Levasseur

Procurement Glossary

Plain definitions of the procurement terms buyers, finance teams and operations leaders run into most, from buyer of record to three-way match. Terms link to LeVasseur Consultants guides where we cover them in more depth.

A

Accounts payable (AP): The team and process that receive supplier invoices, check them and pay them. Also the money a company owes its suppliers at any moment.
Approved vendor list (AVL): The list of suppliers an organization has already checked and allows buyers to use. Buying outside it usually needs extra approval or a new vendor setup.

B

Blanket purchase order: One purchase order that covers repeated purchases from a supplier over a set period, up to an agreed amount, so each delivery does not need its own PO.
Buyer of record: The company named as the buyer on the purchase order. A third-party buyer of record buys from the supplier in its own name, pays the supplier and invoices you, so the supplier never enters your vendor master. Read more: How a buyer of record works; Buyer of record vs purchasing agent.

C

Category management: Managing spend by groups of similar purchases, such as IT hardware or lab supplies, with one owner per category who plans sourcing, suppliers and contracts for the whole group.
Cost avoidance: Money not spent because of a procurement action, such as stopping a planned price increase. It is reported separately from savings, because the budget never shows a lower number.

D

Direct spend: Purchases that go into the product or service a company sells, such as raw materials and components.

E

Early payment discount: A price reduction a supplier offers for paying before the due date. Written as terms such as 2/10 net 30: a 2 percent discount if paid in 10 days, otherwise the full amount in 30.
Expediting: Following up with a supplier to make sure an order ships on time, or to speed up a late one.

F

FOB (free on board): A shipping term that sets where responsibility for the goods passes from seller to buyer. In U.S. domestic contracts it is written as FOB origin or FOB destination; as an Incoterms rule it applies only to sea and inland waterway shipments. Read more: ICC: Incoterms rules.

G

Goods receipt: The record that ordered goods or services arrived and were accepted. It is one of the three documents in a three-way match.

I

Incoterms: Standard trade terms published by the International Chamber of Commerce that say who pays for shipping, insurance and duties and where risk passes from seller to buyer. Examples are EXW, FCA, FOB and DDP. Read more: ICC: Incoterms rules.
Indirect spend: Purchases that keep a company running but do not go into what it sells, such as software, office supplies, facilities services and travel.
Invoice: The supplier's request for payment. It lists what was delivered, the price, taxes and the payment terms, and usually refers to the purchase order number.

L

Lead time: The time between placing an order and receiving it. Quoted lead times should state whether they count from order date or from approval of drawings or samples.

M

Maverick spend: Purchases made outside the agreed buying process, such as ordering from an unapproved supplier or buying before a PO exists.
MRO (maintenance, repair and operations): Supplies used to keep facilities and equipment running, such as spare parts, tools, safety gear and cleaning supplies. MRO buying is often frequent, small and spread across many suppliers.

N

Net 30: Payment terms that give the buyer 30 days from the invoice date to pay. Net 45, net 60 and similar terms work the same way with different periods.

P

Pass-through purchasing: A service where a third party buys goods or services for you from a supplier you choose and bills you, with supplier costs and the service fee shown separately. The third party acts as buyer of record. Read more: Pass-through purchasing and tail spend management; How a buyer of record works.
Procurement: Everything involved in getting the goods and services an organization needs: finding and choosing suppliers, agreeing terms, ordering, receiving and paying. Read more: Pass-through purchasing and tail spend management.
Procurement outsourcing: Hiring an outside firm to handle some or all buying work, such as one-off purchases, tail spend or sourcing projects, instead of doing it with in-house staff. Read more: Procurement outsourcing vs hiring a buyer.
Purchase order (PO): The buyer's official order to a supplier. It states what is being bought, the quantity, price, delivery date and terms, and becomes a contract once the supplier accepts it.
Purchase requisition: An internal request to buy something. Once it is approved, a buyer turns it into a purchase order.
Purchasing agent: A buyer who places orders. The term means either an in-house job title or an outside agent that buys on your behalf in your name, so the supplier still invoices you. Read more: Buyer of record vs purchasing agent.
Purchasing card (P-card): A company credit card for small purchases, with spending limits and merchant restrictions. It avoids a PO and an invoice for low-value buys.

Q

Quote (quotation): A supplier's written offer stating price, quantity, lead time and terms, usually valid for a set number of days.

R

Request for information (RFI): A document sent to suppliers to learn what they offer and whether they can meet a need. It usually comes before an RFQ or RFP.
Request for proposal (RFP): A document asking suppliers to propose how they would meet a need and at what price. Used when the solution, not only the price, will decide the award.
Request for quotation (RFQ): A document asking suppliers to quote a price for a clearly defined item or service. Used when the requirement is fixed and price and lead time decide the award.
Resale certificate: A state form a buyer gives a supplier to buy goods tax-free because it will resell them. Rules and forms differ by state.

S

Single source: Buying from one supplier by choice even though others could supply the item, for example to keep quality or pricing consistent.
Sole source: Buying from one supplier because it is the only one able to supply the item, such as the holder of a patent or the original equipment maker.
Spend analysis: Collecting and sorting purchase data, usually from accounts payable, by supplier, category and department to see where money goes and where to act. Read more: Tail spend vs strategic spend.
Spend under management: The share of total spend that goes through agreed suppliers, contracts or processes that procurement controls.
Statement of work (SOW): A document that describes the work a service supplier will do, the deliverables, timeline and acceptance criteria.
Strategic sourcing: A planned process for choosing suppliers for important spend: studying the market, inviting bids, negotiating and putting contracts in place. Read more: Pass-through purchasing and tail spend management.
Strategic spend: Money spent with the few suppliers that matter most to cost, quality or operations. It is managed supplier by supplier with sourcing, contracts and reviews. Read more: Tail spend vs strategic spend.
Supplier onboarding: The steps to add a new supplier to a company's systems: collecting tax forms, bank details, insurance and contact information, running checks and getting approvals. Read more: Supplier onboarding workflows; Why one-off vendors cost more.
Supplier qualification: Checking that a supplier can meet your requirements for quality, capacity, finances and delivery before you buy from it. Read more: Supplier onboarding workflows.

T

Tail spend: The long list of small, infrequent purchases spread across many suppliers. Each order is too small to source on its own, but together they create a lot of vendor and invoice work. Read more: What is tail spend management?; Tail spend vs strategic spend.
Tail spend management: Handling tail spend with simple rules instead of case-by-case sourcing: preferred suppliers, catalogs, purchasing cards, supplier consolidation and a buyer of record for one-off needs. Read more: What is tail spend management?; Pass-through purchasing and tail spend management.
Third-party procurement: Another company buys on your behalf. The third party places the order, pays the supplier and invoices you, so your team deals with one vendor. Read more: How a buyer of record works; Pass-through purchasing and tail spend management.
Three-way match: Checking that the purchase order, the goods receipt and the supplier invoice agree on item, quantity and price before paying.
Total cost of ownership (TCO): The full cost of a purchase over its life, including price, shipping, setup, training, maintenance and disposal, not only the purchase price.

V

Vendor consolidation: Reducing the number of suppliers for similar items, so spend is concentrated with fewer suppliers and fewer invoices. Read more: Tail spend vs strategic spend.
Vendor master: The list of suppliers in a company's accounting or purchasing system, with their tax, bank and contact details. Every one-off supplier adds a record that someone must keep current. Read more: Why one-off vendors cost more.

W

W-9 (Form W-9): The IRS form a U.S. supplier gives a customer with its legal name and taxpayer identification number. Most companies collect one before paying a new supplier. Read more: IRS: About Form W-9.

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