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The process of comparing an organization and its products, services, operations and/or processes against others (typically against the best) in the industry. Common points on which to focus for benchmarking can include measurements of time and quality, cost, efficiencies, and customer satisfaction. This helps companies learn why others are successful and how to improve internally to meet or exceed the accomplishments of the leaders in the space.
Buyer Decision Process (or Purchase Decision Process)
The journey a buyer goes through before, during and after purchasing a product or service. Stages include problem/need recognition, research, evaluation of alternatives, purchase decision and post-purchase behavior (developed by Engel, Blackwell and Kollat in 1968).
One of Porter’s Five Forces, buyer power refers to a buyer’s leverage to get lower prices and demand improved product/service quality, more services or better contract terms from a supplier. This is one of the forces that shapes the competitiveness of an industry.
A strategic approach to purchasing which organizes purchases into categories. This allows procurement professionals to focus and fully leverage their procurement decisions on behalf of the whole organization which can eliminate redundancies, increase efficiencies and provide value and savings across the company.
The process of managing contract creation, execution and post-award management between a company and its vendors to maximize financial performance and mitigate risk. Includes negotiating terms and conditions and ensuring their compliance, plus agreeing to and documenting any changes or amendments that come up during the contract’s implementation and/or execution.
When two or more public procurement organizations combine their requirements to leverage their combined buying power to get the best price, value, delivery and service terms possible. Cooperative purchasing can result in reduced administrative time and money spent on procurement activities.
A measure of the extent to which a (relatively) small number of firms account for a (relatively) large percentage of the market.
Mergers & Acquisitions (M&A Activity)
A general term that refers to consolidation of companies or assets. It can include transactions such as mergers, acquisitions, consolidations, tender offers, purchase of assets and management acquisitions. M&A activities allow companies to grow, shrink or change their competitive position.
The North American Industry Classification System is the standard by which industries (not products) in the United States, Canada and Mexico are classified according to the type of economic activity. NAICS codes are generally five or six digits, where the first two digits represent the largest business sector, the third digit the subsector, the fourth digit the industry group, the fifth digit the NAICS industry, and the sixth digit the national industry.
An approach to negotiations involving significant preparation time, extensive information gathering, prepared offers and requirements, and pre-determined areas of leverage. Firms that are prepared and informed in their approach to negotiations are in a better position to get their desired price and contract terms.
Not to be confused with a negotiation strategy, a negotiation tactic is a move, countermove or adjustment used during negotiations to better position yourself to get the best deal (or used against you by the other party to improve their position). Negotiation tactics such as pressuring, delaying, insulting or belittling are typically seen as hard-bargaining and manipulative. More positive approaches include using silence or seating arrangements to your advantage.
A measure of profitability, expressed as a percentage, that effectively shows how much of each dollar of sales a company keeps in earnings. For example, a 17% profit margin means a company has a net income of $0.17 for each dollar of revenue earned.
Any procurement of goods and services done by a company or organization that is not a public authority. Procurement departments range from very small with a limited spend under management to departments that employ hundreds of people that manage spends in the billions of dollars.
Public Procurement (Government Procurement)
The acquisition of products, services and works on behalf of public organizations such as federal, state or local government agencies. As procured items are paid for by taxpayer dollars, public procurement departments are expected to operate efficiently and are held to high standards in order to serve the public.
A catch-all acronym that stands for Request for X, where the X could be Information (RFI), Proposal (RFP) or Quote (RFQ). Each has its own primary goal. The objective of an RFI is to collect written information about a supplier’s capabilities, usually in a format that can be used for comparative purposes. The goal of an RFP is ultimately to determine which suppliers seem most capable of meeting the company’s requirements and to select those that should be invited to submit bids. With an RFQ, a firm is asking outside vendors to offer a price quote for the completion or fulfillment of a specific product, service or task.
The process of identifying, evaluating and measuring the probability and severity of risks involved in a procurement project or strategy. A risk analysis report can be either qualitative, quantitative or both. The goal of a risk analysis is to calculate what can go wrong and then determine how to either avoid the risk or fix the problem should it occur.
An official process for ensuring timely supply of products and/or services that are crucial to a firm's ability to achieve its core business objectives. Strategic procurement involves continuously improving and re-evaluating the purchasing activities of a company. It considers the goals and needs of the procurement department and of the company, then works to achieve them, over the long-term.
Supplier Consolidation (Vendor Consolidation)
A strategy of reducing an organization’s supplier or vendor base in an effort to leverage economies of scale to lower prices, lower freight costs, improve quality and strengthen supply agreements. The company can then use its learnings to define vendor acquisition criteria. Vendor consolidation is a continuous process that may produce significant benefits.
The goal of supplier optimization is to reduce dormant, limited-use and poorly performing vendors. Once ineffective suppliers are identified and removed, organizations can spend more time with fewer suppliers to reduce costs, save time, reduce risk and focus on strategic goals.
Supplier Relationship Management (also: Supplier Management, Vendor Management)
Supplier relationship management (SRM), also called supplier management or vendor management, describes activities including, but not limited to: researching and sourcing suppliers that meet an organization’s needs; requesting quotes with pricing, competencies, turnaround information and quality of work statements; negotiating new and renewing contracts; evaluating and measuring performance; and ensuring payments are made. The goal of SRM is to streamline processes regarding vendors and develop mutually beneficial relationships with strategic supply partners.
A broad term to describe activities including the identification, acquisition and management of products and/or services needed to run a business. Some goals of supply management are to reduce or control costs, use resources effectively to increase the profits of the business and gather and provide information to aid in strategic business decisions.
Total Cost of Ownership (TCO)
The purchase price of a product or service plus the cost of operation. When evaluating alternatives, the item with the lowest total cost of ownership provides the better value in the long run. Expenditures to consider beyond the purchase price include installation and maintenance costs, additional software needed, future upgrades, transition and training costs, and ongoing support. Evaluating TCO is a must in strategic procurement.
United Nations Standard Products and Services Code, a hierarchical classification codeset of expenditure items. The UNSPSC has four levels: Segment, Family, Class, Commodity. Each level is coded in two decimal digits, resulting in an eight-digit number.