For small business owners, efficient procurement is essential to managing operations and keeping costs in check. Two common processes in procurement are purchase orders and purchase requisitions. Although these terms are often used interchangeably by those unfamiliar with purchasing procedures, they play distinct roles in the process. In this post, we’ll break down the differences, illustrate the flow with a flowchart, provide actionable advice, and walk through examples that can help streamline your procurement process.

Understanding the Basics

Before diving into the flowchart, it’s important to define what a purchase requisition and a purchase order are:

What is a Purchase Requisition?

A purchase requisition is an internal document that signals the need for a product or service. It is typically initiated by an employee or department within the organization. The requisition outlines the requirements and provides justification for the purchase.

What is a Purchase Order?

A purchase order (PO), on the other hand, is an external document. It is sent to a supplier to confirm the purchase of goods or services. This legally binding document outlines terms including quantities, prices, and delivery dates.

"A clear distinction between requisitions and purchase orders can reduce errors and streamline the approval process."

Flowchart Overview

Imagine the entire procurement process as a flowchart, where each step contributes to efficient purchasing:

1. Initiation: An employee identifies a need and creates a purchase requisition.
2. Review: The requisition is vetted by the department head or manager.
3. Approval: Once reviewed, it is approved by the appropriate authority or finance team.
4. Creation: With approval, a purchase order is generated and sent to the supplier.
5. Fulfillment: The supplier receives the order, fulfills it, and sends an invoice.
6. Receipt & Payment: The business confirms receipt of the products and finalizes payment.

Actionable Advice for Small Business Owners

Implementing a structured approach to procurement can yield numerous benefits for small businesses. Here are some actionable tips:

1. Standardize the Process

Develop standard operating procedures for both purchase requisitions and purchase orders. Create templates, checklists, and flowcharts that can be shared across departments. This ensures consistency and minimizes the risk of errors during the approval process.

2. Separate Duties

Consider segregating roles in the purchasing process. For example, the person who creates the requisition should not be the one authorizing the purchase order. This separation helps prevent conflicts of interest and promotes accountability.

3. Leverage Technology

Adopt digital tools to automate parts of the procurement process. Systems that integrate requisitions, approvals, and purchase orders can reduce delays and lower the chance of human error. Digital platforms often come with built-in analytics to track spending trends and supplier performance.

4. Establish Clear Approval Limits

Define financial thresholds for approvals. For example, smaller expenses can be approved by department heads while larger ones require executive sign-off. This prevents bottlenecks and ensures that procurement decisions carry the appropriate level of oversight.

5. Maintain Records

Keep detailed records of all transactions. Documentation assists during audits and helps identify areas for process improvements. Using both purchase orders and requisition records, you can analyze vendor performance and negotiate better terms in the future.

Examples in Real-World Scenarios

To understand the difference between these documents in practice, consider the following scenarios:

Scenario 1: Office Supplies Purchase

An office manager notices that supplies are running low. The manager creates a purchase requisition which outlines the types and quantities of office supplies needed. The requisition is reviewed and approved by the finance controller. Subsequently, a purchase order is generated and sent to the supplier. The supplier fulfills the order and sends an invoice which is then cross-referenced with the purchase order and the requisition to ensure accuracy.

Scenario 2: Equipment Upgradation

A department head identifies a need to upgrade computer equipment. A purchase requisition is drafted with detailed specifications and the associated benefits of the upgrade. After several rounds of review, including budget verification, the purchase order is created and transmitted to the vendor. This methodical approach ensures that each step is validated before any financial commitment is made.

Challenges and How to Overcome Them

Despite best practices, small businesses may encounter challenges:

• Delayed Approvals: Streamline the internal review system and use digital tools to expedite approvals.
• Lack of Standardization: Develop clear guidelines and templates to ensure consistency.
• Manual Errors: Automate as many steps as possible, reducing reliance on manual input.

By addressing these issues head-on, you can create a robust system that minimizes delays and errors, resulting in smoother procurement operations.

Conclusion

Understanding the differences between purchase requisitions and purchase orders is essential for any small business owner looking to optimize procurement. A standardized flowchart and clear action plan can help avoid confusion, reduce errors, and streamline your purchasing process. By separating duties, leveraging technology, and setting clear approval guidelines, you can ensure that your procurement process is both efficient and effective.

The flowchart detailed above is not only a guide for internal processes but also a roadmap for efficient supplier engagements. Each step has a purpose, from initial identification of need, through review and approval, to final purchase and delivery. A well-documented process minimizes risk and helps you respond effectively to market demands and operational challenges.