When it comes to procurement processes, understanding the distinction between a purchase requisition vs purchase order is crucial. For businesses, managing these two documents effectively is key to ensuring smooth operations, accurate budgeting, and timely procurement. However, many people often confuse the two, even though they serve very different purposes in the supply chain process. This confusion can lead to unnecessary delays and administrative headaches. To avoid these pitfalls, it’s important to understand their unique roles in procurement and how they fit into processes like the change request process, which often involves adjusting purchase orders and requisitions.
In this blog, we’ll break down what a purchase requisition vs purchase order really means, the key differences between the two, and how each impacts the broader procurement and business processes. By the end, you’ll have a clear understanding of how they should be managed to maintain efficiency and avoid costly errors. Let’s dive in!
What is a Purchase Requisition?
A purchase requisition is an internal document used within an organization to request the purchase of goods or services. Essentially, it’s the first step in the procurement process, initiated by a department or team that identifies the need for a particular item or service. This request is then submitted to the purchasing or procurement team for review and approval.
Key characteristics of a purchase requisition include:
- Internal Document: Unlike a purchase order, a requisition is not sent to suppliers or vendors.
- Approval Process: Before any purchases are made, the requisition must be approved by relevant decision-makers, which could include supervisors, department heads, or financial officers.
- Purpose: The goal is to ensure that there is a formal request for procurement and that the purchase aligns with the company’s budget and needs.
In many businesses, a change request process might be used to modify a requisition, especially if new needs arise or the scope of the original request changes. The change request process allows teams to track and approve alterations to the original requisition to prevent errors or overspending. This process ensures that purchases remain in line with the company’s financial strategy.
What is a Purchase Order?
A purchase order (PO), on the other hand, is a formal document that is sent to a vendor or supplier to initiate the purchase of goods or services. Once a purchase requisition has been approved and the need is confirmed, the purchasing department creates and issues a purchase order. This document details the specific goods or services being purchased, including quantities, prices, and delivery terms.
The key differences between a purchase order and a purchase requisition are:
- External Document: Unlike a requisition, a purchase order is sent to the supplier, serving as an official request to fulfill the order.
- Legally Binding: Once accepted by the supplier, the purchase order becomes a legally binding contract. This means both the buyer and the seller are obligated to meet the terms outlined in the PO.
- Contains Specific Details: A purchase order includes details like item descriptions, quantities, prices, delivery schedules, and terms of payment.
Purchase orders play a critical role in procurement as they set clear expectations for both the company and the supplier. However, if there is a need to change the terms of a purchase order—perhaps due to incorrect quantities or pricing—an organization may go through the change request process. This ensures that any changes are properly documented, reviewed, and approved before being finalized with the supplier.
Key Differences Between Purchase Requisition and Purchase Order
While both documents are integral to the procurement process, they serve very different purposes. Below are some of the major differences between purchase requisition vs purchase order:
- Purpose:
- A purchase requisition is used to request approval for a purchase internally.
- A purchase order is used to place a formal order with a supplier once internal approval has been obtained.
- A purchase requisition is used to request approval for a purchase internally.
- Audience:
- A purchase requisition is typically reviewed and approved by internal stakeholders such as managers or department heads.
- A purchase order is sent externally to the supplier to fulfill the order.
- A purchase requisition is typically reviewed and approved by internal stakeholders such as managers or department heads.
- Binding Nature:
- A purchase requisition is not a binding contract and only serves to request approval.
- A purchase order is a legally binding agreement between the buyer and the supplier once accepted.
- A purchase requisition is not a binding contract and only serves to request approval.
- Process Flow:
- The requisition process is an internal, administrative step that ensures that purchases are approved before moving forward.
- The purchase order process involves finalizing the order with a supplier and confirming all details of the transaction.
- The requisition process is an internal, administrative step that ensures that purchases are approved before moving forward.
- Level of Detail:
- A purchase requisition generally contains minimal information—typically just the items needed, quantity, and reason for purchase.
- A purchase order is much more detailed, outlining specifications, quantities, agreed prices, and delivery schedules.
- A purchase requisition generally contains minimal information—typically just the items needed, quantity, and reason for purchase.
How a Change Request Process Relates to Both Documents
As mentioned earlier, the change request process is a critical component in ensuring that any modifications to both purchase requisitions and purchase orders are handled properly. For example, if a company’s procurement needs change after a requisition has been submitted—perhaps due to a budget shift or a new project requirement—a change request may be needed to modify the original requisition before moving forward with a purchase order.
Similarly, once a purchase order has been placed with a supplier, any changes—such as adjusting quantities, negotiating a different price, or changing delivery dates—would require a formal change request process. This step ensures that both the purchasing department and the supplier agree to the modifications before the order is finalized.
Conclusion: Why Understanding the Difference Matters
In summary, understanding the difference between purchase requisition vs purchase order is crucial for businesses aiming to streamline their procurement processes. A purchase requisition is an internal document that requests approval for a purchase, while a purchase order is a formal external document sent to suppliers to finalize the purchase. Both are essential to ensuring smooth operations, but they must be carefully managed to avoid mistakes and inefficiencies.
Additionally, integrating processes like the change request process into your workflow can help ensure that any necessary modifications to requisitions or orders are handled smoothly, keeping the procurement process on track.
By distinguishing between these two documents and understanding how they fit into your broader workflow, you can improve your company’s procurement efficiency, reduce errors, and ensure that purchases are in line with budgetary constraints and operational needs. This understanding will also empower your team to make better, more informed decisions when it comes to purchasing and managing resources for your business.
