Purchase Requisition

What is a purchase requisition?

By definition, a purchase requisition is an internal document that allows departments or individual employees to request the purchase of goods or services.

Also referred to as procurement requisition, it is often the first step in any procurement cycle, requiring employees to submit a formal request – typically through a detailed purchase requisition form. This could be for a new software subscription, IT hardware, or even external support.

This purchase request then triggers the procurement process, initiating the steps required for approval, sourcing, and purchasing the necessary product or service.

What is a purchase requisition form?

A purchase requisition form is the actual document that is submitted by an employee or department to formally request a new purchase. It provides the specific details required by the company to make an informed decision as to whether the purchase aligns with budget constraints and procurement policies.  

This should include details such as:

• The requestor’s name, department, and the date of the request.
• A description of the product or service being requested, and if applicable, the quantity needed.
• A clear explanation of why the product or service is needed and how it will be used within the organization.
• Supplier preference (if any). If the employee does request a specific supplier, they should mention any previous experience they have with them.
• For software requests, the purchase requisition form submission should state the number of licenses or user seats that are needed, along with the required plan type.
• The estimated total cost of the product or service, including any potential recurring fees.
• The desired date or timeframe by which the product or service is needed.

The role of a purchase requisition in the procurement process

A purchase requisition is the first step in the procurement process, initiating and formalizing the request for goods or services required across the organization. It ultimately triggers the approval process, ensuring that all purchases are justified, documented, and properly authorized.

Here’s a specific breakdown of its key roles:

• Request initiation – This allows employees or departments to make a formal purchase request, ensuring that all purchases are centralized and aligned with the organization’s procurement policies and procedures.
• Control and accountability – This purchase requisition form submission is documented, ensuring accountability and transparency throughout the procurement process, while further providing a clear audit trail.
• Approvals – The request is then entered into an approval workflow, ensuring that the right people are reviewing and approving the request at the right time. While the exact approval process is dependent on what is being requested and its value, the procurement approval process will typically ensure that the purchase is justifiable, within budget, and compliant with organizational policies.

See how one company achieved 30% faster approval workflows by automating their procurement process.

• Budget compliance – During the approval process, the necessary approvers – typically someone within the finance department – can ensure that the requested purchase is within the allocated budget. If the purchase exceeds the department’s budget, the request may either be denied, or require additional approval from a more senior stakeholder with the authority to reallocate funds or adjust the department’s budget.
• Procurement strategy – Once approved, the purchase requisition triggers the next steps in the procurement process, such as supplier evaluation and contract negotiation.

How to enforce the purchase requisition process within your organization

Centralized procurement ultimately relies on the cooperation of all stakeholders across the business. The problem, however, is that securing buy-in from those that have previously had the autonomy to make their own purchasing decisions can be incredibly challenging.

To help mitigate this issue, we’ve outlined several strategies and recommendations for ensuring that the purchase requisition process is adhered to across your organization:

1. Establish clear policies and procedures

To ensure that your procurement processes are being adhered to, it’s crucial that you’re clearly outlining the steps involved, including who can initiate purchase requests, who approves them, and the information that is required. It’s important that every employee across the organization understands this process.

It’s also important to set thresholds regarding purchase limits, for example clarifying that purchase requests over a certain value may require additional approvals, while making it abundantly clear why it’s so important to follow the requisition process.

This could involve explaining how a centralized procurement process:

• Prevents overspending
• Ensures compliance
• Speeds up access to the goods or services required
• Reduces the administrative burden on employees

2. Use technology to streamline the process

Relying on a manual approach to purchase requisition can result in a number of problems, including slow approval processes, missing information, limited control and compliance, as well as oversights that can lead to unauthorized purchases.

By investing in procurement software that not only automates the requisition process, but integrates approval workflows and provides real-time tracking, you can ensure that all purchasing requests go through the same standardized steps and are properly documented.

A platform of this kind will also enable you to set automatic alerts for pending approvals, rerouting the request in the event that an approver is unavailable.

See how one company accelerated their procurement cycles by 55% by automating approvals.

3. Set up approval hierarchies and controls

Approval hierarchies and controls for procurement requisition can help to ensure that the process is both efficient and compliant. For this to work though, organizations should clearly establish the following:

• Levels of authorization – Procurement leads should clearly define the multiple levels of approval based on the financial value or nature of the purchase. As an example, low-value, tactical purchases may only require approval from the head of department, whereas high-value purchases may need approval from executives or someone in finance.
• Role-based approvals – Different teams or individuals within the organization may be responsible for approving certain types of requisitions. Finance, for example, may need to review all requests to ensure budget compliance, whereas IT may be required to sign off on all technology-related purchases to ensure they comply with the organization's security protocols and that the supplier complies with relevant data protection laws and regulations.
• Delegation and substitution – To prevent delays in the procurement process, it’s important that you’re enabling approvals to be delegated in the event that the original approver is unavailable. ‍
• Set up notifications and alerts – Another benefit of using purchase requisition software is that it allows you to set up automatic notifications and alerts to remind approvers when a requisition is pending or awaiting their approval.‍

4. Regularly audit and monitor the process

While regular audits are essential for identifying inefficiencies, ensuring adherence to policies, and mitigating risks such as fraud or unauthorized spending, allowing open channels for feedback can also ensure that the process is continually being monitored and improved.

When employees feel their concerns are being addressed, they’ll typically be more inclined to support the process.

‍5. Provide training and communication

One of the biggest challenges that procurement leaders face when enforcing a purchase requisition process is pushback from employees, particularly those that have previously had the authority to make their own purchasing decisions. It is therefore crucial that this is being addressed as part of a wider change management initiative.

While a key step is to ensure they fully understand their roles and the systems in place, it’s also important to clearly communicate the purpose so that they understand the rationale behind it. Organizing regular training sessions for the relevant stakeholders can also help to foster buy-in, as can an effective communication strategy, accessible documentation, and positive reinforcement for those following the process.

The implications of not adopting a purchase requisition process

A purchase requisition system helps to control organizational spending, ensure proper approvals, and maintain transparency in procurement activities. Which means that without it, a company is exposed to a number of risks ranging from financial losses and compliance issues, right through to weakened supplier or vendor relationships.

Here’s a breakdown of some of the specific implications that can arise from failing to formalize purchase requisitions:

Lack of control over spending

When companies fail to establish a formal purchase requisition process, employees are increasingly likely to make unauthorized purchases. One of the biggest issues with this is that it often comes at a huge cost to the business.

Without purchase requisition approval, the chances of duplicate and/or redundant purchases being made also increases, with employees unknowingly purchasing the same – or similar – goods or services that are being used elsewhere within the organization.

This is particularly prevalent in SaaS and is just one of the factors contributing to the huge volumes of wasted software spend.

According to our own data, companies with 100 to 399 employees are wasting $500K every year. This rises to $1.3 million for companies with a headcount of between 400 and 749 employees, and as much as $4.5 million for enterprises with more than 2,000.

To access more exclusive insights like this, visit our spend insights hub.

Compliance risks

Beyond the financial implications, the lack of a purchase requisition system can also put your organization at risk of compliance issues and data breaches.

Some of the specific risks your organization could be exposed to include:

• Legal and financial penalties – One of the advantages of having a formalized process is that it can help to comply with regulatory requirements, for example government regulations and even tax compliance. Bypassing this process could potentially lead to non-compliance and subsequently expose the company to legal and financial penalties.
• Fraud – Without a clear, auditable process for approving purchases, there is an increased risk of fraudulent transactions, where individuals may make purchases for personal gain. While this isn’t a common occurrence, lack of oversight can mean that such activities can go unnoticed for an extended period of time.
• Contractual obligations – Bypassing purchase approvals not only risks leaving organizations tied into unfavorable contract terms, but it can also unknowingly lead to a breach of contract. As an example, an organization may not be aware of the minimum or maximum order quantities specified within a contract, or the supplier’s payment terms.

Weakened supplier relationships

Without requisition approval, a number of issues may arise that negatively impact supplier relationships. These can include:

• Unclear scope of service – When software vendors aren’t aware of the specific features, user limits or integration capabilities required by the organization, it can lead to confusion, dissatisfaction, and even contract renegotiation, all of which can put a strain on supplier relationships.‍
• Payment delays and billing issues – Without clear documentation and approval channels, payment can be delayed, leading to potential service interruptions, late fees, or even penalties for non-payment. Vendors may become frustrated by inconsistent payments and may choose to terminate the contract or withhold services.

Automate your procurement process with Vertice

As a procurement orchestration platform, Vertice can help you streamline the entire procurement process, from the initial purchase requisition stage right through to renewal management.

Through the platform, you can specifically benefit from:

• A granular view of all requests, tasks and approvals in a single location.
• A visual no-code builder for easy workflow configuration and customization.
• Frictionless intake forms that ensure complete data collection.
• Automated stakeholder accountability through detailed approval tasks and alerts.
• Integrations into existing request systems such as Slack and Jira.

With over 20 steps in the average approval workflow and more than 1,500 hours wasted every year, automated procurement software is crucial for not only simplifying the process, but also increasing efficiency and reducing human error.

See how one company reduced their time to purchase by 40%, while achieving a 500% return on investment by partnering with Vertice.

Alternatively, learn more about how Vertice’s Intelligent Workflows tool can support you in reducing your procurement bottlenecks, while speeding up your current approval processes by taking a self-guided tour of the platform.