Supply chains are a fundamental tool for any inventory business. However, supply chains are a very involved and sometimes complex process. It’s vital to understand how the procurement process works and making sure you understand what different parts of the process mean. Two key parts of the procurement process are the purchase order and purchase requisition.
These play a role in helping a company acquire, buy and set out purchasing steps when they are looking at the ordering cost of new materials and inventory. The procurement team manages all purchases and ensures they are aligned to the business needs including budget and compliance measures. They also try to optimise for the best ordering cost through negotiations and making sure every party is satisfied with the payment terms.
Let’s take a closer look at how purchase orders and purchase requisitions help companies manage budgets, decide on an appropriate ordering cost, and keep transparency throughout the whole process.
A purchase requisition is a type of document that lists the merchandise needed by a specific department. This document allows purchases to be requested. In the purchasing process, it takes place when a department states they need a certain item. The purchase requisition lists the items and quantity desired and it goes to the purchasing department. Then the purchasing department derives a purchase order to be sent to the vendor.
A purchase order is a document that’s used to pay for a product or service. It’s used in place of cash and sets a contractual date for payment to be made later down the track.
A purchase order can be useful for keeping track of items you’ve bought. Let’s say you ordered 150 surfboards, and only 120 arrive. You can get in touch with the supplier to see where they ended up since you’re missing 30 surfboards. A purchase order also helps you track pricing and buying history.
What are the main differences between a purchase requisition and a purchase order?
- Purchase requisitions are a request for a purchase and a purchase order is a confirmation that an order for a good or service has been placed.
- Purchase requisitions are created by employees. Purchase orders are completed by your company’s purchasing department or managerial staff.
- Purchase requisitions are processed after an employee notes that an inventory item is running low. They place the requisition when there is demand for this item. A purchase order is sent through when an order needs to be processed for specific goods or services.
- An external vendor receives the purchase order, whereas the company purchasing department gets the purchase requisition from employees.
- The purchase requisition is an internal document that sits within the company and the purchase order is an external document that goes to a vendor.
Purchase orders and purchase requisitions play an important role in keeping items stocked and replenished throughout the business. With streamlined measures around these processes, businesses will stay on top of what they need.
Article by Melanie Chan in collaboration with our team of Unleashed Software inventory and business specialists. Melanie has been writing about inventory management for the past three years. When not writing about inventory management, you can find her eating her way through Auckland.