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Glossary of common Terms every procurement professional should know



A

AMENDMENT/CHANGE ORDER: A written modification to a contract or purchase order or other agreements.

ARO: After Receipt of Order.


B

BARTERING: A type of transaction involving no money or cash where one party provides one type of goods in exchange for another type of goods. Bartering can be carried out domestically or globally.

BILL OF LADING: A bill of lading is a written receipt or contract that carrier must give, showing a list of goods delivered to it for transportation. The order bill of lading is negotiable and it enables a shipper to collect for a shipment before it reaches its destination. The original bill of lading should be sent along with a draft drawn on the consignee through a bank. When the consignee receives the lading indicating that payment has been made, the lading will be surrendered to the carrier's agent, the carrier will then ship the goods to the consignee, and the bill of lading will be surrendered to the carrier.

BLANKET ORDER: The blanket order is a contract under which a vendor agrees to provide goods or services on a purchase-on-demand basis. The prices, terms, conditions and the period covered are often established by contract (no quantities are specified). Shipments will be made as the purchaser requires.


C

CAVEAT EMPTOR: Latin for let the buyer beware.

CETERIS PARIBUS: Everything else being equal.

CIF: Abbreviation for “Cost, Insurance, and Freight.” The supply chain term that indicates that the seller pays for the cost marine insurance and transportation to the buyer's country port of entry.

COD: A payment term meaning cash is paid upon delivery.

COOPERATIVE PURCHASING: Cooperative purchasing is basically combining of requirements of two or more governmental units to obtain the benefits of volume purchases and/or to reduce in administrative expenses.

CROSS-DOCKING: Costs are reduced by the process of receiving a product and shipping it out immediately without putting it into storage. The process is referred to as cross-docking.


D

DEBARMENT/Blacklisted: Debarment means the disqualification of a person to receive invitations for bids or requests for proposals. It also includes the award of a contract by a government body, for a specified time proportional with the seriousness of the offense, the failure, or the inadequacy of performance.


E

ESCALATION CLAUSE: Escalation clause represents a contract provision that permits the adjustment of contract prices by an amount or percent but only if certain specified contingencies occur, such as changes in the vendor's raw material or labor costs.


L

L1/LOWEST RESPONSIBLE VENDOR: The vendor with the lowest price whose past performance, reputation and financial capability is deemed acceptable.

LCL: Less carload. Often refers to a freight rate that is usually higher than for a full carload.

LETTER OF CREDIT: A form of payment, used especially in international trade, that transfers funds from the buyer’s bank account to the seller’s bank account. An Irrevocable Letter of Credit cannot be cancelled or revoked by the buyer as long as all documents are proper and approved by the bank and the goods have been delivered to the specified place for shipment to the buyer.

LINE ITEM: The line item is an item of supply or service specified in a solicitation for which the vendor must specify a separate price.


P

POINT OF ORIGIN: The point of origin or shipping point is the location where a shipment received by a transportation line from the shipper.


Q

QUALIFIED PRODUCTS LIST (QPL): QPL is a list of products which are tested in advance of procurement to determine which suppliers comply with the specification requirements, because of the length of time required for test and evaluation. Some procurement professionals also refer it as an "approved brands list."


R

REQUISITION: Requisition represents an internal document that a functional department (stores, maintenance, etc.) sends to the purchasing department. This document contains the details of materials to meet its needs, replenish stocks or obtain materials for specific jobs or contracts.

RFP: Abbreviation for Request for Proposal. Another name for an RFQ.

RFQ: Abbreviation for Request for Quotation. A form used to obtain bids from suppliers.

RFP OR RFB CONFERENCE: This represents a meeting arranged to help potential bidders understand the requirements of an RFB or an RFP by a procurement office.


S

SOURCE REDUCTION PRODUCT: This represents a product that results in a net reduction in the generation of waste and includes durable, reusable, and remanufactured products. Source reduction product is also a product with no packaging or reduced packaging.

SURPLUS PROPERTY: Surplus property is the property in excess of the needs of an organization and not required for its foreseeable use. Surplus can be used or new, but it has some usefulness for the purpose it was intended or for some other purposes.

SHOULD COST MODEL: A should cost model represents  a documented calculation of an estimated price that you create by researching all material costs, labor costs, overhead costs, and profit margins that would apply to an item. Essentially, you are behaving as if you were responsible for manufacturing the item yourself. If  you use should cost model in negotiations, accuracy is the key  because you know with 100% certainty that the supplier will challenge your assumptions in attempt to turn the cost discovery negotiation process back to their side. So, you need to use well researched model and that is the only way to have the credibility you need to negotiate successfully. Bottom line, you need to have more knowledge about the supplier's business than the supplier himself does.

SPEND ANALYSIS: Spend analysis represents the process of collecting, cleansing, classifying and analyzing expenditure data with the purpose of decreasing procurement costs, improving efficiency, and monitoring compliance. It's very important process for procurement professionals because spend analysis means analyzing the historical purchasing data of a company to provide answers to questions concerning spend visibility, compliance and control. In other words, the spend analysis aims to inform strategies that realise savings on total spend and better purchasing and supply management outcomes.

STEWARDSHIP: The responsibility of an organization for managing the funds and resources entrusted to it by its member states and other donors in an ethical and transparent manner, and for the welfare and in the interest of the designated beneficiaries of the funds and resources entrusted.

STRATEGIC SOURCING: Strategic sourcing represents an institutional procurement process that continuously improves and re-evaluates the purchasing activities of a company.  Objectives of strategic sourcing are the reduction of cost while maintaining or improving quality.


T

TORT: A tort is a wrongful act, other than a breach of contract, such that the law permits compensation of damages.


V

VOLATILE ORGANIC COMPOUNDS (VOCs): Compounds that evaporate easily at room tempurature and often have a sharp smell. They can come from many products, such as office equipment, adhesives, carpeting, upholstery, paints, solvents, and cleaning products. Some VOCs can cause cancer in certain situations, especially when they are concentrated indoors. VOCs also create ozone, a harmful outdoor air pollutant.