Supply Management and Procurement Management

Container*

1) A box, typically 10 to 40 feet long, that is primarily used for ocean freight shipments. For travel to and from ports, containers are loaded onto truck chassis or railroad flatcars; 2) The packaging, such as a carton, case, box, bucket, drum, bin, bottle, bundle, or bag, in which an item is packed and shipped.

Customer*

1) In distribution, the trading partner or reseller. 2) In direct-to-consumer, the end customer or user.

Concessions

A demonstrated willingness to move away from a given position. Parties involved in a negotiation must be willing to be flexible. Without a willingness to make concessions or find alternative solutions, parties to a negotiation may become deadlocked.

Invoice*

A detailed statement showing goods sold and amounts due for orders. The invoice is prepared by sellers and serves as the document that buyers use to make payments.

Discrepancy Report

A document that details any discrepancies on a shipment or shipments noted by the receiving department of the buyer organization. The procurement group or inventory management personnel often become involved in following up on, and resolving, discrepancies with the selling organization.

Consideration

A form of mutual obligation in which all parties are bound by contracts to perform at a certain level and agree to carry out their responsibilities. Considerations can hold value and give contracts legal validity.

Contract*

A legally binding agreement between two or more parties to provide specific products or services.

Contract Relationship Manager

A manager, typically from within the procurement department, assigned to monitor the ongoing performance of the execution of a given contract.

Aftermarket*

A market for parts and accessories used in the repair or enhancement of a product. A secondary market created after the original market sales have concluded.

Kickback

A payment or gift made to someone who has facilitated an illicit or otherwise improperly conducted transaction.

Competitive Bidding*

A price or service offering by a supplier that must compete with offerings from other suppliers.

Expert Power

A source of power in negotiations that comes from an expert in a particular field, who may also be acknowledged by others as being an expert in this field.

Informational Power

A source of power in negotiations that uses facts and data.

Best Practices*

A specific process or group of processes that have been recognized as the best method for conducting an action. Best practices may vary by industry or geography, depending on the environment being used. Best practice methodology may be applied with respect to resources, activities, cost object, or processes.

Domestic Supplier

A supplier that can serve any location within a country. The database must note the country or countries that the supplier can competitively serve.

Bill of Lading*

A transportation document that is the contract of carriage containing the terms and conditions between shippers and carriers.

Coercive Power

A type of negotiation power that involves the use of punishment that can lead to failed negotiations. This is seen most commonly in the buyer-seller relationship, but can be a feature of other types of negotiation. It is the power to punish.

E-procurement and Electronic Purchasing

A way of using the Internet to make it easier, faster, and less expensive for businesses to purchase goods and services. The overall goal is to streamline the purchasing process so businesses can focus more management time on earning revenue and serving customers.

Just-in-Time (JIT)*

An inventory control system that controls material flow into assembly and manufacturing plants by coordinating demand and supply to the point where desired materials arrive just in time for use. An inventory reduction strategy that feeds production lines with products delivered just in time. Developed by the auto industry, it refers to shipping goods in smaller, more frequent lots.

Goal

An observable and measurable end result that has one or more objectives to be achieved within a relatively fixed timeframe.

Blanket Purchase Orders (BPOs)*

An order that customers place with suppliers that contains multiple delivery dates scheduled over a period of time, sometimes at predetermined prices. It is normally used when there is a recurring need for expendable goods.

Executive Sourcing Manager

An upper-level manager with sourcing responsibilities.

Amendments to Solicitation Documents

Any changes, additions, or deletions to an RFI, RFQ, or RFP, as well as any other clarifications and correspondence with suppliers.

Commodity*

Any physical item that is traded in commerce. The term usually implies an undifferentiated product that competes primarily on price and availability.

Domestic Supply Base

Characterizes a firm's set of suppliers located in the same country as the firm.

Commodity Strategies*

Commodity strategies (sometimes referred to as commodity sourcing strategies) are purchasing strategy plans that refer to items or groups of items procured by an organization.

Communication

Communication involves the transfer of information among people and places. There are various methods of communication; more than one may occur at a time. Communication involves sending and receiving information through different methods: written communication, verbal communication, nonverbal communication, and visual communication.

Inventory*

Components, raw materials, work in process, finished goods, and supplies required for the creation of goods and services. It can also refer to the number of units or value of the stock of goods held by a company.

Commodity Councils

Cross-organizational entities established to leverage a firm's purchasing power. Councils manage a well-defined set of goods or services and include the sharing of information, such as supplier information, contract terms, and even specific contracts across the firm's global operations.

Evaluation Report

Developed based on a review of the information submitted by suppliers in response to an RFI, RFQ, or RFP; it comprises an assessment of potential suppliers' capabilities in relation to the work required or products or services to be provided.

Collaborative Relationships*

Involve working with a limited group of suppliers who are strategically important to the success of the buying firm. A willingness to work jointly to identify better ways to operate or compete is characteristic of a collaborative relationship. Collaborative relationships should, by definition, be win-win.

Breach of Contract

Involves the failure, without legal excuse, to perform the obligations of a contract.

Introduction

The summation of many months or years of market evaluation, product designs, testing, and packaging. This also requires designing and setting up the supply chain.

Customer Order Fulfillment*

The typical business process that includes receiving and processing customer orders through delivery.

Competitive Advantage*

The value created by a company for its customers that clearly distinguishes it from the competition and provides its customers a reason to remain loyal.

Distribution Center (DC)*

The warehouse facility that holds inventory from manufacturing pending distribution to the appropriate stores.

Commodity Families

Used to facilitate the development of tailored procurement strategies by grouping materials or services by one or more common characteristics.

Internet*

A computer term that refers to an interconnected group of computer networks from all parts of the world (i.e., a network of networks). Accessed via a modem and an online service provider, it contains many information resources and acts as an enormous electronic message routing system.

Constraint*

A bottleneck, obstacle, or planned control that limits throughput or the utilization of capacity. Constraints are things over which the manager has little or no control.

Agency Law

Agency law is concerned with any principal-agent relationship. This involves a relationship in which one person has legal authority to act for another.

Competitive Relationships

Also known as win-lose relationships, they typically feature parties competing over a fixed amount of value. This contrasts with working jointly to create new opportunities that lead to new value for the parties. For many low-value, low-risk items required by a buyer, the relationship with suppliers should be competitive.

Classification*

An alphabetical listing of the commodities, the class or rating into which the commodity is placed, and the minimum weight necessary for a rate discount; used in the class rate structure.

Competitive Analysis

An assessment of the strengths and weaknesses of current and potential competitors. This assessment provides a firm with insights regarding their comparative positioning with competitors, suppliers, and potential suppliers in support of developing or reviewing a procurement strategy.

Defect Rate

An indicator of supplier quality. An item is defective when it does not perform within a predefined set of specifications. To calculate a defect rate, divide the number of defective units (or service occasions) by the total amount of units (or service occasions) purchased.

Internal Customer*

An individual or department that is internal to companies, as opposed to the companies' external customers.

Capital*

The resources, or money, available for investing in assets that produce output.

Convention on the International Sale of Goods

Documents maintained by the United Nations that provide a uniform text of law for the international sales of goods.

External Customers

External customers tend to be consumers of products and services that a company sells.

Direct Spend

Generally recognized as purchases of goods and services that are directly incorporated into a product being manufactured. Examples include raw materials, components, and subcontracted manufacturing services.

Indirect Spend

Generally recognized as purchases of goods and services that are not directly incorporated into a product being manufactured. Examples include janitorial services, real estate services, travel services, equipment, computers, office products, safety gear, and furniture.

Commodity Profile Information

Identifies the type and nature of a product or service, manufacturing or service delivery process, and quality requirements or standards.

Counterproductive Relationships

Involve the parties working against each other. In this kind of relationship, neither party feels any need to take responsibility for what happens in the relationship.

Growth*

In this stage, the sales of products or services are expanding. Changes to product design, manufacturing processes, and quality are all evolving to maximize this revenue stream. Additionally, the supply chain is monitored and evaluated to make sure production capacity can be maintained or even expanded.

Amendments to Contracts

Includes any agreed-upon changes to contracts.

Critical Quadrant

Includes goods and services that have a high value and consume a large relative proportion of overall supply spend. Products in this quadrant are essential to the function of a service or product, or the end customer highly values the differentiation offered by the good or service.

Leverage Quadrant

Includes items in which consolidating purchase volumes and reducing the size of the supply base should lead to a range of benefits. This quadrant features the extensive use of long-term contracts.

Electronic Data Interchange (EDI)*

Intercompany, computer-to-computer transmission of business information in a standard format.

Components*

Material that contributes to a finished product but is not the finished product itself. Examples include tires for an automobile, the power supply for a personal computer, or a zipper for a ski parka. Components for manufacturers may be considered finished products by their suppliers.

Bidding Automation

Occurs when bid packages and specifications are made available online, bidders submit their bids and proposals online, and the bid opening and award are communicated electronically. Cycle time reductions and other cost savings can be significant if the automated process is efficient.

Co-Located

Occurs when two or more groups in a firm share the same office space.

Contingency Plans*

Preparations to deal with calamities like floods and non-calamitous situations such as strikes before they occur.

Financial Managers

Procurement professionals, in some contexts, who are tasked with conducting transactions that require a substantial amount of a firm's finances.

Global Sourcing

Procurement strategies that utilize suppliers from a variety of countries.

Finished Goods*

Products that have been completely manufactured, packaged, stored, and ready for distribution.

Accessory Equipment

Products used to facilitate production; includes products such as personal computers, hand tools, desktop printers, and toolboxes.

Intellectual Property (IP)*

Property of an enterprise or individual that is typically maintained in a digital form. IP may include software program codes, digital documents, music, videos, etc.

Electronic Catalogs

Provide a user-friendly way of accessing information about a seller's products and services. The key benefit of using electronic catalogs is their low-cost search capability; if users order directly from these catalogs, perhaps with a procurement card, cycle times and ordering costs can also be reduced.

Cooperative Relationships

Relationships in which buyers and suppliers work together, often over a long period of time, to achieve common goals. They often involve both supplier and buyer working together to reduce costs, improve quality, improve delivery, and improve service, all of which affect performance.

Benchmarking*

The process of comparing performance against the practices of other leading companies for the purpose of improving performance. Companies also benchmark internally by tracking and comparing current performance with past performance.

Gap Analysis*

The process of determining and documenting the variance, or gap, between goals and current performance.

Contract Management

The process of ensuring and verifying that the parties to a legally agreed-upon contract fulfill the requirements, expectations, terms, and conditions of the agreement.

BPOs*

See Blanket Purchase Orders.

Global Commodity Councils

See Commodity Councils.

CSF*

See Critical Success Factors.

DC*

See Distribution Center.

EDI*

See Electronic Data Interchange.

IP*

See Intellectual Property.

Core Competencies*

Specific factors that a business sees as being central to the way it, or its employees, works. Core competencies provide consumer benefits, are not easy for competitors to imitate, and can be leveraged widely across many products and markets.

Cost Structure

Suppliers' total costs, including those associated with capital investment, raw materials, manufacturing, quality, storage, transportation, duties, export control, inventory carrying, taxes, insurance, port of entry, supplier development, energy, overhead, and profit.

Inventory Management*

The process of ensuring the availability of products through inventory administration.

Cross-Functional Sourcing Team

Teams comprised of individuals from multiple business functions that have a vested interest in the successful sourcing of materials or services.

Commodity Teams

Teams of procurement professionals dedicated to the procurement of a specific commodity or groups of commodities. A commodity team is often formed from employees from across the business who are familiar with the commodity being procured.

Acceptance

The second important phase of creating a contract after the offer phase. The receiver of the offer must accept the offer in order to move forward with creating a contract in the consideration phase.

Legitimate Power

The source of power in negotiations that involves the organizations' individual positions. For example, a vice president at a supplier would have legitimate power to make decisions or commitments during a negotiation with a buyer.

Embedded Services

Term used to describe an organizational approach in which the procurement functions and personnel are part of, and located with, the broader supply chain organization.

Fulfillment*

The act of fulfilling customer orders, fulfillment includes order managing, picking, packaging, and shipping.

Contract Law

The body of law that refers to how businesses enter into contracts with one another, execute contracts, and remedy problems that arise in the process (Scheuing, 1989).

Commercial Law

The branch of study that handles how businesses enter into contracts with each other, execute contracts, and remedy problems that may arise between the firms.

End Customer

The final consumer who purchases the product.

Business Unit Strategy

The guiding principles and planned objectives set by management to be followed by an autonomous division of a company.

Deadlock

The inability to come to an agreement during a negotiation.

Institute for Supply Management

The leading professional association for purchasing and supply managers; it provides guidelines for understanding and complying with applicable laws, regulations, and trade agreements. Many categories of laws and regulations exist of which procurement professionals should be aware, but agency law and contract law are especially important.

Critical Success Factors (CSF)*

The necessary conditions for success that can be measured quantitatively for effectiveness, economy, and efficiency. Describes those few areas where satisfactory performance is essential in order for a business to succeed. Characteristics, conditions, or variables that have a direct influence on a customer's satisfaction with a specific business process. The set of things that must be done correctly if a firm's vision is to be achieved.

Administrative Lead Time

The period or interval, usually measured in days, from the receipt of a requirement in procurement through purchase order award.

Categorical Measurement Systems

These systems require simple check-offs that describe a supplier's performance across different categories.

Indemnify

To compensate for any loss or damage that has already occurred, or to guarantee through a contractual agreement to repay another party for loss or damage that occurs in the future.

Demand*

What customers or users actually want. It is typically associated with the consumption of products or services, as opposed to a prediction or forecast.

Centralization

When procurement functions are centralized, this may support procurement execution efficiencies by allowing for the creation of well-defined commodity groups supported by commodity-specific professionals who handle large-dollar spend amounts from narrow sets of materials, services, and suppliers.