Purchase requisitions and purchase orders (often referred to as POs) are both part of a business’s overall procurement and purchasing processes, which establish buying policies and outline purchasing steps. Supply chain operations are dynamic and complex, so it’s important to have a good grip on every stage of the procurement process.
While procurement deals with the selection and evaluation process and negotiating payment terms for potential vendors – purchase requisitions and purchase orders deal with the process of acquiring items your business needs to operate. Purchase requisitions and purchase orders help manage costs and by standardising the process of ordering internally and externally creates a paper trail when you’re trying to audit your financial accounts. Knowing the difference between purchase requisitions and purchase orders is a good place to begin when wanting to understand the procurement process, so let us explain the difference between the two.
The difference between purchase requisitions and purchase orders
A purchase requisition is strictly an internal form. It is used to record key information about a purchase that a business needs, but the department or team member needs prior approval before making the buy. Requisitions inform managers or purchasing departments of the product requested to be purchased, and should include the following details:
- Department/Team-member making the request for a purchase
- Purchase requisition number
- Item description
- Item quantity
- Legal supplier name
- Business name making the purchase
- Purchase order number
- Item description
- Item quantity
- Mailing address for supplier fulfilling the order
- Payment terms
- Invoice address for your business
Purchase requisitions basically show what needs to be purchased for the business and also detail why they are necessary in order to obtain approval. Depending on the company and industry, requisitions may be required for certain purchases where prior approval is needed or for example if it is over an allocated set price limit.
On the other hand, a purchase order involves actual buying activities. These eventuate when management/purchasing department has approved the purchase requisition, or when there is no need for a purchasing requisition – you simply create a purchase order because no prior or necessary authorisation is needed. Once the purchasing department or personnel has a purchase order, it is sent to the supplier. A purchase order is usually created through electronic purchasing systems that can be automated. Not only does this streamline this process, but it enables easy tracking and simple electronic submissions to suppliers. Purchase orders should typically include:
To keep processes simple and keep things organised, purchase orders are usually identified using the same number as the one applied to the purchase requisition.
Vendors then use these purchase orders to fulfil orders and process payments. If the vendor has questions or concerns regarding the order, they may contact the company requesting the purchase, to sort any issues out. The order can then be shipped, after which the vendor will send an invoice to the purchaser.
While the procurement process may appear complicated initially, all of the activities involved can be broken down into simple steps. Being familiar with the way purchase requisitions and purchase orders work and the difference between the two is a good first step in gaining a broader understanding of the entire procurement process – while helping to ensure simplified, streamlined operations throughout the supply chain as a whole from the get-go.
Article by Melanie Chan in collaboration with our team of Unleashed Software inventory and business specialists. When not writing about inventory management, you can find her eating her way through Auckland.