Purchasing glossary

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.

AA

Award analysis.

APP

Annual procurement plan.

APR

Advance purchasing request. Public request for quote/proposal (Rfx) for new products or services not yet in production (see PCR).

Auction

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.

B2B

Business-to-business

B2C

Business-to-consumer

B2D

Business-to-distributor

B2G

Business-to-government

Batna

Best alternative to negotiated agreement. Batna is often referred to as the lowest acceptable level for a buyer in a negotiation.

Bid field

In e-sourcing, a bid field is anything that the buyer wants the supplier to answer. Bid fields build the price grid.

Bid/quote process

Another term for reverse auctions.

Birdwatching

The term describing non-active participants in an e-auction. Many buyers reserve the right to dismiss the birdwatchers from their e-auctions

BPA

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.

Bullwhip effect

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.

BSC

Balanced scorecard. A variant is X-BSC, cross-balanced scorecard.

Buyer-driven auctions

A price-centric auction where buyers list what they are interested in purchasing and sellers enter competing bids.

Cash-to-cash cycles

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.

CEM

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.

Change Management

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.

CM

See Change Management.

Collaboration

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.

Collaborative commerce

B2B systems that enable companies to interactively share data, develop plans and create products online.

Content

Online materials including publica-tions and catalog data.

Content management

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.

CPFR

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.

CRM

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.

CSM

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.

CSR

Corporate social responsibility.

C-suite

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.

Direct goods/services

Goods or services that are part of the production process. See also Indirect goods/services.

Dynamic commerce

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.

E2E

Exchange-to-exchange or enterprise-to-enterprise.

EAI

Enterprise application integration. Generally refers to the ability to share information between software systems at different companies, specifically transmitting data.

EDI

Electronic data interchange. The transmission of trade documents electronically using standardized formatting.

End-to-end solution

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.

E-procurement

The act of acquiring/procuring/purchasing via an electronic format.

ERP

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.

E-sourcing

Web-based execution of the sourcing process for goods and services.

Exchange

Also known as an e-marketplace. A Web site for buying and selling goods and services, usually via auctions.

FMA

Financial management and accountability.

FSP

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.

Fulfillment

In the world of e-business, fulfillment refers to the process of shipping an order to a customer, and the automation of that process.

Horizontal exchange

An e-marketplace that facilitates transactions for goods and services across several industries.

Host

An organization that installs and maintains software on behalf of a separate organization.

Indirect goods/services

Goods or services that are not part of the production process.

Industry consortium

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.

IPO

Initial public offering. Also internatio-nal purchasing office.

JIT

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.

KPI

Key performance indicator.

LCCS

Low-cost country sourcing.

LLP

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.

Logistics

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.

Maverick buying

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.

MRO

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.

MSA

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.

Neutral exchange

An exchange run by a company that claims to have no vested interest in an industry.

NPC

Non-price criteria.

OEM

Original equipment manufacturers.

On Demand Software

See Software as a Service (SaaS).

Order/demand capture

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.

OTS

Off the shelf (products).

P2P

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.

PCR

Purchasing change request. RFx for an existing service or product for a potential renegotiation with current supplier.

PPT

Purchasing productivity tracking.

Price grid

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.

Private exchange

An exchange run by a single entity/company.

Procurement

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.

Public exchange

An industry consortium or third party-owned exchange that offers a many-to-many model.

Purchasing

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.

Reverse auction

Also called a buyer’s auction, a reverse auction empowers buyers, allowing them to find the lowest bidder among suppliers/sellers.

Reverse logistics

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.

RFI

Request for information. When a buyer asks a seller for information about its business and capabilities.

RFP

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.

RFQ

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.

Rogue purchasing

See Maverick buying.

ROI

Return on investment.

S3

The sell-source-ship model for distributors, as opposed to the traditional buy-hold-sell (BHS) model. Dell Computers is the best-known example.

SaaS

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.

SBR

Supply base reduction.

SCEM

Supply chain event management. A term coined to describe software that proactively alerts users when a supply chain issue arises.

SCL

Supply chain leadership.

SCM

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.

SCP

Supply chain planning.

Seller-driven auctions

Sellers post goods for sale and buyers bid on them.

SG

Sourcing group.

SKU

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.

SOA

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.

SOI

Supplier-owned inventory.

Spend Analysis

Spend analysis is the act of mapping a corporations spend over suppliers and categories.

Spot buys

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.

SPM

Supplier performance measurement.

SRM

Supplier relationship management.

SRP

Socially Responsible Procurement

Strategic sourcing

The process of determining long-term supply requirements, finding sources to fulfill those needs, selec-ting suppliers, negotiating purchase agreements and managing suppliers’ performance.

T&Cs

Terms and conditions.

TCA

Total cost analysis.

TCO

Total cost of ownership. In the the facility management world, this can also mean total cost of occupancy.

3PF

Third-party fulfillment. Services can include: Order handling, Inventory Management, Quality Inspection, Goods Labeling, Warehousing, Freight Consolidation and Distribution etc.

3PL

Third-party logistics, where logistics are managed by a third party.

3PL provider

An organization that manages and executes a particular logistics function, utilizing its own assets and resources on behalf of another company.

Value-added services

Any product offering that extends beyond simple buy-and-sell capabilities. This includes logistics, collaborative design, payment, verification and settlement.

Value Assessment

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.

Vertical exchanges

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.

VLP

Volume leveraged purchase.

VMI

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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