Procurement Terms and Definitions can be challenging
This glossary defines the most common definitions and terms in procurement.
AI in Procurement Software
Procurement software leveraging AI-Technologies are revolutionizing the way procurement professionals work. By automating repetitive and manual tasks, it helps to increase efficiency, accuracy, and speed. With advanced analytics and machine learning algorithms, procurement software powered by AI is capable of predicting market trends, identifying cost savings opportunities. This results in improved overall performance and cost savings for organizations, making AI in procurement software a valuable tool for procurement professionals.
Best spend analytics software
Organizations are aiming to implement the best spend analytics software in order to gain insight into their spending patterns and locating cost-saving opportunities. A user-friendly interface, customizable dashboards and reports, and robust analytics capabilities, such as real-time data tracking and advanced data visualization, are essential features of the best spend analytics software.
Bill of material BOM
A bill of materials (BOM) is a detailed list of all the raw materials, components, and assemblies needed to create a product. From a procurement perspective, a bill of materials is a useful reference as it documents the ideal item and quantities required to produce the goods.
Blanked Purchase Order
A Blanket Purchase Order (BPO) is a type of procurement agreement that allows an organization to place multiple, recurring orders for goods or services from a preferred supplier over a set period of time, with pre-agreed terms and prices.
A buyer (purchaser or procurement professional) is an individual responsible for purchasing goods and services for an organization. For example, production materials, raw materials, and operating materials. Buyers have a focus on cost savings and supplier relationship management. In larger companies, buyers are separately concerned with operational and strategic tasks.
Commodity prices refer to the cost of goods that are traded in bulk and standardized, such as metals, energy, and agricultural products. The fluctuations in commodity prices can impact global markets and play a significant role in determining the cost of living. Procurement organizations actively track and leverage commodity price information to negotiate competitive prices.
Tools for cost modeling can aid businesses in making strategic choices regarding their operations, goods, and services. By examining multiple cost elements and scenarios, businesses may produce precise cost estimates, optimize their operations, and increase their overall profitability. Additionally, historical purchase data can be found and analyzed by cost modeling tools to predict future costs.
Cost analysis in procurement
The cost analysis should show which costs elements are incurred by which cost centers or cost units - and, above all, where key spendings are occurring. Among other things, the following should be analyzed: direct costs, overhead costs, variable costs, fixed costs, secondary costs, planned costs, and part costs.
Cost avoidance is a proactive strategy that helps businesses save money by identifying potential costs and taking steps to prevent them. Procurement Departments often refer to them as "soft savings." Companies can improve their bottom line and enhance their long-term financial stability by implementing cost avoidance measures.
Cost reduction is the process through which companies identify and get rid of unnecessary expenses in an effort to boost profitability. Procurement teams can save costs and boost profits by streamlining their purchasing procedures, negotiating better prices with suppliers, and spotting cost-cutting possibilities.
Cost savings tracking software
Cost-savings tracking software can assist businesses with saving money by optimizing expenses and identifying cost-saving opportunities. Organizations can improve their bottom line, track their cost-down-projects, and monitor and measure the impact of cost-saving initiatives. Thus making it an effective tool for procurement departments that are looking to reduce costs and improve their financial performance.
A credit note is a financial document that serves as a form of credit memo issued by a seller to a buyer. It is used to adjust or reduce the amount owed by the buyer for goods or services that have already been invoiced, providing a convenient way to resolve billing discrepancies and maintain customer satisfaction.
Decentralized procurement is a procurement strategy that involves delegating purchasing decisions to different departments or individuals within an organization. By empowering decentralized purchasing, companies can streamline their procurement processes, increase efficiency, and reduce costs while ensuring that each department's unique needs and requirements are met.
Digitalization in procurement is a transformative trend that enables companies to optimize their purchasing processes through the use of digital technologies such as automation, AI, and cloud-based platforms. By implementing digital procurement solutions, organizations can reduce manual workloads, increase data accuracy, and improve supply chain visibility, leading to better decision-making and cost savings.
Direct procurement is the process of sourcing and purchasing raw materials and goods that are directly used in the production or delivery of a company's products or services. By effectively managing direct procurement, organizations can improve their supply chain efficiency, reduce costs, and maintain a competitive advantage in their industry.
E-procurement software solutions
E-procurement software solutions are transforming the way organizations approach procurement processes. It is automating manual tasks, streamlines the purchasing process, and provides real-time visibility into company spending. Thus E-procurement software can help companies save time, reduce costs, and increase efficiency.
Enterprise resource planning ERP
Enterprise resource planning (ERP) is a type of business management software that enables companies to integrate and manage various core business processes in a single system, such as accounting, inventory, procurement, and human resources. Organizations can increase operational efficiency and gain valuable insights into their business performance by implementing an ERP system.
An escalation clause is a contractual provision that enables the adjustment of product or service prices to account for market fluctuations or unexpected events. This clause can benefit both buyers and sellers by providing a means of adapting to changing business conditions and reducing risk.
An exchange rate (also: foreign exchange rate) is the value of one currency in relation to another. Fluctuations in exchange rates can have a significant impact on international trade and commerce, affecting the prices of imported and exported goods and services, as well as the profitability of businesses operating across borders.
A force majeure is a contractual clause that excuses non-performance in events beyond the control of the parties involved. This clause protects parties from breaches of contract due to events such as natural disasters, pandemics, war, floods, earthquakes, and storms, for example.
Forecasting in procurement
Forecasting in procurement enables businesses to anticipate future demand and plan their purchasing activities accordingly. By leveraging historical data, market trends, and other relevant factors, procurement professionals can make informed decisions and minimize the risk of stockouts, overstocking, or other supply chain disruptions. A well-executed procurement forecasting strategy can help organizations optimize their inventory levels, reduce costs, and improve customer satisfaction.
Incoterms, or International Commercial Terms, are standardized trade terms used in international transactions. These terms define the responsibilities and obligations of buyers and sellers in terms of transport, delivery, and insurance of goods. Choosing the right Incoterm can help avoid misunderstandings and disputes, making the procurement process smoother and more efficient.
Index pricing is a procurement strategy where prices are tied to an external index, such commodity prices. This helps to protect against price fluctuations and can provide more stability in procurement. Index pricing is commonly used in industries such as construction and manufacturing.
Landed costs refer to the total cost of a product, including the price, freight, insurance, and any additional charges incurred during the shipment process. Properly calculating landed costs can help businesses make informed decisions about pricing, profitability and supplier selection.
Life cycle costs
Life cycle costs are an important consideration in procurement, as they take into account the total cost of a product or service over its entire lifespan. This includes not only the initial purchase price but also maintenance, operating, and disposal costs. By factoring in life cycle costs, procurement professionals can make better and cost-effective purchasing decisions.
Linear pricing in procurement refers to a pricing model where the cost of a product or service is directly proportional to the quantity and a certain cost driver such as dimensions or weight of the purchased good. This model is commonly used in industries such as manufacturing, construction, and transportation.
Market intelligence describes systems, methods, and techniques that aim to support and prepare management decisions through systematic analysis of the market environment. Thus giving companies useful insights to position the company strategically.
Negotiation in procurement is a crucial skill for businesses to save costs and get the best deals. Topics of negotiation could include optimal pricing, volume variation, quality, delivery reliability, listing, values, win-win, investments, expectations, and constraints. A position in negotiations always depends on whether it is a buyer's or seller's market.
Original equipment manufacturer OEM
OEM is the abbreviation for Original Equipment Manufacturer. In the automotive and mechanical engineering sectors, companies are referred to as OEMs that combine self-manufactured or externally sourced components into complete vehicles or machines and offer them independently on the market.
Outsourcing procurement services can be a cost-effective solution for businesses seeking to streamline their operations and maximize their resources. By partnering with an experienced procurement outsourcing provider, organizations can benefit from access to specialized expertise and technology, improved efficiency, and reduced risk. With outsourcing, companies can focus on their core competencies, while leaving non-core functions to trusted external experts.
Payment terms in procurement refer to the conditions under which a supplier will be paid for their goods or services. Negotiating favorable payment terms can help businesses to optimize cash flow and manage their working capital effectively. By establishing clear payment terms, businesses can reduce the risk of disputes, late payments, and supplier dissatisfaction.
Predictive analytics in procurement
Predictive analytics in procurement is transforming the way organizations approach sourcing and purchasing. By using advanced algorithms and data analysis, predictive analytics helps procurement professionals to anticipate market trends, identify cost savings opportunities, and make informed decisions.
Procure to pay automation
Procure-to-pay automation is a process that streamlines the procurement process from requisition to payment. It automates manual tasks, such as invoice processing and payment approvals, procure-to-pay automation can increase efficiency, reduce errors, and improve overall procurement performance.
Procure to pay software solutions
Procure-to-pay software solutions streamline the procurement process from requisition to payment, improving overall efficiency and reducing manual errors. With advanced analytics and automation capabilities, the best procure-to-pay software solutions can help organizations save time and money, increase visibility into spending, and make informed decisions.
Procurement analytics software solutions
Procurement analytics software solution provides valuable insights into spending, supplier behavior, and market trends, helping organizations to make informed decisions and optimize their procurement strategies. With real-time data advanced analytics capabilities, such as data visualization and customizable dashboards, procurement professionals stay ahead in a competitive market to achieve their strategic goals.
Procurement automation software
Procurement automation software streamlines the procurement process by automating manual tasks, such as invoice processing and payment approvals, improving overall efficiency and reducing errors. With advanced analytics capabilities, the best procurement automation software can help organizations save time and money, increase visibility into spending, and make informed decisions.
Procurement intelligence software
Procurement intelligence refers to the usage of data, technology, and analytics to improve the procurement functions of an organization. It involves gathering and analyzing internal and external data, such as supplier data, market data such as exchange rates, Raw material, etc., and internal procurement processes, to gain insights to make informed decisions about purchasing activities. Procurement intelligence software provides organizations with valuable information about market data to help procurement professionals make informed decisions and optimize their strategies.
Procurement management system
A procurement management system is a software solution designed to streamline the procurement process, from requisition to payment. By automating manual tasks, such as invoice processing and payment approvals, procurement management systems can increase efficiency, reduce errors, and improve overall procurement performance.
Procurement management tools
Procurement management tools are designed to support the procurement process, from requisition to payment. Key procurement tools include procurement workflows, a request wizard, intelligent request generation, online bid advertisements, vendor rating and scoring, quick contract creation, benchmarking and many more.
Procurement risk analysis
Procurement risk analysis is the process of identifying, assessing, and mitigating risks associated with procurement activities. By analyzing potential risks, such as supplier default or price fluctuations, procurement professionals can take proactive measures to minimize their impact and ensure the success of procurement projects.
Procurement savings tracker
A Procurement Savings Tracker is an effective tool for any company looking to optimize their spending and improve their bottom line. It allows Procurement professionals to monitor and analyze activities, identify areas where you can reduce costs, and track your savings projects over time.
A procurement software is a digital platform that streamlines and automates purchasing for organizations of all sizes. It simplifies procurement tasks, such as requisition management, vendor selection, and invoice processing, and provides real-time insights into procurement data to help organizations make informed purchasing decisions.
Procurement spend analysis
Procurement Spend Analysis is the process of reviewing an organization's spending patterns and data to identify areas where savings can be made. This analysis helps organizations uncover inefficiencies and areas for improvement to make data-driven decisions that lead to cost savings and process optimization.
Procurement technology solutions
Procurement technology solutions are digital tools and platforms designed to improve the efficiency and effectiveness of procurement processes. These solutions help organizations automate manual tasks, streamline workflows, and provide real-time data and analytics to inform decision-making.
Purchase to pay automation
Purchase to pay (P2P) automation is a process that streamlines the procurement of goods and services, reducing manual efforts and increasing efficiency. By automating the P2P process, organizations can save time, reduce errors and increase visibility into their spending. Implementing P2P automation leads to increased efficiency, cost savings, and improved supplier relationships.
Risk management in procurement
Risk management in procurement includes identifying, assessing, and prioritizing potential risks. An effective procurement risk management strategy supports companies in minimizing costs, maintaining operational efficiency, and minimizing the impact of unexpected events.
Spend analytics software
Spend analytics software collects, analyzes, and manages data on an organization's spending patterns and supplier relationships. By utilizing spend analytics, organizations can gain insights into their spending habits, identify areas for cost savings, and make informed decisions about procurement strategies.
Strategic sourcing software
Strategic sourcing software is used to support organizations during purchasing process. It streamlines all sourcing activities and optimizes supplier relationships. As a result, strategic sourcing software supports procurement organizations in gaining insights and making strategic decisions that lead to cost savings and increased efficiency within the sourcing department.
Supplier management software
Supplier management software is used to support organizations to manage their relationships with suppliers, track performance, and ensure compliance with procurement policies. By using supplier management software, organizations can increase efficiency, reduce costs, and minimize supply chain risk.
Sustainable supply chain management
Sustainable supply chain management is the practice of designing and managing a supply chain that minimizes negative environmental and social impact while promoting economic viability. By implementing sustainable practices, organizations can reduce their carbon footprint, improve supplier relationships, and enhance their reputation as socially responsible companies, leading to long-term success.