Purchase requisitions systems, what’s the true cost of ordering goods?

A purchase requisition is typically a standardized business process that supports the procurement of goods and services. Requisitions usually come in two main flavors, one that supports routine purchases for noncomplex items and one more formal process that support material Purchase Orders for complex inventory items or capital expenditure. This latter process would offer a more complex route often requiring greater transaction detail (Inventory system recognized part number for example coupled with more formal approval routings and supplier selection.)

With most firms operating a form of MRP system, formal Purchase Orders for inventory items are usually tightly controlled. While this offers tight levels of control for usually significant areas of spend, for run of the mill items like printing paper, pens this is often not appropriate.

In these instances, many businesses implement a Purchasing requisition system (from a simple form up to a workflow system) deployed to provide a level of control whilst ideally not hindering the procurement of these run of the mill items. However what many businesses fail to grasp is the overhead cost of running this process including the administration of the approvals/processing system vs the risk of inappropriate spend. Coupled with this there is often delays associated with the processing of a manual approval system.

How simple purchase requisition systems work

Requisition systems exist to provide a flow of communication to the purchasing team. There are a variety of ways this information could be transmitted but a form based method provides a record of the requirement and a record of the approval to purchase. The requisition also allows for goods to be checked on arrival (i.e. to ascertain that what was wanted has been delivered.). Outside of a typical MRP based purchasing process, requisitions are often used for service based purchases.

Whilst depending on which guide you read the true cost of procurement (raising a requisition, processing the approval and then processing the PO) varies it’s widely agreed that this can add up to a considerable sum (nextlevelpurchasing states it can be upto $200).

Systems like procurement cards or P2P try to address this issue by enabling users to procure goods and services up to a value where the workflow element is done simply and usually after the procurement has taken place.

Purchasing requisition systems are often tightly controlled as they provide a route to spend company money. Authorisation routes often vary based on the proposed spend of the budget/project being charged. Typically a spend of $10,000 would require greater sign off than a spend of $50.

Businesses, however, looking to streamline and reduce costs should review the cost of control and obtaining the data in the first place and assess the point where the benefits are outweighed by the cost. This pinch point is usually the place where an alternative procurement process should be used.

Using these simpler systems can help businesses generate significant savings, both in administration and also in data. Processes utilizing pcards or P2P can generate significant and detailed spend data (often far outstripping that obtained through conventional methods) and can offer further benefits such as:

* Reduced payment processing cost
* Use of extended payment terms to improve working capital

For many though access to the data can help transform their procurement team through advanced spend analytics and granularity.

However, a word of caution. There are many P2P platforms out there offering a variety of benefits. Be sure to roadtest a few and pick the one that’s right for the nuances of your business. Talk to the suppliers, talk to users of those systems weigh up the pros and cons. Don’t just rush into making a decision, remember you’re looking to optimise.

So how does your company manage their purchasing and requisitions process? Got some best practice you’d like to share? We’d love your feedback in the comments section below.