Introduction
Wouldn’t it be great if all construction purchases could be made without the need for planning? Like when you go to Costco, and while you’re there decide that you need the newest blender and a new patio set.
Unfortunately, that kind of thinking doesn’t work well in the Canadian Construction industry. Contractors are required to create a purchasing requisition based on strict expectations, Which can be frustrating if you don’t understand why the process is important.
In this post, we will define what a purchasing requisition is, show an example of what it should and shouldn’t look like, and provide 3 tips on how to make the most of your purchasing requisition.
Table of Contents
- What is a Purchasing Requisition?
- Why are Purchasing Requisitions Important?
- 2 Real Examples of a Purchasing Requisition
- 3 Tips for Purchasing Requisitions
What is a Purchasing Requisition?
A Purchasing Requisition, such as an RFQ, is a document that a contractor uses to go out for competitive pricing on transactional purchases. Suppliers are able to submit standardized quotes in response, after which the contractor can evaluate and award a quote to the winning supplier. This approval should factor in Quality, Cost and Delivery.
Why are Purchasing Requisitions Important?
Having accurate purchasing requisitions will also save your company time and money.
If your order request isn’t accurate, then your purchase order won’t be either. Accuracy relies on transparent communication between you and the supplier.
The more you can reduce the friction between you and your supplier, the more you will reduce the cost of the order and the sooner you will be able to receive the order onsite.
Have you ever heard of purchasing ping pong? It is a painful process where an onsite worker tells the supplier that he needs an item, and through several hours of back-and-forth emailing, the supplier has to dig out information on sizes, quantities, and lengths.
A controlled purchasing requisition process is especially important if the job that you are creating an RFQ for is related to a government tender – in this case, not following a strict process can expose your company to a million dollar lawsuit.
And even if your project is not related to the government, based on the laws imposed in California, Bid Shopping may become more heavily reprimanded, no matter the project. for all requisitions.
Don’t be that contractor. Instead, be the company that your suppliers actually enjoy working with.
2 Real Examples of a Purchasing Requisition
It is important to understand what a Purchasing Requisition should, and should NOT look like:
An Inaccurate Purchasing Requisition
In the email above, Bill is not providing enough information to the supplier.
There is no “required by” date, the thickness of the plywood and the bucket sizes are not specified, and the delivery location is not mentioned. Bill is about to start a game of purchasing ping pong.
IN ADDITION, his team isn’t cc’d on the email. Do they even know that he is ordering supplies? Big thumbs down from accounting.
An Accurate Purchasing Requisition
But look at this one in comparison!
Bill is specifying lumber dimensions, the “required by” date, and the delivery address!
ALSO, his team is cc’d on his order, which means there is a proper paper trail for accounting, and his superiors will be notified of his request. Good Job, Bill!
3 Tips for Purchasing Requisitions
1. Shorten your supplier list
You have probably noticed that even though the price offered by suppliers may change in each competitive bid scenario, overall, their price remains relatively consistent, and PO’s are awarded to the same few suppliers.
Typically, on transactional purchases, the price variance ends up being only 2-3%, and your research cost wipes out the savings of finding the right supplier.
On top of that, Suppliers have a fixed margin and little room to move on the price they can offer. Some of these suppliers will still offer deep discounts in order to win on low prices, resulting in them operating at a loss.
The less you make your suppliers feel like they are in a rat race, the more you will be able to gain from your supplier relationships.
2. Evaluate quotes based on QCD
You need to evaluate the suppliers you work with based on Quality, Cost, and Delivery.
Remember: if you spend too much time focusing on the lowest price, you may no longer get the lowest cost.
Quality: Product quality can directly affect the finished goods. Suppliers can also improve quality through value-adding and by having accurate processes and documentation
Cost: This includes the total cost of ownership, which is means payment terms, discounts, ordering and carrying, logistics and maintenance, and the research cost of finding the right supplier.
Delivery: This is a significant factor because good lead times can reduce or even eliminate waste related to purchasing raw materials. You also want a supplier who provides timely responses and servicing, which reduces the risk of materials running out and paying additional storage and Inventory-related expenses.
Consider Implementing a Just-in-Time Strategy for delivery.
3. Invest in an automated purchasing solution
Your company needs a controlled process for requesting pricing.
Automation can help your organization achieve Transparency. The smoothest accounting process needs to give you visibility on historical spend and current activities. Information should be available at your fingertips and accessible at all levels of the company. This will help you evaluate your suppliers and ensure accurate purchasing documentation.
Conclusion
Accurate Purchasing requisitions make the construction world go round. If you remove the purchasing Ping-Pong, keep your team in the loop, select from a small pool of your top suppliers, and invest in an automated purchasing solution, Your suppliers will love you and your accountants will thank you.
Are you ready to help your business have the most efficient PO process? Purchase orders issued from QuoteToMe are timely, accurate, and fast – all with minimal effort from the user!
Note about the Author
Natasha Mager is a Customer Success Specialist at QuoteToMe. She is passionate about inbound marketing and organic growth. Her goal is to help the construction industry learn how they can optimize their purchasing processes. You can find Natasha on Linkedin.