Procurement Glossary
SmartProcure

A-Z Procurement Terms

• A
• B
• C
• D
• E
• F
• G
• H
• I
• J
• K
• L
• M
• N
• O
• P
• Q
• R
• S
• T
• U
• V
• W
• X
• Y
• Z

A

Agile Procurement

Agile Procurement is an iterative and adaptive approach to sourcing and contracting, particularly suited for complex projects where requirements may evolve.

It emphasizes collaboration between procurement, stakeholders, and suppliers, allowing for flexibility and quicker responses to changing needs.

This methodology aims to deliver value faster and more effectively than traditional linear procurement processes, especially in dynamic environments like technology or service procurement.

API (Application Programming Interface)

An API is a set of defined rules, protocols, and tools that allows different software applications to communicate and exchange data with each other automatically.

In the SaaS and procurement landscape, APIs are crucial for integrating various systems (e.g., procurement software with ERPs, financial tools, or supplier platforms), enabling streamlined workflows and data synchronization.

Well-documented APIs empower organizations to create connected ecosystems, enhance automation, and extend the functionality of their existing software investments.

Approved Supplier List (ASL)

An Approved Supplier List (ASL) is a curated roster of suppliers that an organization has vetted, audited, and formally approved for providing specific categories of goods or services.

Maintaining an ASL is important because it helps ensure consistent quality, mitigate supply chain risks, achieve better compliance with procurement policies, and often secure preferential terms.

It streamlines the purchasing process by guiding users to pre-qualified vendors, thereby saving time and effort in supplier selection for routine purchases.

B

Bill of Lading (BOL)

A legal document issued by a carrier to a shipper, detailing the type, quantity, and destination of the goods being carried.

C

Capital Procurement (CapEx Procurement)

The process of acquiring significant, long-term assets such as buildings, machinery, or technology, which are vital for an organization's operations and growth.

Category Management

A strategic procurement approach where organizations segment their spending on bought-in goods and services into discrete groups (categories) based on the function of those items.

Contract Lifecycle Management (CLM) System

Software that automates and streamlines the processes involved in managing contracts from initiation through renewal or expiry.

Contract Management

The process of managing contract creation, execution, and analysis to maximize operational and financial performance and minimize risk.

Cost Avoidance

Actions taken that prevent the incurrence of future costs, such as negotiating better terms or improving processes to eliminate waste.

Cost Savings

Achieved, tangible reductions in actual expenditure compared to a baseline or previous cost.

D

Direct Procurement

The acquisition of goods (raw materials, components) and services that are directly incorporated into an organization's final product or service.

Direct vs. Indirect Procurement

A comparison detailing how direct procurement involves goods for production, while indirect procurement covers operational business expenses.

E

eCatalog (Electronic Catalog)

A digital, online publication of a company’s products and services, used in eProcurement systems to facilitate B2B purchasing.

Enterprise Resource Planning (ERP) System

Integrated software that manages and automates many core business processes, often including modules for procurement, finance, and supply chain management.

eProcurement (Electronic Procurement)

The business-to-business purchase and sale of supplies and services conducted over the Internet or other electronic networks.

eSourcing (Electronic Sourcing)

The use of web-based tools and platforms to facilitate the identification, evaluation, negotiation, and selection of suppliers in the procurement process.

Ethical Sourcing

The process of ensuring that the products and services an organization buys are obtained in a responsible and sustainable way, adhering to social, environmental, and ethical standards.

F

Force Majeure

Force Majeure is a common clause in contracts that essentially frees both parties from liability or obligation when an extraordinary event or circumstance beyond their control prevents one or both parties from fulfilling their obligations.

These events may include natural disasters, wars, strikes, or government actions, which are unforeseeable and unavoidable.

Understanding this clause is crucial in procurement for managing risks associated with contract performance and supplier disruptions.

Framework Agreement

A Framework Agreement is an overarching arrangement between one or more buyers and one or more suppliers that establishes the terms and conditions (such as price, quality, quantity) under which specific purchases (call-offs) can be made throughout a defined period.

It is not a contract for specific goods or services itself but provides a structure for future orders without needing to renegotiate terms each time.

These agreements are beneficial for streamlining repetitive purchases, achieving economies of scale, and fostering longer-term supplier relationships.

G

Governance (Procurement Governance)

Procurement Governance refers to the comprehensive framework of policies, procedures, controls, and decision-making processes that direct and manage all procurement activities within an organization.

Its primary importance lies in ensuring that procurement operates ethically, transparently, efficiently, and in alignment with the organization's strategic objectives and regulatory requirements.

Effective governance helps mitigate risks, promotes accountability, ensures value for money, and supports compliance across all purchasing functions.

Group Purchasing Organization (GPO)

A Group Purchasing Organization (GPO) is an entity that leverages the collective buying power of its individual members (which can be businesses, hospitals, or other organizations) to negotiate discounted prices with suppliers for goods and services.

GPOs are important because they enable smaller organizations to achieve economies of scale and access pricing or terms that they might not be able to secure independently.

By aggregating demand, GPOs help reduce procurement costs for their members while offering suppliers access to a broader customer base.

H

Holding Cost (Inventory Holding Cost)

Holding Cost, also known as carrying cost, refers to the total expenses an organization incurs for storing unsold inventory over a specific period.

These costs include warehouse storage fees, insurance, security, taxes, depreciation, obsolescence, and the opportunity cost of capital tied up in inventory.

Understanding and minimizing holding costs is crucial for efficient inventory management and overall profitability in procurement and supply chain operations.

Horizontal SaaS

Horizontal SaaS refers to cloud-based software solutions that are designed to address the needs of a wide range of industries and business functions, rather than a specific niche vertical.

Examples include CRM software, project management tools, or general accounting packages that can be used by diverse types of businesses.

The broad applicability of horizontal SaaS allows for a larger potential market and often focuses on common business processes.

I

Incoterms

A set of pre-defined commercial terms published by the International Chamber of Commerce (ICC) relating to international commercial law for sales contracts.

Indirect Procurement

The purchasing of goods and services that are necessary for day-to-day business operations but are not directly part of the final product or service.

Inventory Management

The process of supervising the flow of goods from manufacturers to warehouses and from these facilities to point of sale, aiming to have the right stock in the right place.

Invoice Matching

The accounts payable process of comparing information on an invoice with supporting documents like purchase orders and receiving reports before payment.

J

Just-in-Time (JIT) Procurement

A strategy that aligns raw-material orders from suppliers directly with production schedules, minimizing inventory holding costs and waste.

K

Kanban

Kanban is a visual workflow management method designed to help teams visualize their work, limit work-in-progress (WIP), and maximize efficiency (or flow).

While originating in manufacturing, Kanban principles can be applied to procurement processes, particularly for managing projects, supplier onboarding, or contract lifecycles, by providing transparency and highlighting bottlenecks.

Its importance lies in its simplicity and flexibility, promoting continuous improvement and better team collaboration.

Knowledge Management (in Procurement)

Knowledge Management in procurement is the systematic process of identifying, capturing, evaluating, retrieving, and sharing an organization's collective procurement-related information and expertise.

This includes market intelligence, supplier performance data, negotiation strategies, best practices, and lessons learned from past procurement activities.

Effective knowledge management is crucial for improving decision-making, fostering innovation, avoiding repetitive mistakes, and enhancing the overall strategic capabilities of the procurement function.

L

Lead Time

The latency between the initiation and completion of a process, such as the time taken from placing an order with a supplier until the goods are delivered.

M

Maverick Spend

Purchases made outside of established procurement channels or contracts, often leading to missed savings and reduced spend visibility.

MRO (Maintenance, Repair, and Operations) Procurement

The acquisition of goods and services necessary for maintaining and repairing facilities and equipment, distinct from production materials.

N

Negotiation (Procurement Negotiation)

Procurement Negotiation is a strategic dialogue and discussion process between a buying organization and one or more potential suppliers, aimed at reaching a mutually acceptable agreement on all terms and conditions of a purchase.

This typically involves discussions on price, quality, delivery schedules, payment terms, service levels, and other contractual aspects.

Effective negotiation skills are vital in procurement to achieve the best possible value, mitigate risks, and build strong, collaborative supplier relationships.

Non-Disclosure Agreement (NDA)

A Non-Disclosure Agreement (NDA), also known as a confidentiality agreement, is a legally binding contract between two or more parties that outlines confidential materials, knowledge, or information that the parties wish to share with one another for certain purposes, but wish to restrict from third-party access.

NDAs are crucial in procurement when sharing sensitive company information with potential suppliers during sourcing processes (like RFPs) or when engaging in collaborative development.

They protect intellectual property and trade secrets, fostering a secure environment for business discussions.

O

Obsolescence (Inventory Obsolescence)

Inventory Obsolescence occurs when items in stock are no longer usable, saleable, or in demand, rendering them of little to no value.

This can result from technological advancements (making products outdated), changes in customer preferences, expired shelf life, or poor inventory management.

Managing the risk of obsolescence is important for procurement and inventory functions to avoid financial losses associated with write-offs and wasted storage space.

Order Fulfillment

Order Fulfillment encompasses all the steps involved in processing a customer order to satisfaction, from the point of inquiry or sale through to delivery of the product or service.

This typically includes order entry, inventory allocation, picking and packing (for goods), shipment, delivery, and handling any related customer service issues.

Efficient order fulfillment is critical for customer satisfaction, operational efficiency, and managing supply chain costs effectively.

P

P2P (Procure-to-Pay) System

Software solutions designed to automate and manage the entire procure-to-pay lifecycle, from purchase requisition to invoice processing and payment.

Procure-to-Pay (P2P)

The end-to-end process that integrates procurement with accounts payable, covering all steps from purchase requisitioning to final invoice payment.

Procure-to-Pay (P2P) Cycle

The complete sequence of steps involved in the procure-to-pay process, from the initial identification of a need through to final payment and reconciliation.

Procure-to-Pay (P2P) vs. Source-to-Pay (S2P)

A comparison explaining the relationship and differences between the P2P operational process and the more comprehensive S2P strategic framework.

Procurement

The overarching strategic process an organization uses to acquire necessary goods, services, or works from external sources to achieve its objectives.

Procurement Compliance

The act of adhering to established procurement policies, procedures, regulations, and ethical standards in all purchasing activities.

Procurement Contract

A legally binding agreement between a buying organization and a supplier, outlining the terms and conditions for the provision of goods or services.

Procurement Data Analytics

The practice of collecting, analyzing, and interpreting procurement-related data to identify trends, make informed decisions, and optimize purchasing strategies.

Procurement Due Diligence

The comprehensive appraisal an organization undertakes to assess the viability and risks associated with a potential supplier or contract before engagement.

Procurement Fraud

Deceptive practices or illegal acts committed during any stage of the procurement process to achieve an unfair advantage or financial gain.

Procurement Key Performance Indicators (KPIs)

Specific, measurable values that demonstrate how effectively a procurement department is achieving its key business objectives.

Procurement Policy

A set of established principles and guidelines that dictate how an organization conducts its purchasing activities to ensure consistency and compliance.

Procurement Process

The structured sequence of activities an organization follows to acquire goods or services, from identifying a need to final payment and contract management.

Procurement Risk Management

The process of identifying, assessing, and mitigating potential risks within the procurement process and supply chain to ensure operational continuity and value protection.

Procurement Software

Specialized applications designed to automate and streamline various aspects of the procurement lifecycle, from sourcing and requisitions to contract and supplier management.

Procurement vs. Purchasing

A comparison highlighting how procurement is a strategic, overarching function, while purchasing is a more transactional component within it.

PunchOut Catalog

An eProcurement feature allowing users to access a supplier's online catalog from within their organization's procurement application to select and order products.

Purchase Order (PO)

A legally binding document issued by a buyer to a seller, indicating types, quantities, and agreed prices for products or services.

Purchase Requisition (PR)

An internal document used by an employee to request the purchase of goods or services, initiating the formal procurement process.

Purchasing

The transactional part of procurement, focused on the act of buying goods or services once a need and supplier have been identified.

Q

Quality Assurance (QA)

Quality Assurance (QA) refers to the systematic processes and activities implemented by an organization to ensure that a product or service consistently meets specified quality standards and customer expectations.

In procurement, QA is vital during supplier selection (evaluating a supplier's QA processes) and contract execution (ensuring deliverables meet agreed-upon quality criteria).

It focuses on preventing defects and improving processes, rather than just detecting issues after they occur.

Quote-to-Cash (QTC)

Quote-to-Cash (QTC or Q2C) is an end-to-end business process that covers the entire customer interaction lifecycle, starting from creating a sales quote for a prospect, through negotiating a contract, managing the order, fulfilling it, invoicing, and finally, collecting payment.

It integrates sales, contract management, order fulfillment, billing, and revenue recognition processes.

Optimizing the QTC process is crucial for improving sales effectiveness, accelerating revenue generation, enhancing customer satisfaction, and ensuring accurate financial reporting, especially relevant for SaaS businesses.

R

Request for Information (RFI)

A preliminary document used to gather general information from potential suppliers about their capabilities and offerings, often before an RFP or RFQ.

Request for Proposal (RFP)

A document used to solicit proposals from potential suppliers for a specific project or service, often when requirements are complex or solutions are varied.

Request for Quotation (RFQ)

A procurement document used to invite suppliers to submit price quotes for specific, clearly defined goods or services.

Reverse Auction

A type of auction in which sellers bid for the prices at which they are willing to sell their goods and services, with the lowest bid typically winning.

RFQ vs. RFP vs. RFI

An outline of the distinct purposes and appropriate uses of Requests for Quotation, Proposal, and Information in the procurement process.

S

Services Procurement

The specialized process of sourcing, acquiring, and managing various types of labor-based services, such as consulting, contingent workers, or maintenance.

Sourcing

The process of identifying, evaluating, selecting, and engaging with suppliers to obtain goods and services.

Sourcing vs. Procurement

An explanation of how sourcing focuses on identifying and selecting suppliers, forming a key initial phase of the broader procurement lifecycle.

Source-to-Pay (S2P)

A comprehensive end-to-end process that covers the full spectrum of procurement activities, from spend analysis and supplier sourcing to invoicing and payment.

Spend Analysis

The process of collecting, cleansing, classifying, and analyzing expenditure data to decrease procurement costs, improve efficiency, and monitor compliance.

Spend Under Management (SUM)

A procurement metric representing the percentage of an organization's total addressable spend that is actively managed and influenced by the procurement function.

Spend Visibility

The ability of an organization to have a clear and comprehensive understanding of its spending patterns across all departments and categories.

Strategic Sourcing

A comprehensive procurement process that continuously re-evaluates and improves an organization's purchasing activities by analyzing what the firm buys, from whom, at what price, and at what volume.

Supplier Relationship Management (SRM)

A systematic approach to evaluating suppliers, determining their strategic importance, and developing strategies to manage interactions with them.

Supplier Risk

The potential for financial loss, operational disruption, or reputational damage stemming from issues with a supplier's performance or stability.

Supplier vs. Vendor

A clarification of the often interchangeable terms 'supplier' and 'vendor,' noting any subtle differences in common business usage.

Supply Chain Management (SCM)

The broad range of activities required to plan, control, and execute a product's flow from materials to production to distribution in the most economical way possible.

Supply Chain Risk

The potential for disruptions or adverse events to impact any part of an organization's supply chain, affecting product flow, costs, and reputation.

Sustainable Procurement

A process whereby organizations meet their needs for goods and services in a way that achieves value for money on a whole life basis while addressing ESG factors.

T

Tail Spend

The portion of an organization's spend characterized by a high volume of small-value transactions with many different suppliers.

Three-Way Matching

An accounts payable process that validates an invoice by comparing it against the corresponding purchase order and goods receipt note.

Total Cost of Ownership (TCO)

A financial estimate intended to help buyers and owners determine the direct and indirect costs of a product or system over its entire lifecycle.

U

Upstream Procurement

Upstream Procurement refers to the strategic activities undertaken in the initial phases of the procurement lifecycle, before the actual purchase transaction occurs.

This includes crucial processes such as spend analysis, market research, supplier identification and qualification, strategic sourcing, contract negotiation, and establishing supplier relationships.

Focusing on upstream activities is important as it provides the greatest opportunity to influence value, manage risks, and achieve cost savings for the organization.

User Adoption (SaaS)

User Adoption in the context of SaaS refers to the process and extent to which the intended users of a software-as-a-service application accept, integrate, and consistently utilize the software to its full potential in their daily workflows.

High user adoption is critical for realizing the anticipated benefits and return on investment (ROI) from a SaaS solution.

Factors influencing adoption include ease of use, training, perceived value, change management efforts, and alignment with user needs.

V

Vendor Management

The processes organizations use to manage their vendors or suppliers, including selection, contract negotiation, performance monitoring, and relationship maintenance.

W

Working Capital

A financial metric representing operating liquidity available to a business, calculated as current assets minus current liabilities.

X

XaaS (Anything as a Service / Everything as a Service)

XaaS, or "Anything as a Service," is a broad cloud computing term that represents the growing diversity of services delivered over the internet, rather than provided locally or on-site.

It encompasses various service models including Software as a Service (SaaS), Platform as a Service (PaaS), Infrastructure as a Service (IaaS), and many other emerging "as-a-service" offerings.

The XaaS model is important as it signifies a shift towards flexible, scalable, and often subscription-based consumption of IT resources and business capabilities.

Y

Year-over-Year (YoY) Analysis

Year-over-Year (YoY) Analysis is a method of comparing a specific statistic or data point for a given period (e.g., a month or quarter) against the corresponding period in the previous year.

This comparison helps to identify trends, growth rates, or changes in performance while often smoothing out seasonal variations.

In procurement, YoY analysis is valuable for tracking spend patterns, measuring cost savings, evaluating supplier performance, and assessing the effectiveness of procurement strategies over time.

Z

Zero-Based Budgeting (ZBB)

Zero-Based Budgeting (ZBB) is a method of budgeting in which all expenses must be justified for each new period, starting from a "zero base," regardless of previous budget allocations.

Every function within an organization is analyzed for its needs and costs, and budgets are built around what is needed for the upcoming period.

ZBB significantly impacts procurement by requiring rigorous justification for all planned expenditures, often leading to more strategic sourcing and cost optimization efforts.

Zone of Possible Agreement (ZOPA)

The Zone of Possible Agreement (ZOPA), in negotiation theory, is the range or area in which an agreement is satisfactory to both parties involved in a negotiation.

It represents the overlap between the buyer's maximum price (or acceptable terms) and the seller's minimum price (or acceptable terms).

Identifying and operating within the ZOPA is crucial for procurement professionals to successfully conclude negotiations and achieve favorable outcomes.