requisitions are the documents buyers use when they need to buy products on behalf of their company.
Of course, there’s a lot more to it than this, but now you understand the basic concept.
Now let’s explain what purchase requisitions are not. There’s a big misconception that purchase requisitions and purchase orders are the same, but this isn’t true.
It’s important to realize that purchase requisitions don’t let buyers order goods – unlike purchase orders, which do.
Instead, purchase requisitions give them the approval to do so. When purchase requisitions are approved, buyers use a purchase order.
See the difference?
- Purchase requisitions are all about permission.
- Purchase orders are all about purchases.
What are the rules for purchase requisitions?
Different companies have different rules for purchase requisitions but typically:
- Purchase requisitions are required for goods that cost over a certain threshold.
- Purchase requisitions are created by buyers and sent to their company’s finance manager for approval.
- A finance manager evaluates different types of requisitions and decides whether to approve them.
Purchase requisition example scenarios
- A buyer working for a clothing company wants to buy materials and other supplies that cost over $10,000. (The company has an internal policy that requires buyers to submit purchase requisitions if goods cost more than $5,000.) The buyer submits a purchase requisition to the company’s finance manager. After 2 days, the finance manager authorizes the purchase requisition. The buyer can purchase the materials and supplies.
- A buyer working for a manufacturing company wants to buy production equipment that costs over $10,000. (The company has an internal policy that requires buyers to submit purchase requisitions if goods cost more than $5,000.) The buyer submits a purchase requisition to the company’s finance manager. After 2 days, the finance manager rejects the purchase requisition. The buyer submits another purchase requisition for $8,000. After 2 days, the finance manager authorizes the second purchase requisition. The buyer can purchase production equipment.
As you can see from the second example, buyers might need to submit more than one purchase requisition.
What’s included in purchase requisitions?
Purchase requisitions are tailored to suit the requirements of a business but they typically consist of the following information:
- The date and time of the buyer’s request.
- The buyer’s name.
- The buyer’s department.
- The requested goods (or services).
- The reason the buyer needs these goods (or services).
- The name of the vendor providing the goods (or services).
- The total cost of the buyer’s request.
- The place they need the item/service delivered to.
What purpose does a purchase requisition serve?
Purchase requisitions are common in large companies, where finance managers would otherwise be inundated with requests from lots of buyers. However, small and medium-sized companies also use purchase requisitions to improve procurement procedures. As companies tighten their collective fiscal belts, buyers should only order what companies need. Purchase requisitions make sure this happens.
Here are some of the advantages of purchase requisitions:
Avoid duplicate orders
Some companies have various buyers and it’s difficult to keep track of orders. This can often lead to duplicate purchases, which wastes money. For companies with more than one buyer, purchase requisitions make sense. These documents help finance managers keep track of order requests and prevent duplicate purchases.
Protection for buyers
Purchase requisitions protect buyers in the event of spend management disputes. Buyers can use these documents to prove they intended to purchase important supplies and materials, for example.
Improve tax compliance
Sometimes, the IRS requires evidence that managers have approved purchases, especially when these purchases are tax-deductible. Purchase requisitions, therefore, are extremely useful for tax compliance. In the event of an audit, managers can show the IRS proof of their purchase approvals.
(When the IRS demands proof of your purchasing process, requisitions give you something to throw at them.)
Optimize inventory management
Companies need to optimize inventory management for better customer experiences, avoiding stock-outs, and cutting costs. Purchase requisitions are important components of inventory management as they identify purchase approvals, which makes managing stock much easier.
Importance of purchase requisition documents for fraud
To reduce fraud, many buyers are not allowed to make direct orders with manufacturers, suppliers, or vendors. Purchase requisitions provide managers with greater control over company spend as requests need to go through finance departments first. As buyers need authorization before placing orders, there’s an extra level of protection for companies who want to improve spend management.
How to manage purchase requisitions
Now you know the benefits of purchase requisitions, let’s explain how you can use these documents in your organization properly.
Purchase requisitions are not a new concept. These documents have been around, in one form or another, for decades. However, years-old methods just won’t cut it in today’s modern business environments.
There are two main ways to manage purchase requisition:
- Manual methods (mainly paper documents)
- Purchase requisition software
Manual Methods for purchase requisitions
First, let’s cover the manual methods used. These include things like:
- Paper request forms.
- Email request forms.
- Accounting books.
Companies that still use manual purchase requisitions might approve paper or email request forms from buyers, calculate spend using calculators and Excel spreadsheets, and log everything in accounting books. For some very small businesses, these methods might work. However, for nearly every other company, manual methods can have a detrimental impact on spend management. Here are the reasons why:
- Outdated manual purchase requisition methods take too long. Buyers often need decisions about purchases in hours or days, not weeks or months. Finance managers will need to manually enter information on spreadsheets, books, or calculators, and this can take a significant amount of time.
- Outdated manual purchase requisition methods can lead to human error. Paper purchase requisition documents are often erroneous or inaccurate, and this can have a significant impact on spend management. Even small errors in paper documents can result in underestimates or overestimates, which makes it difficult for companies to control finances.
- Outdated manual purchase requisition methods make it difficult to implement procurement analytics. Finance managers who use paper-based or outdated methods for purchase requisition will find it difficult to analyze procurement with the latest digital metrics. As a result, it will be harder to make accurate financial predictions that could impact the entire company.
Purchase requisition software
Purchase requisition software provides financial managers with an alternative to paper-based and manual methods that slow down and make it difficult to analyze procurement processes. These programs facilitate various procurement workflows and promote seamless purchase operations in a wide range of business sectors.
Here are some of the benefits of digital purchase requisition tools:
One single platform
Instead of using various technologies — spreadsheets, calculators, etc. — users can handle all the tasks associated with purchase requisition from one single platform, which cuts down procurement times considerably. Buyers in various departments can access this software and submit procurement-related data from the comfort of their desks. There’s no need to submit paper forms to finance managers. The whole process takes just a few clicks.
Establish spending thresholds
Purchase requisition software makes it easier to implement spending thresholds for buyers. Finance managers who use these tools can enforce the company’s purchasing rules automatically without having to rely on manual methods.
Prevent unnecessary spending
Purchase requisition software makes it easy to control unnecessary spending in an organization, and this can be beneficial when managers want to cut costs. These programs ensure all approved purchase requisitions are within budget and won’t cause long-term harm to the company’s finances.
Better for the environment
Paper purchase requisition documents can be damaging to the environment. Offices in the United States use more than 12 trillion sheets of paper every year, and paper makes up 33 percent of municipal waste and 25 percent of landfill waste. Digital tools, on the other hand, provide offices with an environmentally-friendly procurement solution.
Finance managers often keep paper purchase requisitions on file for a few years to meet internal and IRS compliance guidelines. In large organizations, where buyers make multiple purchase requisitions, this can take up a lot of space. Digital programs provide a solution. Finance managers can still keep purchase requisitions on file but store them in a digital environment, where they can access them at any time in the event of an IRS audit.
Monitor expiration dates
Purchase requisition tools monitor contract expiration dates so finance managers can notify buyers when products and services might be coming to an end. This makes it easier for buyers to make repeated orders and prevent disruptions to supply chains and workflows.
This software automates procurement workflows so buyers receive requested goods and services on time. In various sectors, buyers must get the materials and supplies they need. Otherwise, supply chains can be interrupted and products delayed. Purchase requisition software keeps track of suppliers, vendors, and previous purchase orders so there’s less time spent on manual workloads. As a result, procurement can be completed in a speedier timeframe.
Did you know… Companies that incorporate purchase requisition software into their business operations improve growth, innovations, and performance by as much as 64 percent?
The benefits of Tradogram
Tradogram is a purchasing software solution that takes the stress out of procurement.
This suite of digital tools enhances your existing financial management infrastructure so you can send and receive purchase requisitions, as well as purchase orders, invoices, expenses, contracts, and other requests.
With Tradogram, you can oversee purchase requisitions from one simple system and generate accurate procurement reports that could cut costs in your business. It works like this:
- Buyers submit purchase requisitions using Tradogram’s simple user interface.
- Buyers select items from a database or add additional items.
- Buyers clarify item specifications, prices, and shipping addresses.
- Tradogram tracks received orders and checks inventories.
- Finance managers cut costs, eliminate overspending, and improve compliance.
Buyers can send purchase requisitions from desktops, laptops, smartphones, and tablets.
Purchase requisition can be a complicated beast at times, but the latest software automates and streamlines the entire process. The result? Buyers can receive goods on time, and finance managers can control budgets and cut costs. A purchase requisition tool like Tradogram improves procurement for buyers, finance departments, and managers in various business environments.
Want to digitize purchase requisitions? Click here to learn more about Tradogram.
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