Streamlining the purchase requisition process in manufacturing
Manufacturing companies acquire a wide range of raw materials, component parts, finished products, and related services daily.
The amount of money involved can be huge.
To source these items companies need to have a tried-and-tested process to manage their procurement effectively and economically.
A Purchase Requisition (PR) is the first and most important document in the procure-to-pay (P2P) process.
Where this is absent, there is likely to be maverick, or wasteful spending, fraud, duplicated orders, and payment issues.
Using a PR to request goods or services required to run a business is considered a best practice, and it is more than just a piece of paper. It is an internal document that streamlines and controls the purchasing process by keeping it transparent. A well-structured PR reduces the scope for mismanaged and fraudulent procurement and provides better cost control, especially in sourcing direct materials. An approved PR is used to create a Purchase Order (PO) that will be sent to the chosen vendor.
The 3-step Purchase Requisition Process
All mature organizations of any size, whether their PR process is manual or automated, follow established steps in their PR workflow.
1. Identify the need
What do we require, when, where, and how much? The requestor assembles the vital information including quantity, description of the item or service, technical specifications, projected cost, delivery date and location, and possibly, the preferred vendor. This information is used to create the PR. In the manufacturing sector, this process can involve many phases and can be complicated by the involvement of many individuals. For direct materials and component parts, additional details may be required. These could include program or project code, item number, commodity and category classification. The prepared PR document. including all the necessary details, is then submitted for review and approval.
2. From Purchase Requisition to approval
The procurement function has a key role to play: reviewing the PR, determining the chosen vendor, final pricing, payment terms, and approval and issuing of the PO. Their level of involvement will depend on internal procurement policy and procedures. The reviewer will check for validity and that the proposed purchase is within budget. Any missing, incorrect, or inadequate information in the PR will be subject to correction and revision. If a PR is unacceptable for any reason, it can be rejected outright.
3. From PR approval to Purchase Order
After the final review of the PR content, a certain pre-defined level of financial authority is required to sign off on the purchase. When the PR is approved, a PO is generated and issued to the selected vendor, usually electronically.
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Where are the pitfalls?
In the manufacturing sector, specific challenges can occur during the creation of a PR. Some come in the early stages, others arise during the document preparation and approval process.
- A lack of understanding of the P2P process and what is required for the completion of a successful PR.
- Poor communication among and between engineers and subject matter experts (SMEs) can lead to misunderstandings and conflict.
- Unclear responsibility areas between production/engineering and SMEs and procurement can lead to confusion
- Not researching the need for the item or service in detail can lead to a PO that does not meet the company’s requirements
- Not being clear on the projected costs and where there are budget limitations
- Not understanding vendor terms and conditions leads to unexpected issues
Satisfying the desires of all stakeholders is necessary for any successful procurement event. Stakeholders in the P2P process include the requestor, the approver, the sourcing professional and the end users. Other interested parties may include people in quality assurance, inventory management, finance and compliance.
Streamlining the PR process for maximum efficiency
Relying on manual outdated processes like paper-based PRs, emails, and excel spreadsheets is no longer optimal. Paper-based systems are time-consuming, expensive ,and prone to error.
Delays occur when approvers are unavailable or at another location.
Poor visibility into the process causes many issues including assuring regulatory compliance. Automating the preparation of a PR saves time and effort. A digital solution can centralize purchasing processes across all divisions, departments and employees. Standardized processes and working effectively with the procurement team will speed up the creation of the PR and therefore the entire sourcing cycle.
The benefits of automation are clear:
- PRs can be created using templates or customized input forms using pre-populated databases. Reducing the manual effort leads to faster processing
- Increased accuracy of capturing supply market and product data and updating it in real-time. A centralized database can be accessible to all authorized users.
- Lower costs as fewer resources are needed. Teams can add value by concentrating on more complex tasks.
- Improved efficiency due to a defined administration process. Documents are directed to the right person for action, using workflow rules.
- Increased data visibility and tracking of the progress of a PR towards a PO. Tracking down a manual PR and establishing its status is time-consuming and inefficient.
- Completed PRs are routed to the correct approvers, who are notified to take action.
Benefits of a digital solution to the business
- A reduction in wasteful and unnecessary expenditure
- Best use of available expensive human resources
- Cost savings through better budget control and lower operational costs
- Centralizes control and provides visibility of PR status
- Enhanced compliance and audit controls reducing fraud
- An accelerated approval process – in real-time, anywhere, on any device
While the PR process may differ between organizations, certain best practices remain standard. The PR process plays an important role in any company’s procurement strategy. Traditional manual methods are no longer beneficial, they are open to fraud and duplication and are unable to regulate maverick spend.
A proactive approach to automating purchasing management can drive sustainable time and cost savings in your business
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Implementing a digital solution
Available automation software is easy to implement and user-friendly. Each step of the PR workflow process can be fully automated using pre-built and customizable document templates. Cloud-based software solutions provide the function to track PRs at every stage of the process toward a PO.