Purchase requests (PR), used for requesting goods, and purchase orders (PO), used for ordering goods, are two documents used in the P2P process. 

But why do we need these two documents, and what are their role?

In this blog post, we will explore the key differences between the two and explain why each is essential for smooth procurement.

PR vs PO: A Comparative Analysis

Here’s a quick overview of the differences between PR and PO.

What Is a Purchase Request? 

A purchase request (PR) is an internal document used within an organization to request the purchase of goods or services formally. It is usually created by an employee or department that identifies the need for a specific product or service. 

This document serves as the first step in the procurement process, signaling the need for the requested item and providing essential details like the item description, quantity, estimated cost, and reason for the purchase. 

Why Do You Need Purchase Requests? 

PRs serve as a safeguard, ensuring the procurement process is controlled, transparent, and aligned with the organization’s needs. They help the procurement process in the following ways:

• Budget control: They help organizations maintain budget control by ensuring that purchases are approved before they are made. This prevents unnecessary or unplanned spending.
• Authorization and accountability: PRs ensure that no unauthorized purchases are made. They help track who requested what, providing accountability and traceability for financial records.
• Compliance: Many organizations, especially those in regulated industries, must follow strict procurement guidelines. PRs help ensure compliance with internal and external policies, including financial and audit regulations.
• Centralized documentation: A PR creates a centralized record for every purchase needed within an organization, which aids in transparency and helps track items from request to final purchase.

What Is the Purchase Request Process? 

The PR process is a step-by-step procedure that begins with identifying a need and concludes with a PO being raised. 

Here's a detailed breakdown:

1. Need Identification: The process begins when an employee or department identifies a need for a product or service. This could be anything from office supplies to complex software solutions.
2. PR Creation: The requester fills out a PR form, which typically includes details such as item descriptions, quantity, estimated costs, and the justification for the purchase.
3. Approval: Once the request is completed, it is submitted for approval. Depending on the organization’s structure, this could be reviewed by the department head, finance team, or procurement department. This step ensures that the request aligns with budget constraints and organizational goals. If approved, it moves on to the next phase in the procurement process. If denied, the requester may need to revise the request or explore alternative solutions.
4. Conversion to PO: Once approved, the PR is converted into a PO. The procurement team uses the PR as a basis to initiate the formal purchase process, contacting vendors, negotiating terms, and placing orders.

What Does the Purchase Request Include? 

A PR includes several elements necessary for approval. Here’s what it typically includes:

• Item description
• Quantity
• Estimated cost
• Reason for purchase
• Preferred vendor
• Delivery requirements
• Approval signatures

Sample Purchase Request 

What Is a Purchase Order? 

A purchase order (PO) is a formal, legally binding document issued by a buyer (typically the procurement department) to a vendor or supplier to confirm a purchase agreement. It serves as an official request for goods or services, specifying the terms and conditions under which the items are to be delivered. 

Once accepted by the vendor, the PO becomes a contract that dictates the price, quantity, and delivery schedule of the goods or services.

Unlike a PR, which is an internal document, a PO is external and communicates directly with the supplier. It is often used to protect both the buyer and seller, as it establishes clear expectations for both parties and serves as a reference point in case of any discrepancies or disputes. 

Why Do You Need Purchase Orders?

POs are essential for the following reasons:

• Legal protection: A PO is a legally binding contract between the buyer and supplier once accepted. It outlines the agreed terms of purchase, which prevents misunderstandings or disputes.
• Clear communication: A PO communicates the purchase details to the supplier, including item specifications, prices, quantities, and delivery dates. This helps ensure both parties are aligned on the terms of the transaction.
• Inventory management: POs help organizations track and manage inventory by indicating what goods are being ordered, how much, and when they should arrive. This ensures adequate stock levels and reduces the chances of stockouts or overstocking.
• Audit trail: POs provide an audit trail that helps organizations track procurement activities, maintain financial records, and comply with internal controls.

What Is the Purchase Order Process? 

The PO process includes creation, approval, and fulfillment by a vendor. Here’s a breakdown of the steps involved:

1. Creation of PO: After receiving approval for the PR, the procurement department or authorized employee creates the PO. The PO includes specific details such as item description, quantities, price, delivery terms, and payment conditions.
2. Internal review: The PO is typically reviewed internally to ensure that all details are correct, including pricing, delivery timelines, and budget alignment. Any necessary adjustments are made before sending it out.
3. Sending the PO to the Vendor: Once the PO is approved internally, it is sent to the vendor or supplier electronically, via email, or through procurement software. Sometimes, a hard copy of the PO may also be sent.
4. Vendor acceptance: The supplier reviews the PO and either accepts or rejects it. Acceptance is formalized by confirming the PO in writing or by fulfilling the order. If the supplier has any issues with the PO (such as pricing discrepancies or unavailable items), they propose changes or reject the order.
5. Delivery and receipt of goods: The goods or services are delivered according to the agreed-upon terms. The receiving department checks the items against the PO to ensure everything matches in terms of quantity, quality, and specifications.
6. Invoice: The vendor sends an invoice based on the PO. The procurement or finance team verifies that the goods or services were received as described in the PO and matches the invoice with the order before processing payment.

What Does the Purchase Order Include? 

A PO includes several key details to ensure the buyer and the supplier understand the transaction terms. Here’s what is typically included in a PO:

• PO number
• Date
• Buyer information (Company name, contact details, and billing address)
• Supplier information (Supplier’s name, contact details, and shipping address) 
• Item description (Brand names, model Numbers, or other identifying characteristics)
• Quantity
• Price (Including any applicable discounts, taxes, and shipping fees)
• Delivery terms (How the goods should be delivered, including shipping methods, expected delivery dates, and any associated costs) 
• Payment terms (Due date, payment method, and any discounts for early payment) 
• Terms and conditions (Warranties, return policies, and liability)
• Signatures

Sample Purchase Order

What Is PO and PR in Procurement?

The PR initiates the purchasing process while the PO finalizes the transaction. 

The PR is the internal document that justifies the need and requests approval, and the PO becomes the formal external document that transitions the request into an actionable order with a vendor. Together, they create a seamless flow from internal need identification to supplier engagement. 

However, at times, managing these documents becomes difficult for the procurement team for the following reasons:

1. Approval bottlenecks: One of the key challenges arises during the approval of PRs. In larger organizations, PRs have multiple authorization levels, which delays initiating the purchase process. These bottlenecks result in a slower overall procurement cycle, affecting project timelines and operational efficiency.
2. Lack of alignment: Discrepancies between the PR and PO occur when miscommunication occurs during the transition from request to order. For example, if the PR specifies a certain quantity or brand and the PO lists different details, this misalignment delays the process and causes vendor issues.
3. Data entry errors: Manual entry of PRs and POs leads to human errors, such as incorrect item codes, pricing, or quantities, which causes delays in order fulfillment. 
4. Budget mismanagement: A common challenge is the disconnect between available budgets and the PRs submitted for approval. Without proper visibility into the budget, purchase requests exceed what’s available, leading to delays in approval or the rejection of requests, which disrupts procurement timelines.

Optimizing PR and PO for Smooth Procurement Flow

While PR and PO are fundamental to keeping procurement organized and efficient, managing both becomes challenging as companies grow. 

PRs are the first step in the process, making internal approvals seamless and justifying the need for purchases. On the other hand, POs ensure clarity with suppliers and turn approvals into actual transactions. 

However, managing these two stages isn’t without its hurdles—approval delays, misalignment of information, and communication breakdowns between departments and vendors slow things down.

We've already explored requisition management in a previous blog post—check it out for more on improving your procurement workflow!