Many people do not understand the term purchase requisition properly & some people think that purchase order and purchase requisition are the same!
Yes, they do have similarities & that is why people get confused but they are different. Therefore, in this blog, we will explore what is purchase requisition and how they are crucial in your business! Let us begin!
What Is a Purchase Requisition?
A purchase requisition is also known as a purchase order request in which the procurement process of an asset is initiated.
It is a request form to send to the management informed about the requirement of goods and services. In how much quantity, vendor list, and associated expenses are also mentioned in this request.
This form informs the managers and the purchase requisition team and finance department as well.
According to Statista,
“The procurement software application market will bring in an estimated 5.59 billion U.S. dollars in total revenue in 2020. The market is projected to experience a slow but steady expansion in the coming years, with a constant annual growth rate of 2.6 percent.”
As per the above data, it is very clear that people still do not understand how important it is for an organization.
What Are the Cons of Manual Requisition Management?
Manual requisition management utilizes spreadsheets it is usable and flexible until the size of the organization is small.
Spreadsheets do not work efficiently for mid and big size organizations because there are too many people accessing the same sheets and they keeping changing as per their information.
Thus, manual requisition management does not provide accurate information always, it is time-consuming and prone to error as well.
What Are the Steps Involved in a Purchase Requisition Management Process?
In every company, these steps may follow a little differently but overall, they are similar.
So, here are 3 major steps involved in the purchase requisition management process that we have discussed below:
1. Filling Purchase Requisition Form
When an employee finds out that he needs some particular goods or service which is currently not available. Then he fills in the purchase requisition form putting what is the exact requirement and other than this it is also mentioned in how much quantity.
2. Manager Approval
After filling up the form, the form is sent to the manager for ensuring that the requirement is valid and not exceeding the limit in terms of number.
Managers also check if the form is filled correctly and completed as well. If it is not filled correctly, the manager sends back to the employee to fill the form again.
The manager can also reject the form and reverts to the employee with the reason why the form is rejected. And if everything is in order than he approves the request and forwards it to the finance department.
3. Finance Department Reviews Form
When managers forwarded the purchase requisition form to the finance and account department, they check everything.
And when everything is fine, they accept complete purchase requisition form or allot a specific amount as per the company's budget. Finally, the purchase order is generated.
Why Purchase Requisition Is Important for an Organization?
In any organization inventory, purchase goods or service are necessary to run your business efficiently.
Hence, a purchase requisition is important other important reasons are given below:
1. Preventing Fraud
If department managers are allowed to place the purchase order without keeping other department members in the loop.
Then there is a possibility of fraud. To avoid these type of scenarios other departments is also involved in the process & workflow is created.
Hence, when an employee has some job-related needs then a proper procedure is followed.
2. Vendor Management
Many organizations have preferred vendors list but if an employee asks for a new vendor or vendor that is not mentioned in the list. Then departments can object or even reject the purchase requisition form.
An employee can provide a specific reason why he has chosen this vendor! If work is good of this vendor then the organization can add this vendor into their list.
3. Lack of Approval
An authorized individual should approve a buy request after cross-checking. If the individual neglects or forgets to do so or doesn't get the valid physical administrative work, the finance or accounts office may disapprove that purchase request.
Through the purchase requisition feature, you can make effective purchase decisions & manage asset life effectively with asset management software assistance. You can also get a complete view of the purchase requisition and purchase order.
Other than this, it permits you to see the vendor details, purchase order status, track purchase order, etc.
Furthermore, you can use a purchase requisition data report to view the list and also summarize the total amount for purchase requisition. Overall, purchase requisition management is done efficiently.
When manual requisition management is done it can be prone to error, fraud can also occur. It uses spreadsheet usage which is inaccurate and not effective.
But the requisition management software not only automates the process but also eliminates the chances of fraud. Moreover, it also simplifies the process and saves the organization precious time and money.
You can easily manage purchase requests, know vendor quotes, etc. gives you complete visibility of purchase requisition. It streamlines the purchase requisition management as well.
Frequently Asked Questions (FAQs)
1. What Are the Elements in a Purchase Requisition Form?
Important fields in a purchase requisition form are the name of the requestor, goods or service required, quantity (if applicable), request date, delivery location, vendor name, department head name, the signature of the requestor.
2. Give an example of how a purchase requisition works?
Suppose an employee needs a computer so he fills the purchase requisition form describes what is the need for a laptop and why it is necessary? After that, he takes approval of the department head and submits it.
Then the purchasing department looks into the requirement and checks with the department head if it is necessary then checks with the IT department if the required laptop is available in the stock. If available then it is allotted otherwise purchase order is generated by the purchasing department to vendor.
3. What are the advantages of purchase requisition?
Purchase requisition saves from overspending as it lets the departments know what is your requirement and they cross-checking with the available stock. Therefore, it saves from unnecessary expenses.
Purchasing departments build up a relationship with the vendors which can assist the organization to get the best deal at the best price.
Moreover, if any issue occurs in devices they can change or provide any other alternative.