Puzzled by all the jargon around procurement?

Here’s a glossary of procurement terms that we frequently use.

Combining buying power within a company or with other companies in order to gain best pricing and service agreements from suppliers (usually will require a commitment of volume).

Optimising business processes to ensure maximum value can be achieved for the organisation while mitigating risk and minimising wastage.

Outsourcing of business functions or processes, such as procurement, to a third party.

The different areas of spend are divided into two main categories: indirect (or non-strategic) materials, (e.g. office supplies), that are required for the operation of a business and direct (or strategic) materials, such raw materials that are intrinsic to the delivery of a company’s product or service (usually included in the cost of goods sold).

The process of enabling buyers and suppliers to engage in electronic commerce. This might include the development of e-catalogues and electronic integration of business processes between buyer and supplier.

The management of a spend category as a distinct category and not just as a supplier or a contract. This includes the continual monitoring of spend, supplier performance, category market intelligence and relevant legislative changes in the category.

The degree to which buyers purchase from a company’s preferred negotiated supplier agreements vs. alternative sources. In order to realise savings, companies must drive high compliance.

Electronic tools that automate the strategic sourcing process. Tools include eRFIs (request for information from buyers to suppliers), eRFQs (request for price quotes), eRFPs (request for a formal proposal); reverse auctions (on-line negotiation tools), and bid optimisation (decision support).

Electronic tools that automate the transactional purchasing process. Through eProcurement, buyers search electronic catalogues (eCatalogues) to find required items, place requisitions, route for approval, and send to suppliers for fulfilment. Some eProcurement tools support the back-end invoicing and payment processing.

The Ministry of Economic Development (MED) is leading a new strategic approach to government procurement policy and the improvement of current practice across government. While the Ministry provides policy advice and has set some mandatory procedural rules, individual departments or agencies are responsible for their own purchasing decisions

GPO is an entity (such as GSB Supplycorp) that is created to leverage the purchasing power of a group of businesses to obtain discounts from vendors based on the collective buying power of the GPO members

The assignment of managerial responsibility for all or select aspects of the procurement process to a third-party specialist.

The business management function that ensures identification, sourcing, access and management of external resources that an organisation needs fulfil its strategic objectives.

The transfer of management and execution of one or more procurement management activities, entire procurement sub segments, or the entire procurement business function to an external service provider.

Either ‘hard’ or ‘soft’. Hard savings translate to a company’s bottom line. Procurement savings involves a three-phase process: identification of savings during the sourcing phase, realisation of savings during the transaction phase, and continuous improvement of savings on an ongoing basis through category management and other activities. Soft savings may be process improvements, time saving or other efficiency gains.

Companies (such as GSB Supplycorp) that focus on helping companies make improvements in different areas of procurement and achieve savings through the use of category and process experts and best-of-breed technologies.

The transactional placement and processing of a purchase order.

A process whereby companies categorise and evaluate historical expenditures (at the commodity/buying category or item level) in order to inform category management opportunities.

The process of formally selecting a vendor to supply a particular product or service that is routinely purchased by a company. This process includes the definition of product and service requirements, identification of qualified suppliers, negotiation of pricing, service, delivery and payment terms, and supplier selection. The end result of the Strategic Sourcing process is a negotiated contract with a preferred supplier(s).

Management of the supply chain from raw material to final sale of finished item or service. It can also include the disposal of the item.

The assessment of ‘whole of life costs’ to provide information for the decision making process (and for budgeting purposes). This will include all attributes and costs associated with a service or good through its usable life.