Lexicon

Establishing a common understanding starts with a common language: lexicon is the dictionary for procurement

Though dating back from the start of civilizations, the world of procurement is continuously evolving. The business discipline itself is in actual fact at its infancy. And as any discipline, ensuring full comprehension requires a common language.

With Lexicon we do not have the pretention to develop the language for procurement or aim at re-inventing what already exists. We rather document in a central repository a series of terms and commonly used vocabulary within practitioners.

We therefore encourage you to provide us with any additions you believe we may have missed or any corrections that will advance comprehension.

Lexicon

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A B C d e f g h i j k l m n o p q r s t u v w x

Actual

A commonly used term in finance communities to define incurred transactions be they expenses, revenue, etc …

Accounts payables

Accounts payable is a file or account that contains money that a person or company owes to suppliers, but has not paid yet (a form of debt). http://en.wikipedia.org/wiki/Accounts_payable

Baseline

Baseline is a comparison point against which financial changes in are measured, i.e. a financial reference point. A good example is the use of previous fiscal year's average prive for a certain material as the referencee point when calculating price savings for the current year.

Budget

A budget (from old French bougette, purse) is generally a list of all planned expenses and revenues or it can be use as a plan for saving and spending. http://en.wikipedia.org/wiki/Budget

Best practices

Best practices can be defined as the most efficient (least amount of effort) and effective (best results) way of accomplishing a task, based on repeatable procedures that have proven themselves over time for large numbers of people or companies. http://en.wikipedia.org/wiki/Best_practice

Benchmarking

Benchmarking is the process of comparing one's business processes and performance metrics to industry bests and/or best practices from other industries. http://en.wikipedia.org/wiki/Benchmarking

Bargaining power

Bargaining power refers to the relative abilities of parties in a situation to exert influence over each other. http://en.wikipedia.org/wiki/Bargaining_power

Balanced Sourcing

Balanced sourcing aims at ensuring competitive pricing from suppliers while simultaneously nurturing cooperative relationships. The term was introduced by Timothy Laseter and Booz & company on their book Balanced Sourcing: Cooperation and Competition in Supplier Relationships. http://eu.wiley.com/WileyCDA/WileyTitle/productCd-0787944432.html

BOM

Bill of materials (BOM) is a list of the raw materials, sub-assemblies, intermediate assemblies, sub-components, components, parts and the quantities of each needed to manufacture an end item (final product). http://en.wikipedia.org/wiki/Bill_of_materials

Category

In sourcing the term (sourcing) category is used to refer to an area of sourcing responsibility based on the type of materials of serviced that are purchased. The best practice approach is to determine the sourcing categories from the supply market perspective.

Commodity

A commodity is a good for which there is demand, but which is supplied without qualitative differentiation across a market. It is fungible, i.e. the same no matter who produces it. http://en.wikipedia.org/wiki/Commodity

Contract

A contract is an agreement between two or more parties, that if it contains the elements of a valid legal agreement is enforceable by law or by binding arbitration. That is to say, a contract is an exchange of promises with a specific remedy for breach. http://en.wikipedia.org/wiki/Contract

Capex

Capital expenditures (CAPEX or capex) are expenditures creating future benefits. A capital expenditure is incurred when a business spends money either to buy fixed assets or to add to the value of an existing fixed asset with a useful life that extends beyond the taxable year. http://en.wikipedia.org/wiki/Capex

Capabilities

A capability is what a company or oranization needs to be able to do to execute its’ strategy . Another way to think about capabilities is a container of people, process and technology that is addressable for a specific purpose. http://en.wikipedia.org/wiki/Capability

Contract Management

Contract management or contract administration is the management of contracts made with customers, vendors, partners, or employees. It can be summarized as the process of systematically and efficiently managing contract creation, execution, and analysis for the purpose of maximizing financial and operational performance and minimizing risk. http://en.wikipedia.org/wiki/Contract_management

Controlling

Controlling is a managerial function the objective of which is to check the errors and to take the corrective action so that deviation from standards are minimized and stated goals of the organization are achieved in desired manner. http://en.wikipedia.org/wiki/Control_(management)

Cost driver

A cost driver is the unit of an activity that causes the change of an activity cost. A cost driver is any activity that causes a cost to be incurred. http://en.wikipedia.org/wiki/Cost_driver

Cost component / element

Cost component defines a specific source of expentirues related to a material or service such as labour, raw materials, or logistics.

Cost structure

Cost structure defines the cost components that make up the total cost of a certain material or service.

CFR

CFR or CNF – Cost and Freight (named destination port) is an icoterm where seller must pay the costs and freight to bring the goods to the port of destination. However, risk is transferred to the buyer once the goods have crossed the ship's rail. Maritime transport only. http://en.wikipedia.org/wiki/Cost_and_Freight#Cost_and_Freight

CIF

CIF – Cost, Insurance and Freight (named destination port) is an icoterm where seller must pay the costs, freight and insurance to bring the goods to the port of destination.

Corporate Social Responsibility

Corporate social responsibility is a form of corporate self-regulation mechanism whereby business monitors and ensures its support to law, ethical standards, and international norms. Consequently, business should embrace responsibility for the impact of its activities on the environment, consumers, employees, communities, stakeholders and all other members of the public sphere. http://en.wikipedia.org/wiki/Corporate_social_responsibility

Carbon Footprint

A carbon footprint is "the total set of greenhouse gases (GHG) emissions caused by an organization, event or product". For simplicity of reporting, it is often expressed in terms of the amount of carbon dioxide, or its equivalent of other GHGs, emitted. http://en.wikipedia.org/wiki/Carbon_footprint

Cost avoidance

Cost avoidance is a cost reduction that results from a spend that is lower then the spend that would have otherwise been required if the cost avoidance exercise had not been undertaken. http://www.esourcingwiki.com/index.php/Cost_Reduction_and_Avoidance#Defining_Cost_Avoidance

Compliance

In general, compliance means conforming to a rule, such as a specification, policy, standard or law. In sourcing this often referes to compliance to contracts, selected suppliers and sourcing processes.

Currency Fluctuation Impact (CFI)

Currency fluctuation impact refers to the impact that the changes in currency exchange rates have to procurement expenditures and savings.

Direct materials

Direct materials are materials and services that are directly used or consumed in the process of creating an end product.

Discount

Discount is a reduction to a basic price of goods or services. http://en.wikipedia.org/wiki/Discounts_and_allowances

Days Payable Outstanding

Days payable outstanding (DPO) is an efficiency ratio that measures the average number of days a company takes to pay its suppliers. http://en.wikipedia.org/wiki/Days_payable_outstanding

DDP

DDP – Delivered Duty Paid (named destination place) is an incoterm which means that the seller pays for all transportation costs and bears all risk until the goods have been delivered and pays the duty. Also used interchangeably with the term "Free Domicile".

DDU

DDU – Delivered Duty Unpaid (named destination place) is an incoterm which means that the seller delivers the goods to the buyer to the named place of destination in the contract of sale. The goods are not cleared for import or unloaded from any form of transport at the place of destination. The buyer is responsible for the costs and risks for the unloading, duty and any subsequent delivery beyond the place of destination.

e-Procurement

E-Procurement is the business to business (B2B) purchasing of goods and services through the Internet.

e-Auction

Electronic auctions (or electronic reverse auctions as they are sometimes called) are on-line specifications.

e-RFX

e-RFX is an acronym for Electronic Request For [x], where x can be Proposal (RFP), Quotation (RFQ), Information (RFI) or Tender (RFT).

ESI

Early Supplier Involvement. Rapid technological development, shorter product life cycle, clockspeed competition, and increased outsourcing have prompted many firms to involve their suppliers early in their new product development activities.

Evaluation criteria

Used to rate and score proposals from sellers. In some instances, such as a bid or quote, the evaluation criterion is focused just on the price the seller offers. In other instances, such as a proposal, the evaluation criteria can be multiple values: experience, references, certifications, and more.

Experience Curve

Learning by doing. More often a task is performed, the lower will be the cost of doing it. Each time cumulative volume doubles, value added costs (including administration, marketing, distribution, and manufacturing) fall by a constant and predictable percentage.

EXW

This term (Ex-Works) - the seller fulfills its obligation to deliver when it has made the goods available at its premises (i.e. works, factory, warehouse, etc.) to the buyer. The seller is not responsible for loading the goods on the vehicle provided by the buyer.

EBIT-impact

Earnings before interest and taxes (EBIT) or operating income is a measure of a firm's profitability that excludes interest and income tax expenses.

Forecast

Projection of business landscape, i.e. forecast of coming volumes, prices, etc.

Futures

A futures contract is a standardized contract between two parties to buy or sell a specified asset of standardized quantity and quality at a specified future date at a price agreed today.

FCA

Free Carrier - the seller hands over the goods, cleared for export, into the custody of the first carrier (named by the buyer) at the named place.

FOB

Free on board - the seller must load the goods on board the ship nominated by the buyer, cost and risk being divided at ship's rail. The seller must clear the goods for export. Maritime transport only.

Globalization

Globalization describes a process by which regional economies, societies, and cultures have become integrated through a globe-spanning network of communication and trade.

Globality

Globality is the end-state of globalization – a hypothetical condition in which the process of globalization is complete or nearly so, barriers have fallen, and "a new global reality" is emerging.

Global Sourcing

A procurement strategy aimed at exploiting global efficiencies in production. Also often used term for Global Sourcing Organization.

Green Sourcing

Green sourcing is a process by which companies seek to optimize their business strategies whilst reducing their environmental impact on the planet.

Governance

Governance is the activity of governing. It relates to decisions that define expectations, grant power, or verify performance. It consists either of a separate process or of a specific part of management or leadership processes. http://en.wikipedia.org/wiki/Governance

Hedging

Risk management strategy used in limiting or offsetting probability of loss from fluctuations in the prices of commodities, currencies, or securities. In effect, hedging is a transfer of risk without buying insurance policies.

Interest expense

Interest expense relates to the cost of borrowing money. It is the price that a lender charges a borrower for the use of the lender's money.

Interest rate

Interest rate is the % charged by a lender to a borrower for lending him a specific amount of money.

IRR

Or Internal Rate of Return, is a rate of return used in capital budgeting to measure and compare the profitability of investments. In more familiar terms, the IRR of an investment is the interest rate at which the costs of the investment lead to the benefits of the investment. http://en.wikipedia.org/wiki/Internal_rate_of_return

Indirect materials

Indirect materials are materials and services not directly used or consumed in the process of creating an end product but necessary to the functionning of an organization.

Inventory

Inventory consists of a list of goods and materials held available in stock.

Incoterms

Incoterms or international commercial terms are a series of international sales terms, published by International Chamber of Commerce (ICC) and widely used in international commercial transactions. They are used to divide transaction costs and responsibilities between buyer and seller and reflect state-of-the-art transportation practices.

Indexes

In purchasing, indexes are used to reflect aggregate prices paid by buyers to form a market price. Most indexes refer to traded commodities and are publically available from market data providers such as ICIS, LME, etc ….

JIT

Just-in-time (JIT) is an inventory strategy that strives to improve a business's return on investment by reducing in-process inventory and associated carrying costs.

KPI

A performance indicator or key performance indicator (KPI) is a measure of performance.

LOI

Or Letter of Intent, is a document outlining an agreement between two or more parties before the agreement is finalized. The concept is similar to the so-called heads of agreement. LOIs resemble written contracts, but are usually not binding on the parties in their entirety. http://en.wikipedia.org/wiki/Letter_of_Intent

Lever

A lever in the purchasing discipline refers to a specific approach used to optimize cost or increased value at large as a part of a sourcing strategy. For instance standardizing specification is a lever often used to create greater purchasing scale around fewer purchased products to eventually get lower prices.

Local Sourcing

A procurement strategy aimed at leveraging locally based suppliers

Learning Curve

A learning curve is a graphical representation of the changing rate of learning (in the average person) for a given activity or tool. Typically, the increase in retention of information is sharpest after the initial attempts, and then gradually evens out, meaning that less and less new information is retained after each repetition. http://en.wikipedia.org/wiki/Learning_curve

MOU

A memorandum of understanding (MOU or MoU) is a document describing a bilateral or multilateral agreement between parties. It expresses a convergence of will between the parties, indicating an intended common line of action.

MOQ

Minimum Order Quantity. It represents the mininum for a which a supplier will be ready to supply goods and services for a specific purchase order.

Make or Buy

Business decision that compares the costs and benefits of manufacturing a product or product component against purchasing it.

Market Fluctuation Impact (MFI)

Market Fluctuation Impact (MFI) quantifies the impact that commodity (http://en.wikipedia.org/wiki/Commodity) market price changes have on purchase prices and therefore profitability of a company. The MFI is used to isolate the impact of market prices that is beyond sourcing’s control from sourcing driven savings.

Negotiation

Negotiation is a dialogue intended to resolve disputes, to produce an agreement upon courses of action, to bargain for individual or collective advantage, or to craft outcomes to satisfy various interests. It is the primary method of alternative dispute resolution. http://en.wikipedia.org/wiki/Negotiation

NDA

A non-disclosure agreement (NDA), also known as a confidentiality agreement, confidential disclosure agreement (CDA), proprietary information agreement (PIA), or secrecy agreement, is a legal contract between at least two parties that outlines confidential material, knowledge, or information that the parties wish to share with one another for certain purposes, but wish to restrict access to by third parties.

NPV

In finance, the net present value (NPV) or net present worth (NPW) of a time series of cash flows, both incoming and outgoing, is defined as the sum of the present values (PVs) of the individual cash flows. NPV is a central tool in discounted cash flow (DCF) analysis, and is a standard method for using the time value of money to appraise long-term projects.

Order quantity

Number of components or services ordered

Outsourcing

Outsourcing refers to the process of contracting to a third-party.

Offshoring

Offshoring describes the relocation by a company of a business process from one country to another—typically an operational process, such as manufacturing, or supporting processes, such as accounting.

Order Quantity Impact (OQI)

Economic order quantity is the level of inventory that minimizes the total inventory holding costs and ordering costs.

Procurement

Procurement is the acquisition of appropriate goods and/or services at the best possible total cost of ownership to meet the needs of the purchaser in terms of quality and quantity, time, and location. Procurement is therefore define more as a discipline whereas purchasing is more of an organizational dimension.

Purchasing

Purchasing refers to a business or organization attempting to acquire goods or services to accomplish the goals of the enterprise. Purchasing is therefore as an organizational dimension as opporsed to the Procurement discipline.

Payment terms

Payment term defines conditions under which payment for the invoice must be made. In addition ot actual days within which payment needs to be made payment term also defines discounts and allowances for the payment.

PPM

Procurement Performance Manager (PPM) is one of the two applications in Sievo's application suite. PPM is used by all Sievo users to view predefined dashboards and to build the reports of their own. It is also used to describe a new discipline that Sievo is pioneering called Procurement Performance Management.

Planning

Planning is a process for accomplishing purpose. It is a blue print of business growth and a road map of development. It helps in deciding objectives both in quantitative and qualitative terms. It is setting of goals on the basis of objectives and keeping in view the resources. (http://en.wikipedia.org/wiki/Planning)

Penalties

Penalties are sanctions resulted from actions violating the agreement terms.

Price compliance

Price Compliance is a state of purchasing price being in accordance with price agreed with the supplier.

Process compliance

Process Compliance is a state of purchasing process being in accordance with established guidelines and processes.

Procure-to-pay

Procure-to-pay term used to designate a specific subdivision of the procurement process linking it to financial process.

Price Impact

Price Impact refers to the impact that procurement department actions have had to procurement savings.

PDM

Procurement Data Manager (PDM) is one of the two applications in Sievo's application suite. PDM is used to manage the data and measurement parametres in Sievo application.

Quality management

Quality management is a concept focused on product/service quality and means to improve it. Quality management includes companent suchs as quality assurance, quality control and quality improvement.

Quantity change

Quantity change refers to impact that chnages ion purchased columes has on the spend.

RFI

Request for Information (RFI) is a process whose purpoce is to collect written information about the capabilities of various supplier around the certain area.

RFP

Request for Proposal (RFP) is a process whose purpoce is to invite suppliers to submit proposals on specific product or service.

RFQ

Request for Quatation (RFP) is a process whose purpoce is to invite suppliers into a bidding process to bid on specific products or services. RFQ's are best suited to products and services that are as standardised and as commoditised as possible, as this makes each suppliers’ quotes comparable.

ROI

Return on investment (ROI) is a ratio of money gained on an investment relative to the amount of money invested. ROI is used to evaluate the efficiency of an investment in finance.

ROCE

Return on capital employed (ROCE) is a measure which compares earnings with capital invested in the company. ROCE is used as a measure for comparing the performance between businesses and for assessing whether a business generates enough returns to pay for its cost of capital.

Rebates

A rebate is an reduction, return, or refund on product price. It is a type of sales promotion marketers use primarily as incentives or supplements to product sales. (http://en.wikipedia.org/wiki/Rebate_(marketing))

Raw materials

Raw materials are goods which are acted upon or used by companies to manufactere their products. Often the term is used to denote material that is in an unprocessed or minimally processed state. (http://en.wikipedia.org/wiki/Raw_materials)

Strategic Sourcing

Strategic sourcing is an institutional procurement process that continuously improves and re-evaluates the purchasing activities of a company. In a production environment, it is often considered one component of supply chain management. Strategic sourcing techniques are also applied to non traditional area such as services or capital.

Savings

Saving is income not spent, or deferred consumption. Saving also includes reducing expenditures, such as recurring costs.

SKU

A stock-keeping unit or SKU is a unique identifier for each distinct product and service that can be purchased. SKU use is rooted in data management, enabling the company to systematically track its inventory or product availability, such as in warehouses and retail outlets.

Supplier Risk

Supplier risk refers to the risk a company faces by overlying on one specific supplier or a small group of suppliers with limited or no alternative.

Spend Analysis

Spend analysis is the process of collecting, cleansing, classifying and analyzing expenditure data with the purpose of reducing procurement costs, improving efficiency and monitoring compliance. It can also be leveraged in other areas of business such as inventory management, budgeting and planning, and product development.

Supplier (Relationship) Management

Supplier Relationship Management is the process by which companies maintain a degree of control in the exchanges (financial and other) they have with their vendors. http://en.wikipedia.org/wiki/Supplier_relationship_management

Supplier Diversity

Supplier Diversity is a business program that encourages the use of previously underutilized minority-owned vendors as suppliers.

SWOT

SWOT analysis is a strategic planning method used to evaluate the Strengths, Weaknesses, Opportunities, and Threats involved in a project or in a business venture. It involves specifying the objective of the business venture or project and identifying the internal and external factors that are favorable and unfavorable to achieve that objective.

SCM

Supply chain management (SCM) is the management of a network of interconnected businesses involved in the ultimate provision of product and service packages required by end customers.

Scale

Economies of scale refers to the phenomenon where the average costs per unit of output decrease with the increase in the scale or magnitude of the output being produced by a firm. The opposite phenomenon, diseconomies of scale, occurs when the average unit costs of production increase beyond a certain level of output.

Scope

Economies of scope exist when it is cheaper to produce two products together (joint production) than to produce them separately (OECD, 1993).

Savings effectiveness

Savings effectiveness is the ratio of created savings versus identified savings. It reflects an organizational capability to orchestrate programs to turn ideas into actual savins.

Savings efficiency

Savings efficiency is the ratio of captured savings versus created savings a company has generated. It reflects the ability of an organization to ensure that created savings truly hit a company's bottom line.

SLA

A service level agreement is a part of a service contract where the level of service is formally defined. In practice, the term SLA is sometimes used to refer to the contracted delivery time (of the service) or performance.

Specification

A specification is an explicit set of requirements to be satisfied by a material, product, or service. Should a material, product or service fail to meet one or more of the applicable specifications, it may be referred to as being out of specification; the abbreviation OOS may also be used.

Specification Change Impact (SCI)

Is the economic / financial impact expected by a change in requirement for a specific product or service.

Taxonomy

Taxonomy is the practice and science of classification.

Target

A target is a commitment an organization is aiming at reaching by a certain milestone. It often represents a financial commitment.

TCO

Total cost of ownership (TCO) is a financial estimate. Its purpose is to help consumers and enterprise managers determine direct and indirect costs of a product or system.

Utilization level

A metric used to measure the rate of resources used to productiove activities.

Unit of measurement (UOM)

Unit of measurement UOM) is a definite magnitude of a physical quantity, that is used as a standard for measurement of the same physical quantity. (http://en.wikipedia.org/wiki/Units_of_measurement)

Value chain

A value chain is a chain of activities for a firm operating in a specific industry. Products pass through all activities of the chain in order, and at each activity the product gains some value. The chain of activities gives the products more added value than the sum of added values of all activities. (http://en.wikipedia.org/wiki/Value_chain)

Value of growth

Value of growth is a methodology employed to estimate additional financial gains a company would be receiving by growing its business for a specific supplier. The metod heavily relies on the concepts of scale and scope.

Value at risk

Value at risk is a widely used financial risk measurement to asses the risk of loss on a specific portfolio of financial assets in given time horizon. (http://en.wikipedia.org/wiki/Value_at_risk)

Vendor compliance

Vendor Compliance is a state of purchased good from certain suppliers being in accordance with established guidelines and contract on what goods or services can be purchased from that supplier..

Vendor managed inventory (VMI)

Vendor-managed inventory (VMI) is a business models in which the buyer of a product provides certain information to a supplier of that product and the supplier takes full responsibility for maintaining an agreed inventory of the material.( http://en.wikipedia.org/wiki/Vendor_Managed_Inventory)

WACC

Weighted average cost of capital (WACC) is the rate that a company is expected to pay on average to all its security holders to finance its assets. (http://en.wikipedia.org/wiki/Weighted_average_cost_of_capital)

WIP

Work in progress is a work or product that has been started to work with, but is not yet completed while not being in sellable form yet. (http://en.wikipedia.org/wiki/Work_in_progress)

Working Capital

Working capita is a financial metric which represents operating liquidity available to a business. Working capital is calculated as current assets minus current liabilities. (http://en.wikipedia.org/wiki/Working_capital)

x-functional

x-functional (Cross-functional) refers to project or team which joins together different functional expertise to work toward a common goal.