Why am I unable to create a Sourcing Request from Requisition? I get below error on clicking Create Sourcing Request button:

You cannot send sourcing request for requisitions that contain PunchOut items, kit items, service items, Spot Buy items, and collaborative items.

However I'm able to submit it in another realm with Service Item.

It is an expected behavior. You cannot send sourcing requests for PunchOut items, Spot Buy items, kit items, collaborative items, and service items.

Only Item Category = D is considered as a Service item in out of the box configuration. If you use custom Item Categories (and name it as Service) you will still be able to create sourcing requests.

You can also add them when the Requisition moves to Pricing Terms Received state which happens after the Sourcing Request is completed.

Refer to Initiating quick sourcing for requisitions section from Purchasing guide for procurement professionals for additional information.

Purchasing