Procurement: Terms & Definitions

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Like other professions, procurement uses specific terminology as a way of expressing ideas in shorthand. Procurement and purchasing are often used as a description for the same function, but there are subtle differences that separate the two activities. There are invariably terms that apply equally to both purchasing and procurement and share the same meaning, but each activity also has terms specific unto itself.

Procurement

The Collins Dictionary defines procurement as the act of getting or providing. In the real world, this translates as the full range of activities related to purchasing goods, services and works for an organization or company. Procurement is an activity that involves all stages of a purchase, from the recognition of a need through to disposal of that requirement. Often the former and latter stages of this process are not accounted for as being part of the procurement process by organizations.

Purchasing

The natural progression is to clarify the difference between procurement and purchasing. Both terms appear to be used as an interchangeable shorthand for the same activity within the industry (especially in job descriptions). Again, the Collins Dictionary defines purchasing as the act of buying. This is a subtle but important difference from procurement, whose activities are somewhat broader involving the acquisition through means other than, but including buying. In simple terms, then, procurement is concerned with the acquisition of a service, while purchasing requires some form of payment for that same acquisition.

General Procurement and Purchasing Terms

There are many commonly used terms in procurement; these generally relate to the physical act of getting an object or service, such as requesting a quote, or to the terms and conditions governing the delivery and payment of the same object or service, such as "blanket order," which is an agreement to purchase a given quantity of specific goods over a period of time. There are many resources available to the procurement professional to review the technical language of the profession. The two main professional worldwide bodies are the American Purchasing Society and the Chartered Institute of Purchasing and Supply (see References).

Procurement Terms

There is an international language of procurement that is supported by both the American Purchasing Society and the Chartered Institute for Purchasing and Supply. These terms and definitions cover the whole procurement process from the identification of a need to the supply, delivery and ultimate disposal of that that need. "Whole lifetime costs" and "triple bottom line" are becoming increasingly important in the assessment of cost when beginning a procurement process. Both of these terms relate to the costs, such as operation, maintenance and disposal, associated with a service or good after it has been delivered. In the light of diminishing natural resources these considerations are becoming a more important dialogue for supply chain agents.

Purchasing Terms

Some of the more common purchasing terms that regularly appear in professional correspondence include legal shorthand for the contractual delivery of a product or service, such as COD (cash on delivery of product/service) MOQ (minimum order quantity) and ROI (return on investment). These terms and acronyms act as a professional shorthand for those engaged in the supply chain professions, enabling immediate understanding of sometimes complex ideas with the minimum exertion of effort. These terms can seem somewhat unusual to the novice buyer or casual observer but provide a vital shorthand for professional involved in the business of procurement.

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