Within organizations, there’s always a need for goods and services. But if every employee is allowed to contact suppliers directly whenever they need something, that could lead to fraud and overspending.
This is one of the main reasons top companies use purchase requisitions. They can ensure transparency, and they can be used as a tool to control costs within the organization.
There are other benefits to purchase requisitions, as well. In this article, we mention a few, along with some disadvantages organizations might encounter. Here we go:
Benefits of purchase requisitions
1. They can be used as a tool that controls costs
Not every employee should be allowed to request goods/services directly from suppliers because they might not care as much about the costs. Or they could request goods that are already in the company’s inventory. In the end, this can lead to overspending.
For example, a department might need pens. Instead of allowing the Department Manager to contact suppliers directly, the request should be forwarded to the Purchasing Manager first, who can further assess whether the request is justified (if the inventory is actually running low on pens) and place the order with one of the approved suppliers.
Purchasing higher volumes - thus consolidating demand - is also more beneficial to organizations as they can get better prices. So, for example, instead of allowing each department to buy pens, it’s more cost-effective if the Procurement Department places an order for a year’s supply.
2. They keep the procurement process centralized
When all purchases are made through purchase requisitions that are approved by the Procurement Department, the whole process becomes a lot more manageable.
The organization gains more buying power. This allows it to negotiate greater discounts and more favorable conditions, not only cost-related but also time-related, for example (better payment terms).
Centralization also speeds up procurement as duplication of staff efforts is eliminated, and improves supplier relationships. This really boosts a company’s efficiency, and the use of automation can improve efficiency even further.
3. They prevent fraud
One of the most important advantages of purchasing requisitions is fraud prevention.
Another reason not all employees should be allowed to contact suppliers is that they could have previous agreements with them that are detrimental to the company.
Instead, they should forward a formal document to the Procurement Department (or whoever is in charge of acquisitions within the company) where they describe what they need and why they need it. The Procurement Department can evaluate their request and either approve or dismiss it.
For example, the Marketing Department might need new software. Instead of allowing the Marketing Director to place the order directly, he should communicate his request (together with all the necessary details) to the Procurement Department.
The Procurement Department can verify whether the request is justified and then place the order. But it’s essential that the initial request is made through a written document in a specialized platform, and not word-of-mouth or even email.
A formal request is not only useful within an organization. A purchase requisition can also serve as legal documentation during audits because they oversee the process requisition workflow.
Common objections against the use of purchase requisitions
1. Purchase requisitions delay the procurement process
Some organizations skip purchase requisitions and purchase orders because they think paper will slow them down.
For small companies that don’t make lots of purchases and have only one person in charge, not following a purchasing process can work. In fact, hiring specialized staff and using dedicated software might not be cost-effective.
However, for larger companies, formal requests are the only way they can ensure transparency and control costs.
Now, if you use a cloud-based solution like Prokuria, there's no paperwork involved in the first place. Your procurement workflows are streamlined, the communication with suppliers is straightforward, and all your RFPs are kept together. So there’s no reason for you not to use purchase requisitions.
2. Purchase requisitions add complexity
For large companies that are geographically diverse, having all purchases go through a single Procurement Department can get too complex to manage. This can lead to very long delays. Not to mention, they might not be aware of local offers.
In this case, the procurement process should be re-considered to suit organizational needs. Two possible solutions are:
to only send requests to the Procurement Department when the budget exceeds a certain threshold;
to set up a procurement department for each subsidiary (or at regional level); this can help reduce the complexity.
Another aspect that can add complexity is the platform itself - some procurement solutions are really hard to use, so it’s understandable that procurement executives would want to avoid using them as much as possible.
We can’t speak for all platforms out there, but Prokuria’s interface is very intuitive, which makes it easy to use without training. With just a few clicks, users can create purchase requisitions and can monitor their status in real-time.
Take purchase requisitions to the next level with Prokuria
Businesses cannot be grown using manual processes. This is where e-procurement steps in.
Procurement automation software enables organizations to accelerate processes, automate approval routing, and generate timely reports tailored to the requisition management process.
Are you ready to automate your procurement process with Prokuria? Try the FREE demo now and see how easy it is to manage purchase requisitions.