Proxima

04 January 2024
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  • Procurement Explainers

It’s true. We admit it. Procurement teams have their own jargon, and this can cause no end of confusion for non-practitioners.   

Fundamentally, good procurement is defined simply as buying the goods and services that an organization needs to conduct its operations in a way that reduces cost, increases quality, increases speed, and/or reduces risk. Ideally, in the least bureaucratic way, that also considers social value elements too.   

Working with Procurement (engage early for best outcomes!) has positive benefits to every area of your business. Understanding the ‘language’ helps us help you. 

No matter what your interest or level of experience is, here’s a list of terms and phrases you’ll want to become familiar with in the world of procurement.  

A 

Action plans: refers to a series of steps or actions that an organization takes in order to achieve specific goals or objectives. In procurement, action plans can be created to address specific challenges or opportunities, such as reducing costs or improving supplier relationships. 

Additional working capital: refers to additional funds or assets that an organization can use to support its operations and growth, such as through borrowing or issuing new shares. 

Artificial intelligence: Refers to the simulation of human intelligence in machines that are programmed to think and learn like humans. 


B 

Business insights: refers to a deeper understanding of an organization’s operations, customers, and market, which can inform strategic decision-making.

Business opportunity: Refers to an opportunity to increase revenue, reduce costs, or otherwise improve a business. 

Business units: Refers to the different divisions or departments within an organization that have distinct functions and goals; sometimes referred to as “the business.” 


C 

Capital cycle: Refers to the process of acquiring and managing capital, including raising funds, investing in assets, and generating returns on those investments.

Capital formula: Refers to a financial calculation used to measure an organization’s capital position, such as the debt-to-equity ratio.

Capital improvements: Refers to investments made to improve an organization’s long-term growth prospects, such as building new facilities or acquiring new equipment.

Capital investments: Refers to investments made by an organization to generate returns, such as buying shares in other companies or investing in real estate.

Capital management: Refers to the process of managing an organization’s long-term financing and investment strategies to support growth and ensure financial stability.

Capital optimization: Refers to the process of maximizing the return on an organization’s capital investments through efficient use of resources and effective management of risks.

Capital position: Refers to the amount of company assets that are financed by long-term debt or equity, which can indicate the company’s financial health and ability to grow and invest in the future.

Capital ratios: Refers to financial ratios that measure an organization’s ability to pay its debts, its liquidity, and its overall financial health.

Capital situation: Refers to the current state of an organization’s capital position, including the amount of debt and equity it has and the strength of its balance sheet.

Capital solutions: Refers to ways that an organization can improve its capital position through financing, cost-cutting measures, or other strategies.

Capital strategy: Refers to an organization’s plan for acquiring and managing capital to support growth and ensure financial stability.

Capital trends: Refers to changes in an organization’s capital position over time, such as changes in debt levels or return on equity.

Cash conversion cycle: Refers to the amount of time it takes for an organization to convert its investments in inventory and other resources into cash.

Cash culture: Refers to the attitudes, values, and practices within an organization that influence how it manages its cash flow and liquidity.

Cash equivalents: Refers to assets that can be easily converted into cash, such as short-term investments or bank deposits.

Cash flow:
Refers to the amount of money an organization has available to pay for expenses, invest in new projects, or return to shareholders. Cash flow can be positive or negative, depending on the amount of cash coming in compared to the amount going out.

Category management: Refers to the system a group uses to define segments of procurement spend while identifying opportunities to build revenue, reduce risks, build and maintain supplier relationships, and understand the effectiveness of procurement efforts.

Category strategy: A strategy for managing all aspects of procurement within a specific category of goods or services, such as office supplies or IT equipment.

Collaborative procurement strategy: refers to a strategy that involves working with suppliers and other partners to improve the procurement process and achieve cost savings.

Competitive advantages: Refers to factors or attributes that enable an organization to perform better than its competitors, such as lower costs, better quality, or access to unique resources.

Continuous improvement: The practice of continually seeking out and implementing ways to improve processes, products, and services to achieve better results.

Contract management: Refers to the process of managing contracts related to procurement and purchases made as a part of legal requirements to create relationships with customers, suppliers, and additional partners, including negotiating terms and conditions.

Contract opportunities: Refers to potential opportunities to enter into new contracts with suppliers or customers.

Contracting authorities: Refers to the entities that award public contracts, such as government departments or state-owned enterprises.

Cost drivers: Refers to factors that influence the cost of goods or services, such as changes in demand, inflation, or supply chain disruptions.

Cost-effectiveness analysis:
Refers to the process of evaluating the costs and benefits of different options to determine the most cost-effective solution.

Cost increase: Refers to a rise in the cost of goods or services, which can be caused by factors such as inflation, changes in demand, or supply chain disruptions.

Cost of ownership: Refers to all the costs associated with owning and using a product or service, including purchase price, installation, maintenance, and disposal costs.

Cost reduction: Refers to the process of identifying and implementing measures to decrease the overall cost of goods or services.

Cost savings: Refers to the actual reduction in costs that results from cost reduction efforts.

Cost-effectiveness analysis: Refers to the process of evaluating the costs and benefits of different options in order to determine the most cost-effective solution.

Costly mistakes: Refers to errors or oversights that result in significant financial loss or other negative consequences for an organization.

Costs in procurement: Refers to the expenses incurred by an organization in the procurement process, including the cost of goods and services and the cost of the procurement process itself.

Current assets: Refers to the assets of an organization that are expected to be converted into cash or used within one year, such as cash, accounts receivable, and inventory.

Current liabilities: Refers to the financial obligations of an organization that are due within one year, such as short-term loans, accounts payable, and taxes owed.

Current pace: Refers to the rate at which an organization is currently progressing in its procurement activities, such as the number of purchase orders processed or contracts signed. 


D 

Daily bulletin: Refers to a regular report or update that provides information on current events, progress, or status related to procurement activities.

Deep understanding: refers to a thorough and comprehensive understanding of a particular subject or area.

Digital solutions: Refers to the use of technology, such as artificial intelligence, machine learning, and blockchain, to automate and optimize procurement processes.


E 

Economic growth: refers to an increase in the production of goods and services in an economy over a period of time.

Economic recovery: refers to the process of improving economic conditions after a recession or downturn.

Effective procurement: refers to the ability of an organization to acquire goods and services in a cost-effective, efficient, and ethical manner.

Energy bills: Refers to the expenses incurred by an organization for the consumption of energy, such as electricity or natural gas.

Entire procurement lifecycle: Refers to all the stages of procurement from identifying needs and researching suppliers, to final delivery and payment of goods and services.

E-procurement software: Refers to software tools that automate and streamline procurement processes, such as purchase order creation, invoice processing and supplier management.

Excess cash: Refers to cash that is in excess of an organization’s immediate needs, which can be invested, returned to shareholders, or used to pay off debt. 


F 

Finance department: Refers to the unit within an organization that is responsible for managing financial resources, including budgeting, forecasting, and financial reporting. 


H 

Human error: Refers to mistakes or inaccuracies that occur due to the actions or decisions of individuals, rather than a system or process.

Human intervention: Refers to the role played by human beings in the procurement process, such as decision-making, communication, and problem-solving. 


I 

Impact on cash flows: Refers to the effect that an organization’s actions or circumstances have on its cash flow, such as changes in revenue, expenses, or working capital.

Indirect costs: Refers to costs that are not directly tied to the production of a specific product or service but are still incurred as a result of the procurement process, such as transportation or storage costs.

Influence outcomes: refers to the ability of procurement policies and processes to affect the overall results of the procurement process, such as cost savings, supplier performance, and customer satisfaction.

Interviews with procurement staff: Refers to the process of conducting interviews with individuals who work on the procurement team to gather information and gain insights into the procurement process. 


L 

Laboratory analysis: Refers to the process of testing and evaluating samples of goods, such as raw materials or finished products, in a laboratory setting to determine their properties and quality. 


M 

Major purchasing decisions: Refers to significant decisions made by an organization to buy goods or services that can have a large impact on the organization’s budget, operations, or reputation.

Manufacturer analysis: Refers to the process of evaluating the capabilities and performance of manufacturers, including their production capacity, quality control, and delivery times.

Market opportunity: Refers to the potential for increased sales or revenue in a particular market or industry.

Maverick spending: Refers to spending that is outside of the organization’s established procurement processes, often done by employees without the proper authority or without considering the best value for the company (also referred to as rogue spending or tail spending).

Minimal disruption: Refers to efforts to minimize the impact of changes on operations or processes. 


N 

Negative working capital: Refers to a situation in which an organization’s current liabilities exceed its current assets. 


O 

Operational cost: Refers to the expenses incurred in the day-to-day operations of an organization, including the cost of goods and services and the cost of the procurement process itself.

Operational process improvements: Refers to changes made to an organization’s processes to improve efficiency and reduce costs. 


P 

Poor planning: Refers to a lack of preparation or foresight in the procurement process, which can lead to increased costs and other problems.

Procurement team: Refers to the team within an organization responsible for managing the procurement process, including identifying, selecting, and negotiating with suppliers.

Potential opportunities: Refers to potential areas for cost savings or other benefits that have not yet been fully explored or realized.

Potential suppliers: Refers to organizations that could potentially supply goods or services to an organization. 

Procurement activities: Refers to all the steps involved in the procurement process, including identifying needs, researching suppliers, negotiating contracts, and managing relationships with suppliers.

Procurement audits: Refers to the process of reviewing and evaluating procurement processes and procedures to identify areas for improvement and ensure compliance with regulations.

Product opportunity: Refers to the potential for a new product or service to be successful in the market, based on its features, price and demand.

Procurement costs: Refers to the expenses incurred in the procurement process, including costs of goods and services, as well as costs associated with the procurement process itself.

Procurement function: Refers to the role of procurement in an organization, including the management of the procurement process, supplier relationships, and cost savings.

Procurement leaders: Refers to individuals or teams at any level within an organization who have significant responsibility for managing procurement activities and making strategic decisions related to procurement.

Procurement policies: refers to the guidelines and procedures that an organization establishes to govern the procurement process, including how goods and services are acquired, how suppliers are selected, and how contracts are managed.

Procurement process: Refers to the series of steps an organization goes through to acquire goods or services, including identifying needs, researching suppliers, negotiating contracts, and managing relationships with suppliers.

Procurement professionals: Refers to individuals who have the skills and knowledge to manage the procurement process within an organization.

Procurement savings: Refers to the amount of money that an organization saves as a result of cost-saving measures in the procurement process.

Procurement software: Refers to software tools that automate and streamline procurement processes, such as purchase order creation, invoice processing, and supplier management.

Procurement strategy: Refers to the overall approach an organization takes to manage the procurement of goods and services in order to meet its business needs and goals.

Procurement teams: Refers to the group of individuals within an organization responsible for managing the procurement process, including identifying, selecting, and negotiating with suppliers.

Public bodies: Refers to organizations that are owned or controlled by the government, such as state-owned enterprises or government departments.

Public procurement: Refers to the process of acquiring goods, services, and works by public bodies.

Public sector contracts: refers to agreements between a government or public entity and a supplier for the provision of goods or services.

Purchasing process: Refers to the series of steps an organization goes through to acquire goods or services, including identifying needs, researching suppliers, negotiating contracts, and managing relationships with suppliers. 


R 

Range of suppliers: Refers to the number and diversity of suppliers an organization works with to acquire goods and services.

Raw materials: Refers to the raw materials or components used in the production of goods or services. 

Risk mitigation: Refers to the process of identifying, assessing, and managing risks associated with procurement, such as the risk of supplier default or price fluctuations.

Role of procurement: Refers to the responsibilities and functions of the procurement function within an organization, including managing the procurement process, supplier relationships, and cost savings. 


S 

Savings opportunity: Refers to the potential for an organization to save money in the procurement process through cost-saving measures such as reducing prices through negotiation, reducing the number of suppliers, or streamlining procurement processes. 

Short-term debts: Refers to the financial obligations of an organization that are due within one year, such as short-term loans and accounts payable. 

Supplier base: Refers to the group of suppliers an organization works with to acquire goods and services. 

Supplier performance: Refers to how well a supplier can meet the needs of an organization in terms of delivery, quality, and cost. 

Supplier relationships: Refers to the ongoing interactions and negotiations between an organization and its suppliers to ensure the timely delivery of goods and services at a fair price. 

Supply base: Refers to the group of suppliers an organization works with to acquire goods and services. 

Supply chain: refers to the network of organizations, activities, and resources involved in the production and delivery of goods and services, from raw materials to end customers. 

Supply management: Refers to the coordination and management of all activities related to the sourcing and procurement of goods and services in an organization. 

Supply market: refers to the market for goods and services that an organization procures. 


T 

Terms with suppliers: Refers to the conditions of a contract between an organization and its suppliers, including payment terms, delivery schedules, and quality standards. 

Types of cost savings: Refers to different ways in which an organization can save money in the procurement process, such as reducing prices through negotiation, reducing the number of suppliers, or streamlining procurement processes. 


U 

Uncontrolled spending: refers to spending that is not managed or monitored effectively by an organization, resulting in unnecessary expenses or lack of visibility into spending patterns.

Unnecessary expenses: Refers to costs incurred by an organization that does not add value to the organization or are not essential for its operations.

Unnecessary spending: Refers to spending that does not add value to the organization or is not essential for its operations. 


V 

Volume discounts: Refers to reduced prices offered by suppliers for purchasing goods or services in larger quantities. 


W 

Wide range: refers to the diversity of suppliers or goods and services that an organization works with or procures. 

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