Purchase Requisition vs. Purchase Order-Key Differences

In procurement and supply chain management, two essential documents play a crucial role: the Purchase Requisition and the Purchase Order. While they may sound similar, they serve distinct purposes in the procurement process. In this blog post, we will explore the key differences between Purchase Requisitions and Purchase Orders, their roles, characteristics, and when to use each.

What is the Purpose of Purchase Requisition and Purchase Order

Purchase Requisition:

A Purchase Requisition, often referred to as a PR, serves as an internal document used by employees or departments within a company to request the purchase of goods or services. It initiates the procurement process, indicating a need for specific items.

Purchase Order:

A Purchase Order, or PO, is an official document issued by a buyer (usually a purchasing department) to a supplier to request the delivery of goods or services. It represents a commitment to buy and outlines the terms of the transaction.

Initiation of Purchase Requisition and Purchase Order

Purchase Requisition:

Typically initiated by employees or departments that identify a need for items, such as office supplies, equipment, or services. It is an internal request that must be approved by relevant authorities within the organization.

Purchase Order:

Generated by the purchasing department or authorized personnel after reviewing and approving a Purchase Requisition. A PO is the external communication to suppliers, indicating an intent to purchase.

Authorization of Purchase Requisition and Purchase Order

Purchase Requisition:

Requires internal approval before it can be converted into a Purchase Order. Approval depends on factors such as budget availability, necessity, and compliance with company policies.

Purchase Order:

Generated only after a Purchase Requisition is approved. It signifies the company's commitment to make the purchase and is legally binding.

Content of Purchase Requisition and Purchase Order

Purchase Requisition:

Contains information about the requested items, quantities, and sometimes the estimated budget. It lacks pricing and supplier details as it is an internal document.

Purchase Order:

Includes specific details about the items, quantities, unit prices, total cost, delivery dates, and supplier information. It is a comprehensive document used to formalize the purchase agreement.

Legal Implications of Purchase Requisition and Purchase Order

Purchase Requisition:

Primarily an internal document and does not have legal implications outside the organization. It serves as a request for procurement.

Purchase Order:

A legally binding document that outlines the terms and conditions of the purchase agreement. It holds both the buyer and the supplier accountable for fulfilling their obligations.

Supplier Interaction of Purchase Requisition and Purchase Order

Purchase Requisition:

Does not directly involve suppliers. It is an internal document meant for approval and coordination within the company.

Purchase Order:

Sent to suppliers to communicate the purchase request, quantities, prices, and delivery instructions. Suppliers acknowledge POs to confirm the order.

Cancellation or Changes in Purchase Requisition and Purchase Order

Purchase Requisition:

Can be modified or canceled relatively easily before it is converted into a Purchase Order.

Purchase Order:

Changes or cancellations are possible but often require negotiation with the supplier and may incur costs or penalties.

Financial Impact of Purchase Requisition and Purchase Order

Purchase Requisition:

Primarily affects the budget planning process within the organization. It does not have a direct financial impact on the supplier.

Purchase Order:

Has a direct financial impact as it formalizes the commitment to pay the supplier. It also helps in tracking and managing accounts payable.

Conclusion

In conclusion, Purchase Requisitions and Purchase Orders serve distinct roles in the procurement process. Purchase Requisitions are internal requests that initiate the procurement process, while Purchase Orders are legally binding documents that formalize the purchase agreement with suppliers. Understanding the differences between these two documents is crucial for efficient procurement management and maintaining clear communication with both internal departments and external suppliers.