Procurement 101Purchase Orders vs Requisitions – What’s the difference?
For someone new or unfamiliar to procurement and business ordering, the terms “purchase orders” and “requisitions” (also sometimes called “purchase requisitions” or “order requisitions”) can come across as a bit confusing at first. They’re both terms that can signify that goods or services need to be purchased by a company. They’re also both an integral part of the purchase to pay (also referred to as P2P) process, which deals with identifying requirements, approving and placing purchase orders, and finally reconciling the received deliveries and billed invoices via a 3-way match.
If requisitions and purchase orders have so much in common, then what’s the difference?
Simply put, requisitions eventually become purchase orders once those requisitions are approved. Purchase orders are sent to suppliers – not requisitions.
Requisitions are an indication that certain goods or services need to be purchased within a company. They’re used by company employees to communicate the things they need purchased to those who are in charge of procurement. Requisitions are internal orders, meaning that they never go outside of the company.
Purchase orders are sent to suppliers or vendors to indicate an intent to purchase goods or services. Regardless of the size or specialisation of a company, purchase orders commonly require verification from a manager to take place before they’re sent to a supplier, similar to requisitions. The main difference is that requisitions, when received from employees, are used internally by purchase departments to track the goods and services they need to purchase, while purchase orders are tools for acting on those needs by making those purchases from designated suppliers.
As an example of a basic chain of events leading up to a purchase order being sent, let’s say a manufacturing plant is running low on a certain component needed to make its products, like metal bolts:
- An employee notices this and, not being the one responsible for making purchase orders, indicates that more metal bolts need to be purchased by submitting a purchase requisition to the warehouse manager.
- Once it’s approved, the warehouse manager then submits the purchase requisition to the purchase department for the second round of approvals.
- After verifying the expenditure, the purchasing manager populates the approved purchase order with the required quantity of metal bolts specified in the requisition order. (Sometimes this step is replaced with submitting an RFQ or an RFP if the buyer plans to negotiate with the supplier.)
- In larger companies, the purchase order may even be reviewed and approved one or more times before having the finalised purchase order sent to a supplier.
But just how important are requisitions when creating a purchase process?
Why are purchase requisitions necessary?
Why not create purchase orders immediately when goods and services are needed?
These are good questions, and the answers can vary from company to company.
One of the universal reasons is that requisition orders can be an important factor in optimizing the reduction of overall purchase costs. In the case of some companies and government agencies, multiple purchase quotes from different suppliers are a requirement on requisition orders, before the creation of a purchase order, to ensure that the best quality products and prices are attained from each order.
However, this wasn’t always the case. Some companies used to avoid using requisitions and purchase orders entirely. But why?
In the past, when orders involved smaller amounts of money, foregoing both requisition orders and purchase orders in favor of making a purchase directly with a company credit card was a popular method used in the interest of saving time.
However, with the introduction of e-procurement and online purchase order software, along with the ability to retroactively log expenses, even small orders and purchases can now be documented with ease.
“The days of maverick spending are numbered, as companies adopt new, easier ways to track and centralise purchases made by all employees of their company.” – Majdi Sleimen
As monetary amounts on purchase orders increase, having a system in place to filter the initial requisition orders and approve the finalised purchase orders before sending them starts becoming essential for documentation, especially for larger expenditures. For companies that make a large number of purchase orders each month, being able to control spend without hindering workflow is also a necessity.
To continue saving time while maintaining the advantages of these systems, e-procurement and online purchase order systems have become a popular approach to handling all of the steps in the purchase order process, especially in larger companies.
Another great interaction between requisitions and purchase orders in a software environment is the ability to populate single purchase orders from multiple requisitions – an extremely handy feature for companies that deal with larger volumes of requisition orders.
Want the most out of purchase orders and requisitions? Try moving online.
These days, most business is done online. Why isn’t your procurement process?
Tired of being tied down to your desk, having purchase details changed without record, trying to keep track of dozens of requisition orders, sending sheets of paper around the office for physical signatures, and trying to track the status of every purchase order manually? Why not streamline the process with an online procurement platform? When handled digitally, requisitions and purchase orders can be just as time saving as a swift, single-swipe from a company credit card, while letting you reap the benefits of structured approval chains, documentation, and the flexibility to access them anywhere.
Before jumping into the purchase-to-pay process, it pays to know the difference:
Requisitions are internal orders, used by company members to indicate a need for products or services within that company.
Purchase orders are external orders sent to suppliers or vendors to express or confirm a commitment to purchase those products and services.
While similar, both terms play a crucial role in the purchase to pay process used by most purchase departments, and both are essential features in modern online purchasing and order management platforms.
The average purchase cost reduction after implementing a procurement solution is around 15%, and the time taken to get requisition orders filled by up to 75%.
Now that you know the difference between purchase orders and requisitions, try handling both in comfort with an online procurement platform!
Want to read more on the difference between Purchase Orders and Requisitions?
The Difference Between a Requisition & a Purchase Order (by Forest Time)
Difference Between Purchase Order and Purchase Requisition (by Ahmed Ashfaque)
Want Tradogram news direct to your inbox? Sign up now.