Procurement Terms
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A
Total Cost of Ownership (TCO), sometimes Cost Driver Analysis, Acquisition Cost or Value for Money (VfM), is an estimate of the true cost of buying a product or service. It is the sum of all costs incurred during acquisition, possession, utilization and disposition of a product or service. TCO is important because it represents a bigger picture beyond the basic purchase price and reflects the costs that aren’t necessarily included in the upfront pricing.
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B
The BAFO is normally the final step of most negotiations. It represents the final position of either the Supplier or Buyer. If that offer is not accepted the negotiations are concluded and potential other options are considered.
- Best and Final Offer
- Best and Final Offer
A Bill of Material is the list of materials that go into a product to be delivered by a Supplier. It most commonly used in manufacturing and technology industries and can include raw materials, sub-components, sub-assemblies and rigging. The Bill of Material will detail the exact part numbers and quantities required for the desired delivery. It is common for a Bill of Material to be used as a key sourcing document in Direct Procurement.
C
Category Management is a popular method of managing the spend of an organization. Each similar type of spend is organized into spend Categories so that strategies and operations are aligned. This ensures an organized approach to delivering procurement services across the organization.
Category Segmentation, sometimes Category Positioning, is the process of classifying procurement categories in terms of their strategic importance to the organization. It is an integral part of a Category Management program that helps define what resources, processes and procedures are applied to manage the category.
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Category Segmentation, sometimes Category Positioning, is the process of classifying procurement categories in terms of their strategic importance to the organization. It is an integral part of a Category Management program that helps define what resources, processes and procedures are applied to manage the category.
Related terms:
Centralised Procurement is a function that is entirely controlled by the central procurement function. A pure centralised function is rare amongst most Organizations due to the need for specialists working directly with their colleagues to create business value. However, in service organisations centralised procurement teams flourish due to the supporting role of the products and services being procured.
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Total Cost of Ownership (TCO), sometimes Cost Driver Analysis, Acquisition Cost or Value for Money (VfM), is an estimate of the true cost of buying a product or service. It is the sum of all costs incurred during acquisition, possession, utilization and disposition of a product or service. TCO is important because it represents a bigger picture beyond the basic purchase price and reflects the costs that aren’t necessarily included in the upfront pricing.
Learn more
D
Decentralised procurement is a function that operates without a central control point. Whilst not seen as best practice for larger complex organisation, this type of procurement model can become a competitive advantage for smaller more agile firms. A well defined series of third-party policies can help ensure purchases made across the Organization are optimum without the need to onerous and costly sign-off hierarchies.
Direct Procurement is the purchasing of goods and services that go directly into the goods or services of the organization that create revenue. These are the most important goods or services that the procurement function source and contract for the organization and have a direct influence on the success of the organizations commercial offering. Products and services like transistors, microchips, chemicals, and certain types of consulting are often direct purchases. Direct Procurement is the most important aspect of purchasing for most non-service businesses, this is because of the impact of supplier performance, quality and cost have directly on the product or service offered by the organization so therefore can have a material effect on it's financial performance good or bad.