Posted in Financial Process Automation

Purchase Requisitions – a Definitive Guide

The Purchase Requisition process

A purchase requisition is an internal document that an employee within the business creates to procure goods and services. Note that the purchase requisition is different from the actual purchase order (PO). The requisition serves to obtain approval for the purchase from their manager or a VP before Finance actually issues a PO.

Organizations use the purchase requisition process to control the generation, approval, and tracking of purchase requests. It’s part of the overall procurement process.

This document lets purchasing managers know that the organization has decided to buy assets and secured the necessary internal approvals. The procurement department can start the process of actually acquiring the requested products or services e.g. by issuing a formal PO, paying invoices etc.

Finally, the finance department uses this process to coordinate with the accounting department and generating reports for auditing.

Why Do You Need a Purchase Requisition Process?

Procurement fraud is much more common than you might think. Poor communication between departments and lack of documentation can easily make any business susceptible to fraud.

Prevent fraud with a formal purchase requisition process.

If employees are allowed to directly place orders with suppliers without any prior authorization, there is an increased chance of swindling. Fraudsters have developed innovative ways to trick companies to extract money from them by knowing the vulnerabilities in their procurement processes.

Dishonest people or vendors use techniques like sending multiple invoices, resubmit invoices that have been paid, send duplicate invoices etc. Without proper procurement processes in place, these are more like to get through.

When your company commits to a formal purchase requisition process, employees cannot order goods directly from suppliers. There’s no way to bypass business standards – they must follow the process and request the needed goods & services.

The request then goes through an approval process which validates need, available budget, priority and vendor. This keeps a tight control over costs, ensures the company receives all applicable discounts, and procures goods at the lowest price from the most dependable vendors.

Nowadays, it’s also increasingly important to ensure that suppliers adhere to corporate standards and norms for ethical behavior and sustainability. That’s an important priority for procurement in the 21st century.

Read more: Top 5 priorities for procurement in a 21st century business

Here are a few reasons why a purchase requisition process plays an important role in procurement:

  • Ensures employees cannot bypass business standards.
  • Provides key insights into purchasing trends and greater visibility into future needs.
  • Increases the likelihood of receiving discounts on purchases.
  • Helps control excess and unwanted business expenditure.
  • Reduces fraudulent purchase orders or invoices. 
  • Serves as evidence of communication for the company as to what, when and how the assets were ordered.
  • Acts as the first step in an efficient audit trail for purchasing.
  • Helps in managing the costs and inventory.
  • Avoids duplicate or missing orders and clarifies important details.
  • Protects both purchasers and vendors.

Steps in the Purchase Requisition Process

Obviously, the forms and approval steps vary between organizations but most of the time, the basic outline is the same.

Typical purchase requisition in Excel.

The requisition form typically consists of the following information:

  • Purchaser’s department,
  • The quantity and description of goods requested,
  • The name and contact information of the vendor
  • The price for each line item along with the grand total.
  • Signatures and comments from all participants.

The workflow typically looks like this:

  • Employee requests approval to procure goods & services.
  • Optionally, a procurement manager screens the request to weed out obvious errors.
  • One or more decision-makers and stakeholders comment, approve or deny the request. At a minimum, the direct line manager approves. Often, if the amount exceeds a certain $ value, the requisition requires additional approvals.
  • The finance team is notified to ensure that they are aware and can ensure budget availability.
  • The workflow completes by forwarding the approval to the procurement team, who completes the purchase.

How Do Purchase Requisitions and Purchase Orders Differ?

People often use the terms Purchase Requisition and Purchase Order interchangeably. But, while they are related to each other, each serves a unique purpose.

Purchase requisitions and Purchase orders are both parts of the procurement process and both are related to purchasing. A purchase requisition is an authorization to generate the Purchase Order. 

On the other hand, companies issue a purchase order (PO), once the corresponding purchase requisition is approved. The PO serves as a legally binding document that the finance department sends to the supplier with a request for goods or services.

Procurement process steps

Why Automate the Purchase Requisition Process?

In today’s fast-paced business world, it’s too risky to depend solely on paper forms, emails, and excel spreadsheets without automation. Even the smallest mistake can cost the organization big losses and a bad reputation.

Read more: Digital Procurement Strategy – 9 Stats to Consider

Manual process also waste more resources and time and lead to more money being spent on procurement-related activities. The worst part is that employees must spend more time chasing down paperwork instead of the things you hired them to do in the first place. With the scarcity and importance of world-class talent, wasting precious time exposes your organization to nimbler, faster competitors.

Paper-based purchase requisition forms are inefficient.

When an organization decides to digitize purchase requisitions (and other procurement processes) and carries them out through a central system they become much easier to manage. The advantages of automation are numerous:

  • It streamlines the entire activity and thus eliminates unnecessary expenditure and fraud.
  • Good purchase requisition software helps employees plan their purchases ahead of time, makes it time efficient and reduces manual effort.
  • An electronic system also speeds the overall procurement process by reducing the inter-departmental delays. This affects the overall efficiency and transparency of the business.
  • Purchasers can also combine multiple orders and avail of special offers or negotiate more favorable terms.
  • Automated routing gives a clear indication of who the approvers are and prevents unruly spending.
  • It’s easy to automate conditional approval e.g. for purchases over a certain $ amount. Employees don’t need to remember the rules and automation also ensures that key business norms cannot be violated.
  • Modern software can also be setup to automatically approve small purchases e.g. office supplies. No need to create bureaucracy and waste people’s time.
  • A good digital procurement system can easily integrate with other financial systems so there is seamless data flow and easy reporting.
  • and more …
Automation delivers astounding ROI.

How Should You Automate?

When an organization decides to automate their purchase requisitions (or any process for that matter) it is essential to do so in a systematic manner to make the transition smooth and easy. Here are some steps to consider:

  1. Map out the process: Planning is the key to any transition. Instead of transitioning the entire system at one go it is helpful to go module by module. Start with the most cumbersome and error prone areas of the process. It is essential to understand the existing process in detail to implement the change. Chalk out the important features, constraints, fields, etc. Decide on the look and feel of the system. Decide on a timeline for implementation.
  2. Identify a software partner to implement the change: Choose automation tools that best fits your requirements. Modern visual, low-code software is now readily available for automation. It requires less technical know-how so more people (citizen developers) can use it. However, before settling on a platform, make sure it is flexible enough and customizable enough to meet real business requirements.
  3. Create digital forms: Once the planning is done and automation software acquired, the next step is to actually design the forms. Many products provide ready to use templates that can be customized. That considerably reduces the design time. Validations should also be put in at this stage – the goal is to reduce errors and data entry.
  4. Design the routing: Once again, pre-built purchase requisition templates can hugely speed up the process. Ideally, your chosen software lets you define the routing visually without any fancy programming.
  5. Setup dynamic behavior: Real business forms and workflows are dynamic. In this phase, you’d add business rules to match the business standards of the company. Routing, approving and rejection logic is put in place.
  6. Testing and fixing: Thoroughly test workflows in a staging environment. Solicit user feedback using a small test user group. Put in required changes or fixes to make the process robust. 
  7. Deploy the process: At this time, you provide access to the newly automated purchase requisition workflow to authorized persons. It’s ready for use. In the initial stages, make sure to monitor the process for data routing, approval process and storage. Address any discrepancies found as quickly as possible to avoid user frustration and abandonment.
  8. Documentation: This is an important step in which you document the actual business process and the automated process in detail. This helps preserve knowledge, serves as a handbook for newcomers and encourages continual improvements.

Read more: How Purchase Order and Purchase Requisition Templates Help Your Business Succeed

Why You Should Consider frevvo

Simple visual tools for business process automation

frevvo’s simple, visual tools are easy to use and are packed with features that make it easy to securely automate your purchase requisition. These include:

  • A drag and drop interface to create forms and workflows.
  • A Visual Rule Builder to implement business logic without coding.
  • Wizards to assist in configuration of workflow steps and form properties.
  • A responsive UI that automatically resizes for mobile devices.
  • Built-in electronic signatures.
  • PDF generation.
  • Integration with your SQL database, file system, SharePoint etc.
  • Secure integration with Active Directory, SAML, other LDAP systems for single sign on.
  • and more …

Read more: 12 Essential Features Your Workflow Management System Needs

Finally, frevvo comes with numerous pre-built procurement process templates to help you get started quickly. See how easily we can help you digitize your purchase requisitions, purchase orders, sales orders and other everyday workflows.

Automate your procurement processes easily.

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