Procurement Glossary

Acquisition Cost: The total expenditure a company incurs to acquire assets, attract new clients, or take over another company. Also known as the cost of acquisition, it is a key business metric for companies and investors. This cost includes the final price recorded for property or equipment, factoring in discounts, closing costs, and other necessary expenses.

Artificial Intelligence: Artificial Intelligence (AI) in procurement refers to the use of advanced algorithms and machine learning technologies to enhance and automate various aspects of the procurement process. AI can significantly improve efficiency, decision-making, and strategic planning by analyzing large volumes of data and providing actionable insights.

Category Management: A strategic approach to procurement and supply chain management that involves organizing and managing procurement activities by grouping similar products or services into categories. This method aims to optimize purchasing decisions, improve supplier relationships, and achieve better overall value for the organization.

Chief Procurement Officer: A Chief Procurement Officer (CPO) is a senior executive responsible for overseeing and managing an organization’s procurement and supply chain activities. The CPO plays a critical role in ensuring that procurement activities contribute to the organization’s success, both strategically and operationally.

Contract Management: Collaborating closely with suppliers and internal customers to minimize the total cost of ownership and maximize supply chain efficiencies throughout the duration of the contract.

Cost Management: The planning, monitoring, and controlling of costs to ensure that an organization’s expenditures are kept within budget and aligned with financial objectives.

Covered Spend: The portion of an organization’s total procurement spend that is managed through formal procurement processes and systems. It includes contracts and agreements, procurement policies, and strategic sourcing.

Delivery Terms: also known as Incoterms (International Commercial Terms), define the responsibilities and obligations of buyers and sellers in a transaction related to the delivery of goods. These terms specify who is responsible for the costs, risks, and logistics associated with transporting goods from the seller to the buyer.

Demand Planning: The process of analyzing historical sales data and current trends to predict the future demand for a product or service and developing a strategy to meet that demand

Digital Procurement: The use of technologies like process automation, Artificial Intelligence (AI), and data analysis within software or portal systems enhances the procurement process. Digital procurement offers benefits such as reduced manual labor, cost savings, greater organizational transparency, and enhanced customer experiences.

Direct Procurement: The process of acquiring raw materials, resources, goods, and services that are essential for a business’s core operations.

Enterprise Resource Planning (ERP) System: Integrated software solutions that help organizations manage and streamline their core business processes across various departments. These systems consolidate data and automate tasks related to functions such as finance, human resources, supply chain management, manufacturing, and customer relationship management.

E-Procurement: The electronic procurement process, often referred to as eProcurement or supplier exchange, involves requisitioning, ordering, and purchasing goods and services online. Typically, this process occurs in business-to-business (B2B) transactions.

ESG: A set of criteria used to evaluate a company’s performance and practices in Environmental, Social, and Governance. This criterion is used by investors, stakeholders, and other entities to gauge a company’s long-term sustainability and ethical impact.

Indirect Procurement: Purchasing goods, services, and resources that are not directly involved in the production of a company’s core products or services but are necessary for its day-to-day operations.

Logistics Management: Oversees the acquisition, storage, and transportation of inventory from its origin to its destination. This process includes managing inventory and resources, as well as ensuring that goods are delivered to the correct location, at the right time, and to the appropriate customer.

Managed Services: The practice of outsourcing the management and responsibility of certain business functions or processes to a third-party service provider. This model allows organizations to focus on their core activities while relying on external experts to handle specific tasks or services. It can cover a range of functions, including IT infrastructure, cybersecurity, software management, human resources, and more.

Market Research: The process of gathering, analyzing, and interpreting information about a market, including information about the target audience, competitors, and the overall industry environment. The goal of market research is to provide actionable insights that help businesses make informed decisions and develop effective strategies.

Mergers & Acquisitions (M&A): Various methods of combining companies to enhance their capital structure. These methods can include purchases, tender offers, management acquisitions, consolidations, or mergers.

OEM Procurement: The process of sourcing and purchasing components, parts, or products directly from Original Equipment Manufacturers (OEMs). In OEM procurement, businesses acquire these components to integrate them into their own products or systems.

Purchasing: A critical function in procurement and supply chain management, focusing on obtaining the required resources efficiently, cost-effectively, and in compliance with organizational policies.

Procurement: The process of acquiring goods, services, or works from external sources. It involves various activities such as identifying needs, supplier selection, purchasing, and contract management.

Procure to Pay (P2P): A structured process that encompasses receiving goods or services and making payments, procure-to-pay (P2P) is integral to the broader procurement cycle. It links purchasing with accounts payable (AP) and has a direct impact on a company’s financial forecasts and quarterly statements. P2P helps control costs by minimizing manual, repetitive tasks, simplifying three-way matching, enhancing accuracy, and improving overall efficiency.

Request for Proposal (RFP): A formal document that solicits proposals from potential suppliers for goods or services. It typically includes specifications and criteria for evaluation and includes detailed proposals that outline how the vendor will meet the organization’s needs.

Request for Quotation (RFQ): A document used by organizations to solicit price quotes from suppliers or vendors for specific goods or services. It is typically used when the requirements are clear and well-defined, and the main objective is to compare prices and select the best supplier based on cost and other factors.

RFx: Software solutions designed to manage the Request for Proposal (RFP) process, including drafting requests and managing supplier responses. These tools streamline procurement and bidding procedures by utilizing features like template libraries, automated responses, and even artificial intelligence.

Risk Management: Identifying, assessing, and mitigating potential risks associated with the procurement process. This includes developing strategies to minimize or manage these risks, such as diversifying suppliers, negotiating favorable contract terms, implementing quality control measures, and establishing contingency plans.

Sole Source: A procurement situation where a specific supplier is the only available or qualified provider for a particular product or service. The supplier typically has unique expertise or highly specialized service, technology, or proprietary products that are not available from any other source.

Source to Pay (S2P): An integrated procurement process that encompasses the entire lifecycle of acquiring goods and services, from the initial sourcing of suppliers to the final payment.

Sourcing: The process of identifying, evaluating, and contracting suppliers of goods or services. Sourcing aims to find the most cost-effective and efficient suppliers.

Sourcing Manager: A person who drives purchasing decisions for an organization based on scenario analysis, market trends, and cost and negotiates contracts with key suppliers, ensuring transparency of spending.

Strategic Sourcing: A supply chain management approach where businesses systematically collect and utilize vendor and supplier information to maximize the overall value throughout the supply chain. Unlike traditional purchasing, which focuses on securing the lowest price for individual items, strategic sourcing emphasizes the total cost and value of the entire process. This method involves ongoing market analysis and continuous assessments of vendor performance and pricing. The benefits of strategic sourcing include significant short-term cost savings, a more sustainable supply chain, and stronger long-term relationships with suppliers and vendors.

Supplier Relationship Management (SRM): The practice of managing relationships and performance with suppliers to ensure they meet the company’s requirements in terms of quality, delivery, and cost.

Supplier Diversity: A business strategy aimed at including a diverse range of suppliers in an organization’s procurement process. The goal is to promote the participation of businesses owned by underrepresented or disadvantaged groups, such as minority-owned, women-owned, veteran-owned, LGBTQ+-owned, and disabled-owned enterprises.

Supply Chain: The interconnected network of organizations, people, activities, information, and resources involved in the production and delivery of a product or service from raw materials to the final consumer. The supply chain encompasses the entire lifecycle of a product. It involves coordinating with various stakeholders, including suppliers, manufacturers, distributors, and customers, to achieve these objectives and enhance overall business performance.

Sustainable Procurement: Seeking to align procurement practices with broader sustainability goals, supporting corporate social responsibility and contributing to global environmental and social improvements. It’s the practice of achieving procurement goals with minimizing negative effects on the environment and society, while also promoting long-term economic benefits.

Tail Spend: Also known as uncovered spend, tail spend is the portion of a company’s total procurement spend that is composed of numerous small, infrequent purchases. These purchases are often made outside of the main procurement processes and are typically lower in value compared to strategic or high-value purchases.

Transformation Strategy: A comprehensive plan designed to fundamentally change and improve an organization’s operations, processes, and business model to achieve significant improvements in performance, efficiency, and competitiveness. This strategy typically involves rethinking and redesigning various aspects of the organization to adapt to changing market conditions, technological advancements, or internal challenges.

Vendor Managed Inventory (VMI): A supply chain agreement where the supplier manages the inventory levels of products at the buyer’s location.