Should you approve the requisition or the PO?

Good question, it’s one we get asked a lot in our product demonstrations.

Many prospective clients come to us struggling with their old existing systems in place which are either completely based on paper or on a mixture of spreadsheets and back and forth emailed approvals.

There is no accountability, approval chain or strong audit as to who wants what, why they want it and who authorized the purchase of it.

It cannot go on like that and these enlightened prospective clients know it – that’s why they are attending our demos!

Usually these companies do have some form of buying process and typically it goes like this:

1.Fred wants to buy a widget
2. Fred completes a requisition form
3. Fred sends it to his boss who approves it
4.This ‘approved’ requisition makes its way over to purchasing who see the signed document and make arrangements to buy it with no further approval needed.

What’s wrong with that scenario?

Well, maybe nothing…and maybe everything !

Remember, a requisition is a meaningless piece of paper, no matter who signed it.  It carries no commercial legal ramifications.  It’s an “I would like to buy” document.

A purchase order on the other hand, is a legal contract between your entity and another.  It’s an “I will buy…” and if you don’t get that internally signed by the budget holder, the final cost of the product or service is coming out of someone’s budget and they might be none the wiser.

It’s quite common for the estimated requisition cost to vary between its inception and the final PO placement with the vendor.   The request may be raised, may have to run through a formal RFQ process to get final process and specs and then a PO is raised on the basis of that successful RFQ exercise.  We believe the budget holders should be signing against the final PO that’s going to go out to the vendor to ensure accuracy.

Essentially, we advocate a sanity signoff for the requisition and a financial signoff for the PO through however many levels are needed.

If you really want to run your new eProcurement system on a Requisition based approval system then we are not going to stop you.  However, we will point out the caveats of approving a requisition over approving a purchase order.

Furthermore, we also have the option of Group approvals.  For example, the engineering group or finance group or HR group might need to also sign off.  This is not sanity or finance – it’s a functional sign off.

If you are curious to drill down into the details of why and how we do that, please contact us.