Purchase Requisition Vs Purchase Order and the role it plays in the SAP Procure to Pay Process

SAP PO | SAP PR | Purchase Requisition Vs Purchase Order | Procure to Pay

Every business procures goods, raw materials and services to meet internal needs for operation and external need of production and supply. Purchase Order (PO)and Purchase Requisitions(PR) are an integral part of the Purchasing Department. Besides helping with managing costs and inventory, they help business avoid duplication of orders and missing orders, clarify important details, enable greater efficiency during financial audits and protect both purchasers and vendors. SAP PO and SAP PR are subprocesses in the Procurement function of SAP Material Management. We will see the role SAP PO and SAP PR plays in the entire Procure to Pay process once we understand the fundamental differences of Purchase Requisition Vs Purchase Order.Purchase Requisition Vs Purchase Order. How are they different in the Procure to Pay process?

Purchase Requisition Vs Purchase Order. How are they different in the Procure to Pay process?

SAP PR is an internal document raised to the Purchasing department prior to ordering the goods/service SAP PO is a formal and legal document that is sent to the vendor for purchasing
It captures the internal requirement within the different departments of an organization. For e.g. Operations department needs 1200 notepads. It is a legally binding document sent to the vendor for purchasing. For e.g. A PO is sent to the vendor - Staples for 1200 notepads.
SAP PR is created manually or automatically through MRP. For e.g. MRP runs in a Shoe manufacturing firm will create PRs for leather for the next batch of shoes. It is created with reference to a PR or a contract once the requisition document is approved.
The PR document isn’t always specific about the vendor, it typically mentions the requirement. The SAP PO document is created specific to the vendor from whom the goods/service is needed

Procure to Pay process in the Procurement Cycle

There are seven steps to the process of Procurement under SAP Material Management that are listed below. The first step of Material Requirement Planning (MRP) is only for industries that involve Production Planning such as Manufacturing and CPG. Besides MRP, all other processes are applicable to all industries.

  1. Material Requirement Planning
    Material Requirement Planning abbreviated as MRP refers to the first step of projecting and calculating the materials needed and when they are needed through the manufacturing production schedule. The MRP procedure, pricing, and valuation are determined by the MRP type. The Materials Controller in the Production department carries out the Material Requirement Planning

  2. Selecting Vendors
    Suitable vendors are analyzed based on technical and business requirements, comparative evaluation of quotations, potential risks, and liabilities prior to selection.

  3. Request for Quotation
    Once a list of potential vendors are identified, they are requested to submit a quotation for the materials and services along with their terms and conditions.

  4. Purchase Requisition
    The purchase requisition is raised internally by staff to the Purchasing department with details like the material quantity, description of goods/ service, total value, department number, authorized signature, quote from vendors and delivery instruction. The PR is automatically created by MRP or is manually created. A PR is either approved or rejected by the business and to speed up the cycle instant mobile approvals are used for several actions in the procurement process.

  5. Purchase Order
    Once the PR is approved, the purchase order is the formal document sent by the company to the vendor to deliver the required goods/service under the terms and conditions specified. A PO mentions terms of payment, material quantity, delivery date, total value and may be created in reference to the PR, request for quotation or another PO.

  6. Goods Receipt
    The Goods Receipt (GR) is created once the goods are delivered by the vendor and verified for damage, quantity and payment terms. The goods movement are entered into the system against the purchase order and goods receipt and accordingly the general ledgers are instantly posted and stock accounts are updated.

  7. Invoice Verification
    After the goods receipt, the invoice for the vendor is created in reference to the PO, GR, and delivery note. The invoice is verified for required approvals by the project managers involved. Post the verification, the payment is made to the vendor as per payment terms.

Any further questions about Purchase Requisition Vs Purchase Order or the entire SAP Procure to Pay process? Leave us a note and we’ll get back to you.

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