A complete guide to the purchase requisition process

The very first step in the purchasing process; the creation and submission of a purchase requisition. This step is the foundation of any spend management strategy and having a defined purchase requisition process in place sets the tone for how effective your organization will be in managing purchasing. The importance of establishing a purchase requisition process, however, is often underestimated and elicits many questions. What is the purpose, why does it matter, and what is the best way to carry out the process?

With this in mind, we’ve created this blog post to answer these questions, and shed light on how you can start driving efficiencies and realizing savings by prioritizing and defining the underrated, but oh-so-important purchase requisition process.

What is a purchase requisition?

Let’s answer the frequently asked question, what is a purchase requisition? It's an internal document or form that an employee completes to request approval for a purchase, on behalf of the company. How are these processes carried out? These processes can be paper-based, manual (very often email-based) or created and submitted electronically, using an automated purchasing or procurement system.

Although at times used interchangeably with “purchase order,” these two documents have very different functions. A purchase requisition establishes whether there is in fact a need for the item being requested, it requires authorization, and once approved and compliant, initiates the purchase order process. A purchase order that is approved and sent to a vendor, acts as a legally binding contract for the purchase of goods and services.

Why does your business need a purchase requisition process?

In any business, small to large, there is a constant need for goods and services to keep business operations running smoothly. However, if you let employees and departments purchase these items with no controls or processes in place, this unmanaged buying can escalate quickly, depleting budgets and putting your organization at financial risk.

Not to mention, if there is no purchase requisition process or visibility into business spending, your organization is more susceptible to:

• Wasteful spending and missed opportunities to save
• Rogue spending
• Fraud
• Overpayment
• Duplicate payments

A defined purchase requisition process proactively controls spending and drives accountability. Each purchase requisition must go through the necessary internal approval levels that validate the purchase and assess budget impact, vendor selection and approval, and policy compliance. When this process is automated by a purchasing system, it is simplified via workflows that route requests according to your delegation of authority, and each touch point is tracked in a digital audit trail.

What are the steps in the purchase requisition process?

What information is required when completing a purchase requisition? While the form and process may vary across organizations, the core elements remain the same.

A purchase requisition must typically contain the following information:

• The description and quantity of the requested goods or services
• The preferred vendor and their credentials
• The price for the requested product or service
• The purchaser’s identity and department

Additional purchase requisition input data can include tax rates, currency, cost allocation, quotations, and any supporting or verifying documentation.

As for the purchase requisition process, it typically follows these steps:

• The employee will complete a purchase requisition for the required goods or services and submit for approval. 
• The requisition will go through an escalating approval flow, typically starting with the employee’s direct line manager. They will have the option to approve, deny or request further verification.
• If the purchase request exceeds a monetary value threshold, it may require additional approvals.
• The purchase request is subject to budget review and policy checks.
• If approval is granted, a purchase order process is initiated and sent to a vendor for acceptance and fulfillment.

An example: an employee in the marketing department needs to purchase and brand promotional items for an event. They can submit a purchase requisition for approval, it could result in a quoting step to ensure that the company is purchasing goods at the best price. It could be denied, or returned for further verification, or motivation. The requisition will require approval from the relevant hierarchy prior to the initiation of the purchase order process. Automated purchasing systems enable supporting documentation uploads that are centralized and stored, making the review and approval process that much easier, while mitigating risk. All of these proactive steps in the purchase requisition process are governed by internal controls, guide spending behavior, and ensure compliance with purchasing policies.

Why automate the purchase requisition process?

A manual or paper-based purchase requisition process can be complex and time-intensive with long email threads, paper trails, or spreadsheet tracking across multiple sheets. Furthermore, delays and process bottlenecks frequently occur when approvers are on leave, out of office, or in a different location. These manual inefficiencies are prone to human error, which often require time consuming corrective action, or if left unchecked, could increase your costs.

No matter how organized your manual purchasing operation is, it will ultimately require time and resources that could be better allocated.

A digital, automated purchasing system centralizes and streamlines purchasing processes across all departments and transactions, instantly connecting employees, regardless of their location.

Digital purchase requisition workflows enable:

• Speed: Automated, digital purchase requisitions are routed to the correct approvers, who are notified to take action. This prevents inter-departmental delays and streamlines the entire purchasing process.
• Mobility: Staff are empowered to create, submit, review, and instantly approve requisitions on any device, from any location.
• Savings: Automated purchase requisitions are routed to the appropriate approvers via hierarchical approval workflows that validate purchases and prevent maverick spending. With quoting steps ensuring purchasing at the best price, and full visibility into all outgoing business expenditure, purchasing managers can consolidate multiple purchases to increase buying power with a preferred vendor, and generate savings.
• Purchasing compliance: An automated purchase requisition system is configured to simplify and enforce compliance with internal purchasing policies.

Benefits of an automated purchase requisition process

Although a purchase requisition is merely a digital form, it’s also the vehicle for achieving spend under management.

Here are some of the key business benefits you can expect to realize when automating your purchase requisition process:

• Guides employees to spend responsibly
• Controls wasteful, unnecessary, and noncompliant business expenditure
• Prevents fraud
• Centralizes purchasing visibility and control
• Enables spend transparency and improves auditability
• Supports budget control: with budget visibility at decision points, approvers can review the impact of spend before approving, and committing to it.
• Ensures purchasing from approved vendors
• Promotes a cost-conscious spending culture by empowering all employees to be accountable for what they spend
• Provides analytics and reporting capabilities for identifying saving opportunities
• Makes it easier to consolidate purchases for greater discounts and benefits
• Reduces operational costs

Streamline the purchase requisition process with purchasing software

Effective spend management begins with a robust purchase requisition process. To drive efficiencies and savings, consider taking the first step to achieving your cost containment goals by deploying purchasing software that will replace manual inaccuracies with automated purchasing efficiency.

Start proactively managing the way your employees purchase and spend with an automated purchase requisition process.

Fraxion’s cloud purchasing software is assisting companies across diverse industries to achieve easy, mobile purchasing processes and driving 15 to 20% reductions in operational spend.

Get in touch to discuss your needs, we’d like to understand your current challenges, and show you how a proactive approach to purchasing and spend management can drive sustainable time and cost savings in your business.