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.
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.
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:
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 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:
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:
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.
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:
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:
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.