Within the purchasing profession even basic terms like procurement and purchasing mean different things either side of the Atlantic. So don’t worry if you come across expressions or TLAs (three-letter acronyms) that you don’t understand. In an attempt to minimise the misunderstandings Efficient Purchasing has gathered together the expressions you need to know.
Annual procurement plan.
Advance purchasing request. Public request for quote/proposal (Rfx) for new products or services not yet in production (see PCR).
Matches buyers and sellers in any mar-ketplace (or exchange) to transact in any quantity at any time. Allows users to submit a request for goods and services to be bid on by suppliers.
Best alternative to negotiated agreement. Batna is often referred to as the lowest acceptable level for a buyer in a negotiation.
In e-sourcing, a bid field is anything that the buyer wants the supplier to answer. Bid fields build the price grid.
Another term for reverse auctions.
The term describing non-active participants in an e-auction. Many buyers reserve the right to dismiss the birdwatchers from their e-auctions
Blanket purchase agreement. A pro-curement vehicle that allows buyers to purchase goods or services at a pre-negotiated price with pre-negotiated terms. BPAs are usually annualized contracts.
A pervasive supply chain problem whereby order variability grows as demand signals propagate upstream. Essentially, demand spikes as orders flow back from retailer to distributor to original equipment manufacturers to tier one suppliers, and so on.
Balanced scorecard. A variant is X-BSC, cross-balanced scorecard.
A price-centric auction where buyers list what they are interested in purchasing and sellers enter competing bids.
The time difference between the monetary expenditure for raw and direct materials and supplies, and the receipt of payment from the customer for finished goods. e-commerce software companies often claim to reduce cash-to-cash cycle times.
Contract electronic manufacturer.
Center led purchasing function
In a center led purchasing function, a center of excellence focuses on corporate purchasing strategy, strategic commodities, best practices and knowledge sharing while leaving individual purchases and tactical exectution to the business units. All the advantages of centralized and decentralized models with minimal disadvantages. The center led model is based on cross-functional teams that represent all key business units, it allows the creation of flexible supply chain processes and commodity strategies.
Centralized purchasing function
A slightly newer model for purchasing, centralized purchasing is a model where all purchasing is conducted through a single central organization. While fully leveraging a corporations total spend, standardizing processes and sharing best practice, centralized purchasing has the disadvantage of losing local supply market and consumption patterns. The risk of maverick buying also increases when local supply managers do not fully agree with the centrally made decisions that impact local supply, quality or reaction time.
The focus of this issue of Efficient Purchasing. Change management is the structured approach to managing change in individuals, teams and organizations. Successful change management is often a key to success-ful purchasing transformation.
See Change Management.
The use of Web-based software for the purpose of sharing information between businesses or organizations. Design collaboration, for example, al-lows engineers at different companies to share plans and data in real time.
B2B systems that enable companies to interactively share data, develop plans and create products online.
Online materials including publica-tions and catalog data.
Sometimes called “knowledge management”, content management is a term often used to refer to the process of handling information presented in either buy- or sell-side catalogs, including part numbers, descriptions and unit sizes. It also re-fers to the process of capturing, storing, sorting, codifying, integrating, updating and protecting any and information.
Collaborative planning, forecasting and replenishment. A type of soft-ware system that enables businesses to interactively share production, inventory and order in-formation online with their partners.
Customer relationship management. The use of Web-based software to analyze customer behavior. CRM systems generally store customer information that is aggregated from sales calls, purchases and customer service centers.
Consumption and specification management. CSM is the assess-ment of internal demand for external goods and services to identify under-lying cost drivers, align purchases with business needs, and eliminate unnecessary consumption.
Corporate social responsibility.
Collective expression for members of the executive leadership team: CEO (Chief executive officer), CFO (Chief Financial officer), COO (Chief Operations Officer), CIO (Chief Information Officer), CMO (Chief Marketing Officer), CPO (Chief Procurement Officer) and so on.
Decentralized purchasing function
In the traditional decentralized organi-zational model for purchasing, each business, function or geographic unit within a corporation is responsible for its own purchases. By providing business units with autonomy and control over their own processes it often improves the overall satisfaction with the purchasing function. However, the decentralized model does not allow corporations to leverage the corporate spend or align BU objectives with the overall objectives for the corporation. With little of no coordination, best practice, templates and strategic know-how are unevenly distributed throughout the organization. Operating costs are often very high.
Goods or services that are part of the production process. See also Indirect goods/services.
Commerce with no set price. This is the big promise of B2B for more efficient pricing. Examples can be found in auctions and reverse auctions.
Exchange-to-exchange or enterprise-to-enterprise.
Enterprise application integration. Generally refers to the ability to share information between software systems at different companies, specifically transmitting data.
Electronic data interchange. The transmission of trade documents electronically using standardized formatting.
A common e-business buzzword, end-to-end refers to a streamlined, seamless and real-time flow of information and linkages across a value chain.
The act of acquiring/procuring/purchasing via an electronic format.
Enterprise resource planning. A set of applications that automate human resources and finances as well as handles tasks such as order proces-sing and production scheduling. For example, orders can be entered directly into a company’s planning system, for example, and manufac-turing is automatically coordinated.
Web-based execution of the sourcing process for goods and services.
Also known as an e-marketplace. A Web site for buying and selling goods and services, usually via auctions.
Financial management and accountability.
Fulfillment service provider. An orga-nization that manages and executes part or all of a company’s fulfillment process, using its own assets and resources.
In the world of e-business, fulfillment refers to the process of shipping an order to a customer, and the automation of that process.
An e-marketplace that facilitates transactions for goods and services across several industries.
An organization that installs and maintains software on behalf of a separate organization.
Goods or services that are not part of the production process.
An exchange run by several companies within the same industry, that are attempting to streamline the supply chain and aggregate buying power. Typically, members of the consortium are rivals in the “old economy.” Covisint, for example, comprises General Motors, Ford and Daimler-Chrysler. According to Federal Trade Commission anti-trust laws, industry consortia must not discriminate against qualified participants.
Initial public offering. Also internatio-nal purchasing office.
Just-in-time inventory. An inventory system model based on the idea that demand and supply channels can be coordinated to the point that desired items arrive just in time for use, thereby reducing inventory levels.
Key performance indicator.
Low-cost country sourcing.
Lead logistics provider. An organization that manages a full scope of logistics services for a company by aggregating and coordinating the services of multi-ple logistics service providers.
The processes involved in transfer-ring goods through manufacture, storage and transportation to busi-ness customers and end consumers.
Logistics visibility provider
An Internet-based service that provi-des integration to and captures data from logistics service providers; cleanses, verifies and analyzes the data; and reports on logistics activities to facilitate supply chain visibility.
Any company or employee purchase that does not meet a company’s purchasing policy. This includes using off-contract methods of procurement and non-authorized purchases. Also called rogue purchasing.
Maintenance, repair and operations. MRO products are goods and services purchased by a company that are not used in production or offered for resale. Typical MRO purchases include manufacturing supplies, computers and office supplies.
Master service agreement.
Multi round e-sourcing
An e-sourcing approach where contracts are awarded without the use of a negotiation tool such as an e-auction. In a multi round e-sourcing event the RFQ/RFP is iterated back and forth as the buyers provide feedback to suppliers in order for them to update or redefine their answers to the RFQ/RFP. It’s a more passive manner of creating competition between suppliers that can be very effective in certain cases where the traditional multi stage approach is thought to be too price centric.
Multi stage e-sourcing
The classic e-sourcing scenario where information is gathered, processed and contract awarded through the traditional RFI-RFQ-negotiation approach.
An exchange run by a company that claims to have no vested interest in an industry.
Original equipment manufacturers.
On Demand Software
See Software as a Service (SaaS).
These systems obtain information about a specific customer order as it happens. The software aggregates and evaluates customer orders and calculates how much of what product should be made in the future.
Off the shelf (products).
Peer-to-peer: Electronic file swap-ping systems that allow users to share files, computing capabilities, networks, bandwidth and storage. In the purchasing community, also taken to mean Procure-to-Pay, a solution that provides integrated tools for management of the buying process from ordering to accounts recievable.
Purchasing change request. RFx for an existing service or product for a potential renegotiation with current supplier.
Purchasing productivity tracking.
Price grid refers to the RFQ structure in e-sourcing. It defines how the suppliers should answer the RFQ and can contain bid fields spanning from component price to lifetime cost.
An exchange run by a single entity/company.
In the US, this term often covers all aspects of purchasing. It can mean both the act of finding and selec-ting a supplier, as well as the act or process of ordering and buying necessary commodities. In the UK, procurement has a stricter definition and means the act or process of ordering and buying.
An industry consortium or third party-owned exchange that offers a many-to-many model.
General term that covers all activities connected with sourcing and procurement.
Recurring revenue model
Revenue model based on subscription fees rather than up-front licensing fees.
Also called a buyer’s auction, a reverse auction empowers buyers, allowing them to find the lowest bidder among suppliers/sellers.
The supply chain that flows contrary to the traditional process of order ac-ceptance and fulfillment. For example, reverse logistics includes the handling of customer returns, the disposal of excess inventory and the return journey of empty trucks and freight waggons.
Reverse supply chain management
The process of tracking items retur-ned by customers and accounting for them in inventory; also includes resolving customer credit lines, au-tomating return policies and curbing unauthorized returns.
Request for information. When a buyer asks a seller for information about its business and capabilities.
Request for proposal. A request sent by a buyer to one or more suppliers for contract pricing and/or services for a specified period of time. Also used as request for price.
Request for quote. A request sent by a buyer to one or more sellers for the pricing and availability of a defined quantity of specific items.
See Maverick buying.
Return on investment.
The sell-source-ship model for distributors, as opposed to the traditional buy-hold-sell (BHS) model. Dell Computers is the best-known example.
Software as a Service. An application delivery model where the vendor operates the application for use by its customers over the internet. SaaS-vendors typically utilize a multi-tenant architecture, meaning that multiple customers are running the same software, but with a virtually seperate data. SaaS has been the dominant application delivery model for ERP-software and although initially targeted towards S/M sized corporations many L/XL firms are realizing the potential of this model. SaaS has taken the place of on-demand and ASP in purchasing solution marketing.
Supply base reduction.
Supply chain event management. A term coined to describe software that proactively alerts users when a supply chain issue arises.
Supply chain leadership.
Supply Chain Management. Refers to the analysis of and effort to improve a company’s processes for product and service design, purchasing, invoicing, inventory management, distribution, customer satisfaction and other elements of the supply chain. SCM usually refers to an effort to redesign supply chain processes in order to achieve streamlining.
Supply chain planning.
Sellers post goods for sale and buyers bid on them.
Stock keeping unit is an identification, usually alphanumeric, of a particular product that allows it to be tracked for inventory purposes. Typically, an SKU is associated with any purchasable item in a store or catalog. An SKU is not the same as a product model number from a manufacturer, although the model number could form all or part of the SKU. The SKU is established by the merchant.
Service Oriented Architecture. A technology design model primarily utilized by SaaS vendors. Many enterprise software developers believe that SOA can help businesses respond more quickly and cost-effectivly to changing market conditions due to modularized and user focused development.
Spend analysis is the act of mapping a corporations spend over suppliers and categories.
Purchases from a non-contracted source. Spot buys usually occur in emergency situations, when a buyer’s strategic suppliers are unable to provide the required product.
Supplier performance measurement.
Supplier relationship management.
Socially Responsible Procurement
The process of determining long-term supply requirements, finding sources to fulfill those needs, selec-ting suppliers, negotiating purchase agreements and managing suppliers’ performance.
Terms and conditions.
Total cost analysis.
Total cost of ownership. In the the facility management world, this can also mean total cost of occupancy.
Third-party fulfillment. Services can include: Order handling, Inventory Management, Quality Inspection, Goods Labeling, Warehousing, Freight Consolidation and Distribution etc.
Third-party logistics, where logistics are managed by a third party.
An organization that manages and executes a particular logistics function, utilizing its own assets and resources on behalf of another company.
Theory of constraints. According to TOC principles, an operation is a chain of inter-dependent resources, in which only a few elements – called constraints – control the output of the entire operation.
Any product offering that extends beyond simple buy-and-sell capabilities. This includes logistics, collaborative design, payment, verification and settlement.
A study which gives the respondent quick insight into areas of improvement, profit improvement potential, change of success and road map for change.
Value chain analysis
Method to analyze potential for improved efficiency in several com-panies and production steps.
An e-marketplace that serves a particular industry.
Visibility, or total visibility
The ability to receive real-time information and view data from all tiers of a company’s supply chain, from the raw materials all the way to the needs of consumers.
Volume leveraged purchase.
Vendor managed inventory. When sellers maintain the inventory they own on the buyers’ premises. This helps minimize the buyer’s investment in inventory.
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and (portions) Jörgen Hornsten-Gran / i-Procure