What Is the Role of a Purchase Requisition in Asset Management?

Many people do not understand the term purchase requisition properly, and some think that purchase orders and purchase requisitions are the same! Yes, they do have similarities, which is why people get confused, but they are different. Therefore, in this blog, we will explore what purchase requisitions are and how they are crucial for your business! Let us begin!

What Is a Purchase Requisition?

A purchase requisition, also known as a purchase order request, initiates the procurement process for an asset. It is a request form sent to management to inform them about the need for goods and services, specifying quantities, vendor lists, and associated expenses. This form notifies managers, the purchase requisition team, and the finance department.

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." This data highlights the critical role of procurement software in organizations.

What Are the Cons of Manual Requisition Management?

Manual requisition management often relies on spreadsheets, which are usable and flexible for small organizations. However, spreadsheets become inefficient for mid-size and large organizations due to multiple people accessing and altering the same sheets. Consequently, manual requisition management can be time-consuming, error-prone, and inaccurate.

What Are the Steps Involved in a Purchase Requisition Management Process?

Every company may have slight variations, but the overall steps are similar. Here are the three major steps involved in the purchase requisition management process:

1. Filling Purchase Requisition Form

‍When an employee identifies a need for specific goods or services currently unavailable, they fill out the purchase requisition form, detailing the exact requirement and quantity needed.

2. Manager Approval

‍After completing the form, it is sent to the manager for validation. The manager ensures the requirement is valid and within limits. If the form is incomplete or incorrect, it is returned for revision. The manager may also reject the form, providing reasons for rejection. Once approved, the form is forwarded to the finance department.

3. Finance Department Reviews Form

‍The finance and accounts department reviews the forwarded purchase requisition form. If everything is in order, they approve the form or allocate a specific amount as per the company's budget, leading to the generation of a purchase order.

Why Purchase Requisition Is Important for an Organization?

In any organization, managing inventory, purchasing goods, or services is essential for smooth operations. Hence, a purchase requisition is crucial for several reasons:

Preventing Fraud

‍Without a proper process, department managers could place purchase orders without oversight, increasing the risk of fraud. A structured workflow involving multiple departments mitigates this risk.

Vendor Management

‍Organizations often have a preferred vendor list. If an employee requests a new or unlisted vendor, the departments can review and possibly reject the requisition. Valid reasons for new vendors can lead to their addition to the preferred list.

Lack of Approval

‍Authorized individuals must approve purchase requests to avoid disapproval by the finance department due to missing administrative work. Proper purchase requisition procedures ensure thorough cross-checking and approval.

Through procurement software, purchase requisitions and purchase orders are managed effectively, providing visibility into vendor details, purchase order status, and tracking. Reports summarizing purchase requisitions help in financial planning.

Conclusion

Manual requisition management is prone to errors and fraud and relies on inaccurate spreadsheets. In contrast, requisition management software automates processes, eliminating fraud, simplifying workflows, and saving time and money. It offers complete visibility of purchase requisitions, vendor quotes, and more, streamlining the entire management process.

Frequently Asked Questions (FAQs)

What Are the Elements in a Purchase Requisition Form?

‍Important fields include the requestor's name, required goods or services, quantity, request date, delivery location, vendor name, department head name, and the requestor's signature.

Give an example of how a purchase requisition works?

‍If an employee needs a computer, they fill out the purchase requisition form, describing the need and its necessity. After department head approval, the purchasing department checks the requirement. If the required item is not in stock, a purchase order is generated for the vendor.

What are the advantages of purchase requisition?

‍Purchase requisitions prevent overspending by cross-checking with available stock, fostering vendor relationships for the best deals, and ensuring alternative solutions if issues arise.