What Is a Purchase Requisition?

Introduction

In the world of business, there are many processes and procedures that are essential for the smooth operation of a company. One such process is the purchase requisition. In this article, we will explore what a purchase requisition is, its purpose, and why it is important for businesses. We will also discuss who creates purchase requisitions, the difference between a purchase requisition and a purchase order, and how a purchase requisition relates to other business processes.

What is a Purchase Requisition?

A purchase requisition is a formal request made by an employee or department within a company to the purchasing department to acquire goods or services. It is a document that outlines the details of the requested purchase, such as the item or service needed, quantity, estimated cost, and delivery date. The purchasing department then reviews the request and decides whether to approve or reject it.

The Purpose of a Purchase Requisition

The primary purpose of a purchase requisition is to ensure that all purchases made by a company are necessary, authorized, and within budget. It also helps to streamline the purchasing process and maintain control over company spending. By having a formal request process in place, companies can avoid unnecessary or unauthorized purchases, prevent overspending, and maintain accurate records of all purchases.

Why is a Purchase Requisition Important?

A purchase requisition is an essential document for businesses for several reasons. Firstly, it helps to maintain control over company spending and prevents overspending. By having a formal request process in place, companies can ensure that all purchases are necessary and within budget. This helps to prevent financial strain and maintain a healthy cash flow.

Secondly, a purchase requisition helps to maintain accurate records of all purchases made by a company. This is important for accounting and auditing purposes, as well as for tracking expenses and budgeting for future purchases.

Lastly, a purchase requisition promotes accountability within a company. By having a formal request process, employees are required to justify their purchases and provide a valid reason for the request. This helps to prevent unnecessary or unauthorized purchases and promotes responsible spending within the company.

Who Creates Purchase Requisitions?

Purchase requisitions are typically created by employees or departments within a company who require goods or services. This can include anyone from a sales representative who needs marketing materials for a client presentation to an IT department requesting new software for the company.

In most cases, the employee or department creating the purchase requisition will have a budget allocated to them for their specific needs. This budget is usually set by the company's finance department and is based on the company's overall budget and financial goals.

The Difference Between a Purchase Requisition and a Purchase Order

While a purchase requisition and a purchase order may seem similar, there are some key differences between the two. A purchase requisition is a formal request for goods or services, while a purchase order is a legally binding document that authorizes the purchase of those goods or services.

A purchase requisition is created before a purchase order and is used to initiate the purchasing process. It outlines the details of the requested purchase and is sent to the purchasing department for review and approval. Once the purchase requisition is approved, a purchase order is created and sent to the supplier to authorize the purchase.

Another key difference between a purchase requisition and a purchase order is that a purchase requisition is an internal document, while a purchase order is an external document. A purchase requisition is used within a company to request goods or services, while a purchase order is sent to a supplier to authorize the purchase.

How Does a Purchase Requisition Relate to Other Business Processes?

A purchase requisition is just one part of the larger procurement process within a company. It is closely related to other business processes, such as budgeting, inventory management, and accounting.

Budgeting

As mentioned earlier, a purchase requisition is created based on the budget allocated to a specific department or employee. This means that the purchase requisition process is closely tied to the budgeting process within a company. By having a formal request process in place, companies can ensure that all purchases are within budget and prevent overspending.

Inventory Management

A purchase requisition is closely tied to inventory management within a company. When a purchase requisition is approved and transformed into a purchase order, the ordered goods or services are received and subsequently integrated into the company's inventory.

Maintaining optimal inventory levels is crucial for ensuring that the company has the necessary items in stock to meet demand without overstocking, which can tie up capital and increase storage costs.

Conversely, inadequate inventory levels can result in stockouts, where the company runs out of essential items, leading to disruptions in operations, potential loss of sales, and damage to customer relationships. Overstocking, or holding excessive inventory levels, can lead to various issues such as increased carrying costs, risk of obsolescence, and reduced cash flow.

Therefore, purchase requisitions play a significant role in managing inventory levels effectively, ensuring that stock levels align with demand forecasts and operational requirements while minimizing the risk of overstocking and stockouts.

Accounting

Lastly, a purchase requisition is related to the accounting process within a company. When a purchase requisition is approved and becomes a purchase order, it is recorded as an expense in the company's accounting records. This helps to maintain accurate financial records and track expenses for budgeting and auditing purposes.

Best Practices for Creating a Purchase Requisition

To ensure that your purchase requisition process runs smoothly, here are some best practices to keep in mind:

• Clearly define the purpose of the purchase and provide all necessary details, such as item or service description, quantity, estimated cost, and delivery date.
• Provide a valid reason for the purchase and explain how it will benefit the company.
• Follow the company's budget guidelines and ensure that the purchase is within budget.
• Use a standardized purchase requisition form to ensure consistency and accuracy.
• Obtain all necessary approvals before submitting the purchase requisition to the purchasing department.
• Keep track of all purchase requisitions and their status to ensure timely processing.

Purchase Requisition Table in SAP

SAP is a popular enterprise resource planning (ERP) software used by many companies for various business processes, including procurement. In SAP, there is a specific table for purchase requisitions, called the "Purchase Requisition Table" or "EBAN" table.

This table contains all the information related to purchase requisitions, such as the requisition number, item number, material number, quantity, and delivery date. It also includes information on the status of the purchase requisition, such as whether it has been approved or rejected.

Conclusion

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