Requisition

What Is Requisition?

A requisition is a formal, internal document used by an organization to request goods or services. It is a fundamental component of business finance and the broader procurement process, initiating a purchase or transfer of materials or services within a company. The requisition serves as an official record of a need, typically sent from a department or individual to the purchasing department, clearly outlining what is needed, its quantity, and the required timeframe. This initial request sets in motion a structured approval process to ensure that spending aligns with the company's budget and strategic goals.

History and Origin

The concept of formal requests for goods and services has existed as long as organized commerce and governance. Early forms of requisition can be traced back to ancient administrations needing to track supplies for armies or public works. In modern history, the evolution of sophisticated business and government operations necessitated standardized procedures for acquiring resources. A significant development in formalizing procurement, which implicitly relies on requisitions, can be seen in the establishment of comprehensive regulatory frameworks. For example, in the United States, the Federal Acquisition Regulation (FAR), which guides federal government purchasing, took effect in 1984, building upon earlier regulations dating back to 1792.⁵ Such regulations underscore the long-standing need for formal, verifiable processes to initiate and manage expenditure within large organizations.

Key Takeaways

• A requisition is an internal document requesting goods or services.
• It initiates the purchasing process and facilitates internal cost control.
• Requisitions ensure expenditures are properly authorized and align with budgetary constraints.
• They provide an audit trail for financial compliance and accounting.
• Effective requisition systems enhance efficiency in inventory management.

Interpreting the Requisition

A requisition is more than just a request; it is a critical piece of the financial and operational puzzle within an organization. Properly completed requisitions provide essential information, including a detailed description of the item or service, the quantity, the requesting department, the intended use, and often a suggested vendor. For the purchasing department, the requisition serves as a directive to source the required items efficiently and cost-effectively, while adhering to the company's internal controls. The information on a requisition is vital for tracking future expenditures, managing the supply chain, and ensuring that all purchases align with pre-approved departmental or project budgets.

Hypothetical Example

Imagine "TechSolutions Inc.," a software development company. The Head of Product Development, Sarah, identifies a need for new high-performance servers to support an upcoming project. Instead of directly purchasing them, she fills out a requisition form.

Here's a simplified breakdown:

1. Identification of Need: Sarah determines the specifications and quantity of servers required for the "Project Phoenix" development.
2. Requisition Submission: She completes an electronic requisition, specifying "4x Dell PowerEdge R760 Servers," a brief justification ("Required for Project Phoenix high-performance computing"), the project code, and the desired delivery date. She estimates the cost to be $40,000, which falls under her department's approved capital expenditure budget.
3. Departmental Approval: The requisition first goes to Sarah's direct manager, then to the VP of Product Development for approval, confirming the need and budgetary allocation.
4. Procurement Review: Once approved internally, the requisition is forwarded to the procurement department. The procurement team reviews the request, verifies the specifications, and begins the process of sourcing the servers from approved vendors, initiating price comparisons and negotiating terms. This ensures the acquisition is cost-effective and compliant with company policy, preventing unauthorized or redundant purchases.

This structured approach ensures that the new servers are acquired efficiently and transparently, aligning with the company's financial planning and project requirements.

Practical Applications

Requisitions are indispensable across various sectors, ensuring methodical and compliant acquisition of resources. In the private sector, businesses use requisitions to manage everything from operating expenses like office supplies to significant capital investments, facilitating vendor management and adherence to financial statements targets. In the public sector, government agencies employ stringent requisition processes as part of their broader procurement framework. These processes govern how federal, state, and local governments acquire goods and services, ensuring accountability and transparent use of taxpayer funds.⁴ For example, the procurement process for government contracts is highly regulated, often beginning with a formal requisition from a government department to its procurement arm.³ Modern procurement practices increasingly leverage technology to streamline the requisition process, enhancing efficiency and driving productivity through digitalization.²

Limitations and Criticisms

While requisitions are crucial for structured purchasing, their effectiveness can be hampered by inefficient processes. Manual requisition systems are often slow, prone to errors, and lack real-time visibility, leading to delays and increased administrative costs. A common criticism is that an overly bureaucratic requisition process can stifle agility, particularly in fast-paced environments where quick procurement decisions are necessary. Furthermore, the requisition stage can be vulnerable to fraud if internal controls are weak. Schemes such as requesting unnecessary goods, inflating quantities, or colluding with vendors can originate at the requisition stage, leading to financial losses.¹ Organizations must continually evaluate their requisition and auditing procedures to balance control with efficiency, ensuring that the process supports, rather than hinders, operational needs and financial integrity.

Requisition vs. Purchase Order

Requisition and Purchase Order are two distinct, yet interconnected, documents in the procurement cycle, often confused due to their sequential relationship.

A requisition signals an internal need, prompting the purchasing department to begin the sourcing process. Once a vendor is chosen and terms are agreed upon based on the approved requisition, a purchase order is then created and sent to the external supplier, formalizing the agreement to buy.

FAQs

What is the primary purpose of a requisition?

The primary purpose of a requisition is to formally document an internal need for goods or services, initiating the purchasing process within an organization. It ensures that all requests are reviewed and approved, aligning with the company's budget and financial policies.

Who typically creates a requisition?

Any authorized employee or department within an organization can create a requisition. It originates from the party that identifies a need for specific goods or services, which could range from an office manager requesting supplies to an engineer needing specialized equipment.

Can a requisition be denied?

Yes, a requisition can be denied. Common reasons for denial include insufficient budget, lack of proper approval process, the requested item not being a business necessity, or the availability of the item in existing inventory management.

Is a requisition a financial commitment?

No, a requisition itself is not a financial commitment. It is an internal request. The financial commitment occurs when a purchase order is issued to an external vendor, or when the goods or services are formally acquired.