How to design a purchase approval matrix

A purchase approval matrix is the rulebook for who approves a purchase. It maps each request, by value, category, plant and type of spend, to the people who must sign off before money is committed. Finance teams often call the wider document a delegation of authority, or delegation of financial powers.

The matrix applies at two points: when the requirement is approved, on the indent or purchase requisition, and when the commitment is made, on the purchase order. Some companies approve both. Others approve the requisition and let the PO through if it stays within the approved value and goes to the expected vendor. Decide which, and write it down.

A matrix exists for three reasons: to keep spend within budget, to make sure someone with the right knowledge looks at risky purchases, and to leave an audit trail that shows who approved what, and when.

Design the approval matrix along five dimensions, one at a time, and keep each as simple as your controls allow.

Value bands

Value is the main axis. Set three to five bands and assign an approver to each. Base the bands on order value before GST, and say so in the policy, so nobody argues over whether a ₹1.02 lakh order needs the next level. Use last year's indents to place the bands: if most indents are under ₹10,000, make sure that band needs only one approval. The bulk of indents by count should need the fewest approvals, and the few large ones should get the most attention.

Category

Some categories need a specialist regardless of value. Safety equipment might need the EHS head, IT hardware the IT head, and a chemical new to the plant a check of its safety data sheet. Add these as extra approvers on top of the value band rather than building a separate matrix for each category.

Plant

In a multi-plant company each plant usually has its own plant head and its own budget. Route each request to approvers at the plant that raised it, with corporate approval only above a higher band. Site-based access stops a Plant 2 approver from seeing or approving Plant 1's requests.

Capex and opex

Capital purchases, such as a new compressor or a forklift, follow a different route from revenue spend on spares and consumables. Capex usually needs a sanctioned budget line and finance approval at every value. Opex is approved against a cost centre budget. Tag each indent as one or the other when it is raised, because reclassifying later is painful for accounts.

The emergency path

Breakdowns cannot wait for a three-level approval. Define the emergency path in advance: who can approve an urgent indent and up to what value, what evidence is needed (usually the breakdown log entry), and when the normal approver reviews it, typically within one working day. Then track how often it is used. If every other indent is an emergency, the problem is maintenance planning, not approvals.

The table below is illustrative only: a starting point for a single-plant manufacturer, not a recommendation for your values. Set your own bands from your spend profile and keep them within your board's delegation of authority.

Category rules added on top of the value band, also illustrative:

• Safety equipment and PPE: EHS head added at any value
• Chemicals and lubricants new to the plant: EHS review of the safety data sheet before the first purchase
• IT hardware and software: IT head added at any value
• Any new vendor: purchase head approves the vendor before the first PO

A per-user spend limit is the value up to which a person's requests move without a further approval. It complements the matrix: the matrix says who approves above each level, and the spend limit says what each person can commit on their own.

Set limits by role, then adjust for individuals. A store manager might have ₹10,000 per indent for consumables, a maintenance head ₹50,000 for spares, and a trainee engineer nothing, so every request they raise goes to their department head. Add a monthly cap where you worry about many small indents adding up.

Spend limits work best when the system enforces them. A limit that lives in a policy document and is checked by hand will be crossed under pressure, usually during a breakdown.

Bulk approval lets an approver clear many routine requests at once, and the audit trail records every decision so that speed doesn't cost control.

Bulk approval

A plant head who gets forty indents a day for gloves, cable ties and grinding discs shouldn't have to open each one. Bulk approval works if the approver can still see the lines, the values and any flags, such as a duplicate, an over-budget cost centre or a new vendor, before approving the batch. Flagged requests should drop out of the batch and get individual attention.

Audit trail

Every approval and rejection should record who acted, when, at what value and why. A rejection without a reason sends the requester back to guess. A log that shows only the final approver can't answer the auditor's question: did the right person approve at the right level, before the PO went out?

• Log each approval with a timestamp, the user and the value at the time of approval
• Require a reason on every rejection
• Send the request back for approval if quantity or price rises afterwards
• Keep the full history, including delegations made during leave

Most approval matrices fail in the same few ways: too many levels, gaps people can route around, and rules nobody updates.

• Too many levels. Five signatures on a ₹3,000 indent teach people to mark everything urgent or buy from petty cash.
• Split indents. A requirement broken into pieces to stay under a band. Flag repeat indents for the same item or vendor within a few days.
• Self-approval. The requester also holds the approver role and approves their own indent. Block it in the system, not just in the policy.
• Approval on the PR, not the PO. The PO goes out at a higher value or to a different vendor than the one approved.
• No delegation. The plant head is on leave and everything waits a week. Name a delegate with the same limits and a date range.
• Stale matrix. The matrix still routes to someone who has moved on. Review it every quarter and after every reorganisation.
• Emergency as the default route. If the emergency path carries a large share of indents, spend control has quietly moved to whoever answers the phone.

GODOWN is customised to the approval matrix you already use, so your controls stay the same and every decision is on record for audit. Beyond approvals, you get one procurement partner for every category, with competitive quotes, one PO trail and tracked delivery with a GST tax invoice. See the Approvals module.