Glossary

KAIZEN

An approach involving continuous improvement. A long-term approach, that seeks to make small changes in processes to improve quality and efficiency.

KANBAN

A production method where instructions are sent from one operation to the next on a card, including specific items and quantities. (Translated from the Japanese, it literally means ‘signboard’ or ‘billboard’). The aim is to reduce waste through over-production.

KEY CUSTOMER SEGMENTS

A method of splitting a company’s clients into groups so that marketing efforts can be more focused. It is often based on demographics such as age or geographic location or on buying behavior.

KEY PERFORMANCE INDICATOR (KPI)

Values that can be measured or monitored to assess levels of achievement.

KYOTO PROTOCOL

International treaty which commits state parties to reduce greenhouse gas emissions.

LABOR SURPLUS AREA

A civil jurisdiction designated by the U.S. Department of Labor, usually updated annually in the late fall. Used as one of the criteria for designating economically disadvantaged (ED) vendors.

LAGGARDS

The last group of consumers who buy or use a new product or technology.

LANDED COST

Cost of a product plus the relevant logistics costs, such as transportation, warehousing, handling, etc.

LANDFILL

Landfill is a system of garbage disposal in which the waste is buried between layers of earth which has the effect of building up low-lying land.

LAST IN-FIRST OUT (LIFO)

Items purchased last are sold first. As these items are likely to be higher in value, the remaining inventory has a lower value.

LAW OF DEMAND

The quantity of an item purchased varies inversely with its price, other factors remaining constant.

LAW OF SUPPLY

As the price of an item increases the supply of the item will also increase, other factors remaining constant.

LEAD TIME

The lapse of time between placing an order with a supplier and receipt of the goods.

LEAN

A business methodology that aims to create more value with fewer resources.

LEAN MANUFACTURING

Processes that improve efficiency by reducing wasted time, materials and money.

LEARNING CURVE

A graphical representation of how when greater numbers of an item are produced, unit costs reduce.

LEASE

A contract conveying from one entity to another the use of real or personal property for a designated period of time in return for payment or other consideration.

LEDGER

A book or computer file used to balance accounting figures such as deposits and receipts.

LESS THAN CONTAINER LOAD (LCL)

A single delivery of goods that does not completely fill a container. This may incur additional charges.

LESS THAN TRUCKLOAD (LTL)

A shipment containing fewer items than are required for the shipment to be eligible for full truckload rates.

LESS-THAN-TRUCKLOAD (LTL)

A quantity of freight less than the amount necessary to constitute a truckload.

LESSEE

One to whom a lease is granted.

LESSOR

One who grants a lease.

LETTER OF CREDIT (LC)

A document used between a buyer’s and seller’s bank to facilitate a transfer of funds upon performance of the contract and presentation of specified documents, e.g., signed delivery note.

LGBT BUSINESS ENTERPRISES (LGBTBE)

Is business that is at least 51% owned by a lesbian, gay, bisexual, or transgender person or persons; or, in the case of any publicly owned business, at least 51% of the stock of which is owned by one or more lesbian, gay, bisexual, or transgender persons; and whose management and daily business operations are controlled by one or more of those individuals.

LIABILITIES

The amount a business owes, e.g., loans, debts, accounts payable.

LIABLE

Legally responsible for any actions taken that may have a negative consequence.

LIFE CYCLE COSTING

A procurement evaluation technique which determines the total cost of acquisition, operation, maintaining and disposal of the items acquired; the lowest ownership cost during the time the item is in use.

LIFE-CYCLE ASSESSMENT (LCA)

A technique to assess the environmental impact of each step in a product’s life from raw material extraction through to the use, repair and maintenance of the product (also called a life-cycle analysis or a cradle-to-grave analysis).

LIFE-CYCLE COST

The total cost involved in items of inventory, including purchasing price, inward delivery, receipt and handling, storage, packing and preparation, dispatch costs, insurance and overheads.

LIFE-CYCLE PLAN

A plan addressing the impacts on the various stages of staff, products and environment life cycles.

LIFETIME COST

The total cost of ownership over the life of an asset.

LINE ITEM

An item of supply or service specified in a solicitation for which the vendor must specify a separate price.

LINEAR PRICING

The unit price doesn’t change according to the quantity purchased.

LIQUIDATED DAMAGES

A set sum agreed by the organization and the supplier (the parties) and is included in the contract, which will be paid if one of the parties breaches a term of the contract.

LIQUIDATED DAMAGES

A specific sum of money, agreed to as part of a contract to be paid by one party to the other in the event of a breach of contract in lieu of actual damages, unless otherwise provided by law.

LIQUIDATION

A form of insolvency when an organization is brought to an end.

LIST PRICE

The price of an article published in a catalog, advertisement or printed list from which discounts, if any, may be subtracted.

LOGISTICS

The control of the flow of goods or services between two points.

LONG TAIL SPEND

The part of an organization’s spend profile that isn’t managed directly by the procurement department.

LOSS LEADER

A product or service delivered at a price that makes a loss for the supplier in the hope of future gains; usually used to break into a new market or to increase market share.

LOW-COST COUNTRY (LCC)

Low-cost-country sourcing (LCCS). A procurement strategy to source from low-cost countries (LCC) either because of reduced production price, or improved capacity, quality, or logistics.

LOWEST RESPONSIBLE VENDOR

The vendor with the lowest price whose past performance, reputation and financial capability is deemed acceptable.

MACRO ENVIRONMENT

External factors beyond an organization’s control that will influence its success, such as government policy, technology, and social and cultural factors.

MAKE-TO-STOCK

Where an item is produced specifically to go into stock, for later sale.

MAKE OR BUY

A decision about what products or services an organization will manufacture or provide themselves in-house, and which will be purchased from outside sources.

MANUAL HANDLING

The transport or support of any load by one or more employees, including lifting, putting down, pushing, pulling, carrying or moving a load.

MANUFACTURING RESOURCE PLANNING (MRPII)

A computer-based inventory management system that combines all available strategic and planning data to support inventory forecasting.

MARKET

Where buyers meet sellers to trade products and services. This can relate to a specific location or to the general economic environment.

MARKET ANALYSIS

This helps procurement professionals to understand how the supply market works, the direction that the market is going in, the level of competition and the key suppliers in the market.

MARKET FACTORS

Elements that influence the demand for, or the price of, a good or service.

MARKET KNOWLEDGE

A detailed understanding of the influences, activities and trends in the market for a particular product or service (also known as category knowledge).

MARKET PRICE

The amount that customers are charged, depending on supply and demand for the products or services.

MARKET SATURATION

This usually means that there is more than enough supplier capacity to meet customer demand.

MARKET SEGMENT

A group of consumers with common characteristics that are grouped together for the purpose of marketing a product or service.

MASTER PRODUCTION SCHEDULE (MPS)

A plan that a company has produced for the purposes of scheduling machinery, staffing, resourcing, etc., that is used to ensure smooth, continuous productions.

MATERIAL ASSETS

Tangible items that are required to carry out an organization’s activities, such as tools, machinery, staff and buildings.

MATERIAL REQUIREMENTS PLANNING (MRP)

An electronic system used to plan production which includes scheduling orders, monitoring inventory and managing the production process.

MATERIALS MANAGEMENT

The part of the procurement process that makes sure organizations have the materials they need to operate.

MAVERICK SPEND/OFF-CONTRACT SPEND

Where local staff ignore existing contractual arrangements and purchase from other suppliers. This may be for fraudulent reasons, but most often it is simply because they believe they can get a better deal and do not understand the overall impact on the business.

MEAN

Another name for the average. The mean is calculated by adding all of the values together, then dividing by the number of values.

METHOD STATEMENT

A plan or procedure that details how a process or task will be carried out.

MICRO-, SMALL AND MEDIUM ENTERPRISES (MSME)

The expansion of SME to include microbusinesses, which are usually defined as having fewer than ten employees.

MICROENVIRONMENT

Factors that directly influence an organization’s success, such as competitors, suppliers, employees and customers.

MIDDLE MAJORITY

A group of consumers who buy or use a new product or technology after seeing it used successfully by innovators and early adopters.

MILESTONES

Important stages or events within a process.

MINI-COMPETITION

A limited tender exercise, usually only on price, under the rules set out in a framework agreement; only suppliers appointed to the framework are able to take part.

MINIMUM ORDER QUANTITY (MOQ)

The smallest amount of a product a buyer can order from the supplier.

MINORITY BUSINESS ENTERPRISES (MBE)

Minority group members are United States citizens who are Asian-Indian, Asian-Pacific, Black, Hispanic and Native American. Ownership by minority individuals means the business is at least 51% owned by such individuals or, in the case of a publicly owned business, at least 51% of the stock is owned by one or more such individuals (i.e., the management and daily operations are controlled by those minority group members).

MINUTES

A written record of a meeting, stating when it took place, who was present, what was discussed and what actions have been agreed.

MISSION STATEMENT

Short statement setting out an organization’s purpose.

MITIGATION/MITIGATING ACTION

An action that reduces the severity of an outcome.

MIXED LOADS

This is where a vehicle contains more than one type of product.

MOBILISATION

When a contract shifts from one supplier to another.

MODEL PROCUREMENT CODE (MPC)

A publication approved by the American Bar Association which sets forth procurement statutory principles and policy guidelines for managing and controlling the procurement of supplies, services and construction for public purposes; administrative and judicial remedies for the resolution of controversies relating to public contracts; and a set of ethical standards governing public and private participants in the procurement process

MODERN-DAY SLAVERY

The act of forcing people to work in poor conditions for little or no money.

MONOPOLY

A situation in a market where one organization controls the supply of goods or services, and new entrants find it difficult to enter the market.

MONOPSONY

A market with only one buyer.

MOONLIGHTING

Paid work from a second job that is done without a main employer’s consent.

MOVEMENTS

A shift in demand or supply, or price.

MULTI-NATIONALS

Organizations that have facilities and assets in more than one country.

MULTILATERAL TRADE AGREEMENTS

An exchange agreement between more than two nations or trading groups that gives each group favored trade status connected to certain goods obtained from the signatories.

MULTILINGUAL

In or using several different languages.

MULTIPLE AWARD

Contracts awarded to more than one supplier for comparable supplies and services. Awards are made for the same generic types of items at various prices.

NAICS (NORTH AMERICAN INDUSTRY CLASSIFICATION SYSTEM) CODE [FORMERLY KNOWN AS SIC (STANDARD INDUSTRIAL CLASSIFICATION) CODE]

Classification of business established by type of activity for the purpose of facilitating the collection, tabulation, presentation, and analysis of data collected by various agencies of the United States government, state agencies, trade associations, and private research organizations for promoting uniformity and comparability in the presentation of statistical data relating to those establishments and their fields of endeavor.

NAPM

National Association of Purchasing Management. A nonprofit educational and technical organization of purchasing and materials management personnel and buying agencies from the public and private sectors.

NASPO

National Association of State Purchasing Officials. An organization of state procurement representatives for the purpose of promoting efficient and effective public purchasing policies and procedures at the state level. NASPO is an affiliate of the Control of State Governments (CSG).

NEGOTIATION

Requests for proposals are sometimes used as a starting point for negotiations to establish a contract. RFPs generally include more than just price considerations. This method is especially applicable when dealing with a single source manufacturer.

NET AMOUNT

Total amount payable excluding taxes.

NET PRICE

Price after all discounts, rebates, etc., have been allowed.

NEW ENGINEERING CONTRACT (NEC)

A family of standard contracts used in construction in the UK.

NIGP

National Institute of Governmental Purchasing. A nonprofit, educational and technical assistance corporation of public purchasing agencies and activities at the federal, state and local levels of government.

NO BID

A response to a solicitation for bids stating that the respondent does not wish to submit an offer. It usually operates as a procedure consideration to prevent suspension from the vendors list for failure to submit a response.

NON-CASHABLE SAVINGS

One-time savings that do not reduce the ongoing future budget.

NON-GOVERNMENTAL ORGANISATION (NGO)

A nonprofit organization that operates independently of any government.

NON-LINEAR PRICING

The unit price does change as the quantity ordered changes.

OBJECTIVE

In the context of data, something is objective if it is pure fact, with no opinion or interpretation attached to it.

OBLIGATIONS

In terms of a contract, the actions that each party must carry out.

OBSOLESCENCE

The state of becoming discontinued, outdated or no longer useful.

OBSOLESCENT STOCK

Stock that is outdated and no longer useful.

OCCUPATIONAL HEALTH & SAFETY AGENCY (OHSA)

A USA governmental regulatory agency.

OFF-THE-SHELF

Goods or services that are readily available and not made to order.

OFFER

An invitation communicated by one party to another to enter into a legal contract.

OFFICERS

Positions appointed by the Board of Directors. Examples of officers are CEO (chief operating officer) and FO (financial officer).

OJEU

Official Journal of the European Union.

OLIGOPOLY

A market structure where a small number of competitors dominate the market.

OPEN ACCOUNT

This is an arrangement where the items are delivered before payment is due, for example, on credit terms such as 30 days.

OPEN MARKET REQUISITION (OMR)

The requisition document type used in MAPS Procurement to request the purchase of a non-contract item when the requested item’s estimated cost exceeds the authority for purchase level of the buyer. An OMR conveys the request for purchase to the person with the authority to purchase. The resulting order type is most often the Purchase Order Requisition (POR).

OPEN-BOOK CONTRACT

A contract in which both the purchaser and supplier share all financial information relating to the contract, including figures that would normally be considered commercially confidential.

OPENING STOCK

The amount, type and value of goods available for sale at the beginning of a set period.

OPERATING COSTS

Day-to-day expenses of running an organization, e.g., rent, salaries, transport costs, power and insurance.

OPERATING ENVIRONMENT

Everything external to the business that has an impact on how it operates. This will include regulations, social expectations, the economy, its relative position in the market, the competitiveness of the market, etc.

OPPORTUNITY COST

A benefit that could have accrued if a person had taken a different action.

OPTION TO EXTEND/RENEW

A provision (or exercise of a provision) which allows a continuance of the contract for an additional time according to permissible contractual conditions.

ORDERING SYSTEM

A method used to determine the size and timing of an organization’s orders.

ORGANISATION

A body that buys goods or services from a supplier.

ORGANIZATIONAL CULTURE

The shared values and beliefs that influence how people in an organization behave.

ORIGINAL EQUIPMENT MANUFACTURER (OEM)

A manufacturer that produces goods for another company to sell under their own branding, particularly computer and IT equipment.

OSCILLATING

An object that oscillates moves repeatedly from one position to another.

OSHA

The Occupational Safety and Health Administration. Created by the OSHA Act.

OUTCOME-FOCUSED SPECIFICATION

Type of performance specification that describes the functions or performance that a product must fulfil.

OUTPUT

The amount of goods or services an organization is producing or supplying.

OUTSOURCE

Contract another company to undertake a task or job.

OVER-SPEC’D (OVER-SPECIFIED)

Having a specification that is better than is required to be fit for purpose.

OVER-SUPPLY

Where more goods or services are available than there are buyers for them. This most often occurs in agriculture where the harvest may vary from year to year, depending on the weather, and the produce cannot be kept for a long time.

OVERDRAFT

A short-term agreement with a bank to lend money.