Purchase requisitions are internal documents used to request authorization from the purchasing department to buy certain materials in the needed quantities within a specified time. A purchase order will usually be created after the purchasing department approves the requisition. Different materials, services and capital equipment might have a different methods for generating purchase requisitions.
Raw material and semi-finished goods in a material requirements planning (MRP) environment will have a requisition generated as a planned order that will be reviewed by the planner or planner/buyer. Based on company policy, this might be the only authorization needed to proceed to order the materials.
For materials, services, and capital equipment that are not planned using MRP, the person or department who is the user will generate the requisition. This process could be a manual paper-based system or an electronic process. An example of the type of information required is in the image.Enter your text here...
Company policy is needed to communicate the approval levels needed as part of the requisition process.
Some materials MRO items and services under a certain threshold can be purchased by the user with a P-Card, a form of company charge card that allows goods and services to be procured without using a purchase order, designated for this type of activity. In those instances, many steps in the purchasing cycle can be averted and elevating concern for maverick spending, Policies and procedures must be in place and adhered to in these instances.
Some services, depending on complexity, time, and value might require a statement of work (SOW) either to initiate the process or at the least, as part of the agreement to the supplier or contractor.
Capital expenditures have more robust requirements, and approvals might include consideration of the capital budgeting process.
When a requisition is generated, the specification is required to ensure the correct material or service is being considered. As stated above, in some cases for services a SOW is needed.
There are three categories of specifications: requirements for quantity, price, and function. Quantity requirements and price requirements include understanding the economies of scale and economic value the company will pay. The functional requirements are not as straightforward and deserve more attention. The function a part is expected to perform must be determined and can impact the price and quantity requirements.
The functional specification can be categorized in four areas that include:
More information on each of these categories are shown in the image.
As companies use strategic procurement, they might also use value analysis. These activities use cross-functional teams or other types of collaboration in the design process to review features and potentially reducing the cost and how the material will function.