Purchase Requisition
A purchase requisition is an internal document used by a company to formally request the procurement of specific goods or services from an external supplier, serving as an initial step in the purchasing process and requiring management approval.
Tumisang Bogwasi
Tumisang Bogwasi
What is Purchase Requisition?
A purchase requisition is a crucial internal document used by a company to request the purchase of goods or services from an external vendor. It initiates the procurement process, detailing the specific items or services needed, their quantities, estimated costs, and the department or individual making the request. This document serves as an authorization for the purchasing department to proceed with acquiring the requested items.
Effectively managed purchase requisitions are fundamental to maintaining control over company spending, ensuring that all purchases are necessary, properly budgeted, and approved. They provide a clear audit trail, linking specific expenditures back to the originating request and the responsible department. This transparency is vital for financial accountability and preventing unauthorized or redundant purchases.
The process typically involves multiple levels of approval, depending on the value and nature of the purchase. This hierarchical review ensures that expenditures align with strategic objectives and financial constraints. Without a standardized purchase requisition system, companies risk inefficient spending, supply chain disruptions, and poor inventory management.
Definition
A purchase requisition is an internal document used by a company to formally request the procurement of specific goods or services from an external supplier, serving as an initial step in the purchasing process and requiring management approval.
Key Takeaways
- A purchase requisition is an internal document used to request the purchase of goods or services.
- It initiates the procurement process and serves as an authorization for purchasing.
- Key details include item description, quantity, estimated cost, and department.
- It facilitates spending control, audit trails, and budget adherence.
- Multiple approval levels are typically required before a purchase order is issued.
Understanding Purchase Requisition
The purchase requisition process is designed to formalize and control the acquisition of resources. It typically begins when an employee or department identifies a need for a product or service that cannot be fulfilled through existing inventory or internal resources. The requester then completes a purchase requisition form, either manually or through an electronic procurement system.
This form must contain specific details to be actionable by the purchasing department. Essential information includes a clear description of the item or service, the required quantity, the vendor (if known), the estimated cost, the date needed, and the account code or budget line item to which the purchase should be charged. It also requires the signature or electronic approval of the requester’s manager and potentially other stakeholders, depending on company policy.
Once submitted, the requisition is reviewed by designated approvers. These approvers verify the necessity, accuracy, and budget availability for the requested items. If approved, the requisition is forwarded to the procurement or purchasing department. This department then uses the information to create a formal purchase order (PO) that is sent to the vendor.
Formula
There is no direct mathematical formula associated with a purchase requisition itself, as it is a procedural document. However, its components contribute to financial calculations and budget management, such as:
Total Requisition Cost = Quantity × Estimated Unit Price
This calculation, often performed when filling out the requisition, helps estimate the total expenditure and is used in budget allocation and approval processes.
Real-World Example
Consider the IT department of a mid-sized company that needs to purchase 50 new laptops for new employees joining next quarter. The IT manager completes a purchase requisition form, specifying the exact model of laptop, the quantity (50), the estimated cost per laptop ($1,200), the total estimated cost ($60,000), the vendor they prefer to use, and the IT department’s budget code.
This requisition is then routed to the IT Director for approval. Upon the IT Director’s sign-off, it is sent to the CFO for final approval, as the expenditure exceeds a certain threshold. Once the CFO approves, the purchasing department receives the requisition and uses it to issue a formal purchase order to the selected vendor.
Importance in Business or Economics
Purchase requisitions are vital for effective financial management and operational efficiency. They ensure that all procurement activities are authorized, reducing the risk of fraud, errors, and unnecessary spending. By standardizing the request process, companies can achieve better pricing through bulk purchasing and negotiate favorable terms with suppliers.
Furthermore, requisitions provide essential data for inventory management and demand forecasting. They help track spending patterns, enabling businesses to optimize their budgets and allocate resources more effectively. A well-defined requisition process also improves communication and coordination between departments, ensuring that operational needs are met without disrupting financial controls.
In economic terms, efficient procurement processes supported by purchase requisitions can lead to lower operational costs for businesses. This cost reduction can translate into more competitive pricing for consumers or increased profitability for the company.
Types or Variations
While the core function remains the same, purchase requisitions can vary in form and complexity:
- Standard Purchase Requisition: The most common type, used for routine purchases of goods and services.
- Rush Purchase Requisition: Used for urgent needs where standard approval timelines may not be feasible, often requiring expedited review and approval.
- Blanket Purchase Requisition: Initiates a standing order for frequently purchased items over a period, with a set budget but specific quantities determined as needed.
- Service Purchase Requisition: Specifically for requesting services rather than physical goods, detailing scope of work, timelines, and deliverables.
- Electronic Purchase Requisition: Managed through procurement software, allowing for automated workflows, digital approvals, and easier tracking.
Related Terms
- Purchase Order (PO)
- Procurement
- Accounts Payable
- Budgeting
- Inventory Management
- Request for Quotation (RFQ)
Sources and Further Reading
- SAP: Purchase Requisition
- Unicamp Purchasing Manual (Example of comprehensive internal policy)
- Australian Competition & Consumer Commission: Purchasing fact sheet
Quick Reference
Definition: Internal document to request goods/services.
Purpose: Initiate procurement, control spending, authorize purchases.
Key Elements: Item details, quantity, cost, budget code, approvals.
Process: Requester completes form -> Manager approves -> Purchasing Dept. issues PO.
Frequently Asked Questions (FAQs)
What is the difference between a purchase requisition and a purchase order?
A purchase requisition is an internal document that initiates the buying process and requests authorization for a purchase. A purchase order is an external document sent to a vendor, legally binding the company to buy the specified goods or services.
Who typically approves a purchase requisition?
Approval typically starts with the requester’s immediate manager, followed by potentially higher-level managers, department heads, or finance personnel, depending on the value and nature of the purchase, as defined by the company’s internal policies.
Can a purchase requisition be rejected?
Yes, a purchase requisition can be rejected if it does not meet company policy, if the requested items are not deemed necessary, if there are budget constraints, or if the details provided are incomplete or inaccurate.
