Purchase Requisition:
Definition, Form, Process

Importance of Purchase Requisitions

Purchase requisitions (PRs) are important documents that initiate the procurement process for goods and services. They serve as formal requests for purchases from suppliers and help businesses manage their inventory and expenses effectively.

Here are some of the key reasons why purchase requisitions are important:

Purchase Authorization and Approval

Purchase requisitions provide a formal mechanism for authorizing and approving purchases. This helps businesses ensure that only necessary and authorized purchases are made, preventing unauthorized spending and ensuring that purchases align with the company’s budget and procurement policies.

Purchase Documentation and Tracking

Purchase requisitions serve as a record of the need for goods or services, the details of the purchase, and the authorization process. This documentation can be helpful for auditing purposes, tracking inventory levels, and managing procurement activities.

Preventing Duplicate Purchases

Purchase requisitions help prevent duplicate purchases by ensuring that only one person or department requests a particular item. This reduces the risk of over-ordering or purchasing unnecessary items.

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Price Negotiation and Comparison

Purchase requisitions can be used to negotiate better prices with suppliers. By providing a clear and detailed list of requirements, businesses can compare quotes from different suppliers and select the most competitive option.

Budget Management

Purchase requisitions help businesses manage their budgets effectively by tracking spending against budget projections. This provides insights into where costs are being incurred and allows for adjustments to the budget as needed.

Inventory Control

Purchase requisitions can be used to manage inventory levels. By tracking the quantity of items required, businesses can avoid stockouts and overstocking, ensuring that they have the right amount of inventory on hand to meet their needs.

Procurement Cycle Optimization

Purchase requisitions play a key role in optimizing the procurement cycle by streamlining the process from request to purchase order to delivery. This helps businesses reduce delays, improve efficiency, and lower overall procurement costs.

Data-Driven Decision Making

Purchase requisitions can be used to collect data on purchasing trends, supplier performance, and inventory levels. This data can be used to make informed decisions about future procurement strategies, supplier selection, and inventory management.

In summary, purchase requisitions are essential documents that play a critical role in the procurement process. They help businesses manage expenses, optimize inventory levels, and comply with procurement regulations. By using purchase requisitions effectively, businesses can streamline their procurement processes, reduce costs, and improve overall financial performance.

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Purchase Requisition Process

The purchase requisition process is a crucial step in the procurement cycle, ensuring that businesses obtain the necessary goods and services to maintain their operations. It involves a series of steps that initiate the procurement process, obtain authorization for purchases, and track the fulfillment of purchase orders.

Step 1: Identification of Need

The purchase requisition process begins with the identification of a need for goods or services. This may be initiated by a department head, manager, or employee who requires specific items to fulfill their tasks or for the company’s overall operations.

Step 2: Preparation of Purchase Requisition

Once the need has been identified, a purchase requisition (PR) form is created. This form typically includes the following information:

• Department or requester: The entity requesting the purchase
• Item description: A detailed description of the goods or services being requested
• Quantity: The number of units required
• Estimated cost: A rough estimate of the purchase price
• Delivery date: The desired date for receiving the items
• Justification: A brief explanation of the need for the purchase

Step 3: Approval of Purchase Requisition

The prepared purchase requisition is then routed to the appropriate approver. This may be a department head, manager, or procurement officer, depending on the company’s structure and procurement policies. The approver reviews the requisition to ensure that it is necessary, within budget, and complies with company guidelines.

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Step 4: Issuance of Purchase Order

If the purchase requisition is approved, it is sent to the purchasing department, which generates a purchase order (PO). The PO is a formal document that outlines the details of the purchase, including the supplier, item description, quantity, price, and delivery terms.

Step 5: Supplier Selection and Negotiation

The purchasing department identifies potential suppliers and may negotiate with them to obtain the best possible price and terms. They also ensure that the selected supplier meets the company’s quality standards and delivery requirements.

Step 6: Issuance of Goods and Services

The supplier receives the PO and fulfills the order by delivering the goods or services as specified. The supplier may also provide invoices for payment.

Step 7: Receipt and Inspection

The receiving department receives the goods or services from the supplier and inspects them to ensure they meet the specifications outlined in the PO. Any discrepancies or damage are noted and communicated to the supplier for resolution.

Step 8: Payment to Supplier

Upon receiving the goods or services and approving the supplier’s invoice, the accounts payable department issues payment to the supplier according to the agreed-upon terms.

Step 9: Closing of Purchase Requisition

Once the purchase is completed, the purchase requisition is closed and archived for future reference.

Purchase Requisition vs Purchase Order

Purchase requisitions and purchase orders are both important documents in the procurement process, but they serve different purposes.

Purchase Requisition

A purchase requisition is a formal document that is used to request the purchase of goods or services from a supplier. It is typically initiated by a department or employee who identifies a need for a particular item. The requisition should include a detailed description of the item, the quantity required, the estimated cost, the delivery date, and the justification for the purchase.

Purchase Order

A purchase order is a legal document that is issued by a buyer to a supplier to authorize the purchase of goods or services. It is a more formal document than a purchase requisition and it includes more specific details about the purchase, such as the supplier’s name, the item number, the unit price, the total price, and the payment terms.

Key Differences

Here is a table summarizing the key differences between purchase requisitions and purchase orders:

In summary, purchase requisitions are used to initiate the procurement process, while purchase orders are used to finalize the purchase and ensure that the buyer and supplier are in agreement about the terms of the transaction.

Creating a Purchase Requisition

Creating a purchase requisition is a relatively straightforward process, but it is important to follow the correct format and include all of the necessary information. Here is a step-by-step guide on how to create a purchase requisition:

• Identify the need for the purchase. This could be the result of a department or employee requesting an item, a shortage of inventory, or a need to replace damaged or outdated equipment.
• Gather all of the necessary information. This includes the item description, quantity required, estimated cost, delivery date, and justification for the purchase.
• Complete the purchase requisition form. Most companies have a standardized purchase requisition form that can be used. Make sure to fill out all of the required fields and provide clear and concise information.
• Route the purchase requisition to the appropriate approver. This may be a department head, manager, or procurement officer, depending on the company’s structure and procurement policies.
• Obtain approval for the purchase requisition. The approver will review the requisition to ensure that it is necessary, within budget, and complies with company guidelines.
• If approved, the purchase requisition is forwarded to the purchasing department. The purchasing department will generate a purchase order (PO) and send it to the supplier.
• The supplier receives the PO and fulfills the order by delivering the goods or services as specified. The supplier may also provide invoices for payment.
• The receiving department receives the goods or services from the supplier and inspects them to ensure they meet the specifications outlined in the PO. Any discrepancies or damage are noted and communicated to the supplier for resolution.

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Upon receiving the goods or services and approving the supplier’s invoice, the accounts payable department issues payment to the supplier according to the agreed-upon terms. The purchase requisition can now be closed and archived for future reference.

RELATED: Invoice Processing in Cloud: Optimizing Invoice Management

Purchase Requisition Best Practices

Here are some purchase requisition best practices for creating this valuable document:

• Be as detailed as possible in your description of the item. This will help the approver and the purchasing department to make an informed decision about the purchase.
• Provide accurate and up-to-date pricing This will help the purchasing department to negotiate the best possible price with the supplier.
• Set a realistic delivery date. This will help to ensure that the goods or services are received in a timely manner.
• Clearly state the justification for the purchase. This will help the approver to understand the need for the item and why it is important to the company.
• Keep a copy of the purchase requisition for your records. This will be helpful if you need to reference the purchase later on.

Key Terms Explained

Benefits of using purchase requisitions

Using purchase requisitions in your procurement process offers several advantages. It helps streamline the purchasing workflow by ensuring that all purchase requests are properly documented and approved. This leads to better cost control and budget management.

Additionally, purchase requisitions can enhance transparency and accountability within the organization, as they provide a clear audit trail of purchasing activities.

Purchase requisition form

A purchase requisition form is a standardized document used by employees to request the purchase of goods or services. It typically includes essential information such as item descriptions, quantities, budgets, and justification for the purchase. This form is crucial in initiating the procurement process and serves as a formal request for approval from relevant authorities.

Purchase requisition approval

Purchase requisition approval is a critical step in the procurement process. It involves reviewing and authorizing purchase requests to ensure they align with the organization’s policies and budget constraints. Approval workflows vary but often include multiple levels of authorization. Efficient approval processes help prevent unauthorized spending and maintain financial control.

Purchase requisition software

Purchase requisition software is a valuable tool for automating and managing the purchase requisition process. It streamlines requests, approvals, and tracking, reducing manual paperwork and enhancing efficiency.

Purchase requisition software software often integrates with other procurement and financial systems, ensuring seamless data flow and reporting.

Purchase requisition in procurement

In the context of procurement, purchase requisitions are the initial step in acquiring goods or services. They serve as the bridge between a department’s needs and the actual purchasing process.

Properly managed purchase requisitions are essential for ensuring that procurement aligns with organizational objectives, budgets, and supplier agreements.

Purchase requisition management

Effective purchase requisition management involves overseeing the entire lifecycle of purchase requests, from submission to approval and procurement. It includes maintaining accurate records, tracking status, and ensuring timely fulfillment of requests.

Robust management practices help organizations optimize their procurement processes and enhance cost control.

Final Thoughts: Don’t Underestimate the Importance of Purchase Requisition Software

Purchase requisition software is an essential tool for businesses of all sizes. It can help to streamline the procurement process, save money, and improve efficiency. By using purchase requisition software, businesses can:

• Reduce the risk of errors and omissions
• Improve communication and collaboration
• Track the status of requisitions
• Negotiate better prices with suppliers
• Analyze procurement data
• Automate repetitive tasks

In today’s competitive business environment, it is more important than ever to have a well-functioning procurement process. Purchase requisition software can help businesses to achieve this goal and gain a competitive advantage.

FAQ

How do I create a purchase requisition?

Typically, you can create a purchase requisition by filling out a standardized form or using purchase requisition software provided by your organization. A purchase requisition should include details such as item descriptions, quantities, budget codes, justification for the purchase, and any special requirements.

Who approves a purchase requisition?

Approval processes vary but often involve supervisors or department heads. Some organizations may require multi-level approvals based on the purchase amount. Once approved, the purchase requisition moves forward in the procurement process. It can result in the creation of a purchase order and eventual procurement of the requested items or services. Modifications may be allowed, but they usually require additional approvals to maintain control over changes.

How can organizations track the status of purchase requisitions?

Purchase requisition management systems or software can help track the status of requisitions, showing where they are in the approval and procurement process. That’s where automation can improve efficiency, reduce errors, speed up approvals, and provide real-time visibility into procurement activities.

Can purchase requisitions help with budget management?

Yes, purchase requisitions play a crucial role in budget management by ensuring that expenditures align with allocated budgets and financial plans. This also helps to maintain clear documentation, timely approvals, and regular audits to ensure compliance.