Purchase requisition definition
/What is a Purchase Requisition?
A purchase requisition is a form filled out by an employee, requesting that the purchasing department obtain certain goods or services. The form includes information about the nature and amount of the items to be acquired, and when they are needed. In some organizations, the department manager must also sign the purchase requisitions being created by his staff, to indicate that they have been authorized. By doing so, a company can avoid making unnecessary purchases. The form is then sent to the purchasing department, which acquires the requested items; this is done with a purchase order, which is a legally binding document that is sent to the applicable supplier.
Purchase requisitions are not used to order raw materials for the production process. Instead, the authorization to purchase these items comes from a materials management system, which derives the amount to be purchased by comparing the production schedule to on-hand amounts to determine the net balance required. Thus, a production system needs a more automated approach than the more haphazard ordering by departments that is typically routed through a purchase requisition.
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Advantages of Purchase Requisitions
There are several advantages associated with using purchase requisitions, which are as follows:
Improves control. Purchase requisitions create a formal record of requests, making it easier to track who requested what and why, enhancing accountability.
Prevents unauthorized purchases. By requiring approval from supervisors or the purchasing department, purchase requisitions help prevent unauthorized or unnecessary purchases.
Provides documentation. A purchase requisition represents documentation for who asked for and then authorized a purchase, in case there are later squabbles about which department should be charged for a purchase.
Streamlines budget management. Requisition forms include cost estimates, enabling the finance team to monitor spending against budgets and make informed financial decisions.
Enhances inventory management. Detailed requisitions help inventory managers plan purchases accurately, reducing the risk of stockouts or overstocking.
Supports better supplier relationships. Standardized requisitions provide clear and consistent information to the purchasing department, helping them communicate more effectively with suppliers.
Facilitates audit work. Requisition records serve as an audit trail, demonstrating compliance with internal policies and regulatory requirements during financial audits.
Overall, purchase requisitions help organizations maintain control over spending, improve efficiency, and ensure compliance with procurement policies.
Disadvantages of Purchase Requisitions
Purchase orders can be considered a non-value-added activity. As such, they impose an administrative burden on a business. In particular, they slow down the purchasing process, which can be a concern when purchases need to be made as soon as possible. Ideally, their use can be concentrated on more expensive purchases, with lesser items being acquired with corporate purchasing cards.