A to Z Procurement Terms & Definitions
Navigating procurement can be challenging if you’re not familiar with the terms used. This A-to-Z guide will help you understand the keywords and phrases you’ll come across in procurement, making it easier to manage your purchasing needs. Let’s break it down in a simple way.
A
Ad-hoc Purchase: A one-time acquisition of a product or service for a specific, singular need.
Adaptability: The capability to modify or adjust to new situations, like disruptions in the supply chain.
Additive Manufacturing (3D printing): The process of creating a three-dimensional object by layering materials according to a digital design.
Administrator: A professional responsible for managing ongoing purchase orders or contracts, ensuring that both the organization and suppliers comply with the agreed terms and conditions.
Agile: A methodology that supports teams in delivering value incrementally and adapting quickly to changing circumstances.
Approved Supplier List: A compilation of suppliers that meet the established procurement standards.
Artificial Intelligence (AI): Advanced machine systems that extend beyond automation, assisting in procurement activities like planning, learning, reasoning, and decision-making.
As-a-Service: A business model where a product or technology is provided to the user through a cloud network.
Automation: The process of reducing manual intervention in tasks to increase efficiency and speed.
B
Benchmarking: The practice of comparing processes, practices, or performance against a standard, either within the organization or externally, to identify areas for improvement.
Benefit: The advantage or value derived from a procurement contract, such as cost savings.
Best Alternative To A Negotiated Agreement (BATNA): The fallback plan in negotiations if the parties cannot reach a mutual agreement.
Bias: Prejudiced or unfair attitudes or beliefs about someone or something.
Bid: A vendor’s proposal or offer of a price for providing a product or service.
Bid Award: Also known as a contract award, this is the conclusion of the bidding process, where the buyer selects a winning bid and formalizes the agreement with the supplier.
Bid Evaluation: The process of reviewing and comparing supplier bids to determine the best option for goods or services, based on criteria such as compliance, price, and quality.
Big Data: The vast amount of data that a business collects daily, which can be analyzed to gain competitive advantages.
Black Swan Event: An extremely rare event with a significant impact on business operations.
Bottleneck: A point in a process that causes delays or restricts the flow, leading to inefficiencies.
Bottom Line: A company's net income, is often influenced by procurement activities that contribute to growth.
Breach of Contract: A situation where a party fails to meet its obligations under a legally binding agreement.
Business Continuity: A strategy to minimize disruptions and ensure that business operations continue as normal.
Business Requirements: A clear and precise understanding of what stakeholders need before starting a sourcing project.
Brand Damage: The harm to an organization’s reputation due to negative publicity from events like environmental violations or corruption scandals.
C
Cognitive Procurement: AI-driven procurement software that analyzes historical and current data to recommend future actions.
Carbon Footprint: The total amount of CO2 emissions produced by an organization, such as a supplier, during the production of goods or services.
Category Management: Grouping similar or related products into categories, like Travel or IT, to develop tailored management strategies.
Centralized Procurement: An organizational structure where all procurement decisions are made by a central team.
Chief Procurement Officer (CPO): The executive leader in charge of overseeing all procurement activities within an organization.
Commodity: Basic raw materials that can be bought, sold, or traded, such as oil, coffee, or minerals.
Compliance: Adhering to internal policies, contractual terms, or external regulations in procurement processes.
Contract Management: Overseeing the entire lifecycle of a contract, from its creation to performance evaluation.
Corporate Social Responsibility (CSR): A business’s self-regulated efforts to act ethically and contribute positively to society.
Cost Avoidance: A metric that measures savings achieved by preventing or reducing potential cost increases.
Cost Driver: Any factor that influences the increase or decrease of procurement costs.
Cost–Benefit Analysis: Evaluating the total cost of a project against the anticipated financial and non-financial benefits.
Cross-Functional Collaboration: Bringing together individuals from different departments (like Procurement, Finance, IT) to leverage diverse skills and achieve a common goal.
Cybersecurity: The practice of protecting computer systems, networks, and data from unauthorized access or damage.
D
Dashboard: A visual tool that provides an overview of various procurement metrics.
Deliverable: The product or service that a supplier is expected to provide.
Demand Planning: Adjusting sourcing strategies to anticipate and meet changes in demand.
Decentralized Procurement: A structure where procurement decisions, below a certain spending limit, are made by authorized buyers across the organization rather than a central team.
Digitization: The transition from paper-based to computer-based processes for enhanced efficiency and transparency.
Direct Procurement: The purchase of materials or services essential to a business’s core operations.
Disruption: An event or innovation that significantly challenges or alters a business model.
Due Diligence: The process of evaluating the risks of doing business with a supplier before finalizing an agreement, such as conducting a credit check.
E
E-Catalogue: Also called a procurement catalogue, it is an online platform where buyers can order and pay for goods and services from approved suppliers.
Enterprise Resource Planning (ERP) System: A software system that integrates business intelligence with a unified database, often including procurement modules.
Ethical Sourcing: Ensuring that goods and services are procured in a manner that is responsible and sustainable.
F
Fair Trade: A movement aimed at fostering fair and equitable trade relationships, especially for producers in developing countries.
Fleet Management: The procurement and maintenance of vehicles used by an organization, including services like parking and upkeep.
Flexible Warehousing: Techniques that allow for short-term adjustments to increase or decrease storage space as needed.
Forward Buying: The practice of purchasing more than what is currently needed to avoid future price hikes.
Freight: The bulk transportation of goods by means such as trucks, trains, ships, or planes.
Fraud: Deceptive practices, such as bribery or corruption, intended to secure financial or other benefits.
G
Gap Analysis: The comparison between what has been achieved and what was planned to identify the current state and areas for improvement.
Global Sourcing: The practice of sourcing from international vendors to build a worldwide supply chain.
Green Procurement: Also known as sustainable procurement, it involves acquiring goods and services in an ecologically responsible manner to minimize environmental impact.
H
Heads of terms: A preliminary document outlining the main terms of a proposed contract between parties.
Hedging: A risk management strategy that involves purchasing similar products from multiple markets to protect against price fluctuations.
Hybrid Procurement: A procurement model that combines elements of both centralized and decentralized structures, often referred to as center-led.
I
Indigenous Procurement: The practice of purchasing goods and services from businesses owned by Indigenous individuals.
Indirect Procurement: The acquisition of goods or services necessary for an organization’s daily operations but not directly involved in producing its core product or service.
Integration: The process by which data, processes, or systems are brought together and made to work cohesively.
Internet of Things (IoT): A network of connected objects that communicate and exchange data via the Internet.
Inventory Costs: The expenses associated with storing supplies in a warehouse. These costs can be reduced through strategies like Just-in-Time supply management.
ISO Certification: A certification that recognizes adherence to one or more global standards set by the International Organization for Standardization.
J
Joint Venture: A business partnership where two parties combine resources to achieve a common objective.
Just in Case (JIC): A supply management strategy that involves holding more inventory than immediately needed to safeguard against supply disruptions and ensure business continuity.
Just in Time (JIT): A supply management approach where goods are delivered only when they are needed, reducing inventory costs and waste.
K
Kaizen: A methodology that emphasizes continuous, small-scale improvements throughout every part of an organization.
Key Performance Indicators (KPIs): Metrics used to evaluate performance in specific areas, such as delivery timeliness and product quality.
Key Risk Indicators (KRIs): Metrics used to assess and measure the risk levels of sourcing activities.
Kraljic Matrix: A strategic tool used to classify suppliers based on their importance to the organization.
L
Lead Time: The duration between placing an order and receiving the goods.
Lean: A work methodology focused on optimizing processes by eliminating waste.
Legacy Systems: Outdated software or systems that may hinder an organization’s ability to meet its goals.
License to Operate: Also known as a social license, this refers to the acceptance granted to a business by the community where it operates.
Local Sourcing: The practice of contracting with local businesses for goods and services.
Logistics: The planning, implementation, and control of the movement and storage of goods from the point of origin to the point of consumption.
M
Make or Buy Decision: The process of deciding whether to produce a good or service in-house or to purchase it from an external supplier.
Managed Service Provider (MSP): A company or supplier that manages another organization's processes or operations on its behalf.
Material Requirements Planning (MRP): A system that helps companies forecast demand for goods and materials.
Maverick Spend: Unapproved purchases made outside of an organization’s agreed procurement policies.
N
Negotiation: The process by which parties involved in a procurement deal come to a mutual agreement on price, terms, and conditions.
Net Zero: The balance between the amount of greenhouse gases produced and the amount removed from the atmosphere, with the aim of reducing a company’s environmental impact.
O
Obsolescence: The process by which a product or service becomes outdated and is no longer in demand.
Offshoring: The relocation of business processes to another country to reduce costs.
Onboarding: The process of integrating a new supplier into an organization’s procurement system.
Operating Model: A framework that describes how an organization delivers value to its customers.
Operating Costs: The expenses associated with running a business, such as payroll, rent, and utilities.
Optimization: The process of making something as efficient and effective as possible.
Outsourcing: The practice of hiring an external party to perform a task or service that could be done in-house.
Overhead Costs: The ongoing expenses associated with running a business that are not directly tied to production.
P
Parastatal: An organization or agency that is owned or controlled by the government.
Partnership: A cooperative relationship between two or more parties to achieve a common goal.
Payment Terms: The conditions under which a supplier will be paid, typically stated in the contract.
Performance Review: An evaluation of a supplier’s performance based on agreed-upon criteria.
Pilot: A small-scale test of a new process, product, or service before it is rolled out more broadly.
Price Elasticity: A measure of how much the demand for a product or service changes in response to a change in price.
Private Label: Products that are manufactured by one company but sold under another company’s brand.
Procurement: The process of acquiring goods or services, from identifying a need to finalizing a purchase agreement.
Procurement Cycle: The series of steps involved in acquiring goods or services, typically including identifying a need, sourcing, negotiation, and delivery.
Procurement Policy: A set of guidelines and rules that govern the procurement process within an organization.
Procurement Strategy: A plan that outlines how an organization will acquire goods and services to meet its objectives.
Procurement System: The software or platform that manages the procurement process, from requisition to payment.
Product Life Cycle: The stages a product goes through from development to decline.
Purchase Order (PO): A formal document issued by a buyer to a supplier, detailing the goods or services to be purchased and the terms of the agreement.
Purchase Requisition: An internal document used to request the purchase of goods or services.
Purchase-to-Pay (P2P): The end-to-end process of acquiring goods or services, from purchase requisition to payment.
Q
Quote/ Quotation: A formal document provided by a supplier that details the prices, terms, and conditions for the goods or services the supplier is offering to sell.
R
Request for Information (RFI): A document issued by a buyer to gather information about potential suppliers and their capabilities.
Request for Proposal (RFP): A document issued by a buyer to solicit bids from potential suppliers for a specific project or service.
Request for Quotation (RFQ): A document issued by a buyer to obtain pricing information from potential suppliers.
Requisition: A formal request for goods or services, typically initiated by a department within an organization.
Reshoring: The process of bringing manufacturing or services back to the company’s home country.
Risk Management: The identification, assessment, and mitigation of risks associated with procurement activities.
S
Service Level Agreement (SLA): A contract between a service provider and a customer that specifies the level of service to be provided.
Single Source: A procurement strategy where a single supplier is chosen to provide a particular good or service, even when multiple suppliers are available.
Sourcing: The process of identifying and evaluating potential suppliers to meet an organization’s needs.
Sourcing Strategy: A plan that outlines how an organization will identify and engage with suppliers to meet its needs.
Spend Analysis: The process of reviewing and analyzing an organization’s spending patterns to identify opportunities for cost savings.
Spend Category: A classification of goods or services based on their purpose or use.
Stakeholder: An individual or group with an interest in the outcome of a procurement decision or project.
Supplier Relationship Management (SRM): The process of managing interactions and relationships with suppliers to maximize value and reduce risk.
Supplier Scorecard: A tool used to evaluate and track a supplier’s performance based on key metrics.
Sustainability: The practice of procuring goods and services in a manner that meets the needs of the present without compromising the ability of future generations to meet their own needs.
T
Tail Spend: The portion of an organization’s spend that is not actively managed, typically involving low-value purchases.
Tender: A formal offer to supply goods or services at a specified price.
Third-Party Logistics (3PL): The outsourcing of logistics and supply chain management to an external provider.
Total Cost of Ownership (TCO): The total cost of acquiring, operating, and maintaining a product or service over its entire lifecycle.
V
Value for Money (VfM): The concept of achieving the best possible outcome for the money spent, considering factors like cost, quality, and risk.
Vendor: A supplier of goods or services.
Vendor Management: The process of managing and overseeing relationships with vendors to ensure they meet the organization’s needs.
W
Warehouse Management System (WMS): A software system used to manage the operations of a warehouse, including inventory management, order fulfillment, and shipping.
Weighted Scoring: A method of evaluating suppliers based on multiple criteria, with each criterion assigned a weight based on its importance.
Z
Zero-Based Budgeting (ZBB): A budgeting process that requires justifying every expense, starting from zero, rather than basing the budget on the previous year’s spending.
By familiarizing yourself with this A-Z glossary, you're setting yourself up for clearer communication, fewer misunderstandings, and better results in your procurement processes. Whether you're new to the field or a seasoned pro, these terms are tools you can use to enhance your procurement strategy and build stronger supplier relationships.
