Procurement terms: D

Damages are a form of compensation paid to a claimant for suffering loss, injury or harm as a result of another’s breach of an agreement. There are several types of damages that may be claimed in the event of a breach of an agreement: damages for economic loss, reliance damages and expectation damages are three examples. All damages represent an attempt to restore the parties to where they would have been had the breach not occurred. Damages cannot be punitive. Damages for economic loss may be liquidated or unliquidated. Liquidated damages are ‘a genuine pre-estimate of the likely loss’ and represent an attempt by buyers to calculate the economic loss caused by a breach of a contract by a supplier. Many suppliers seek to cap the scale of damages to limit their liability. Unliquidated damages are damages assessed by the courts. Reliance measures seek to compensate the claimant for ‘out of pocket’ expenses incurred due to the other party’s breach. Expectation damages refer to sums that should have been earned in the future had the breach not occurred, for example lost profit. See also Breach of Contract; Damages, Liquidated and Damages, Unliquidated.

A genuine pre-estimate of likely loss, liquidated damages are a pre-agreed sum of money that the buyer estimates will be lost in the event of a breach of their contractual obligations by the supplier. The purpose of damages is to restore the parties to where they would have been if the breach had not occurred, so damages may not be punitive, but should relate directly to the buyer’s expected loss. The implication of liquidated damages is that the buyer needs to communicate to the supplier all the likely consequences of a potential breach, so that the supplier understands the implications of a breach of the contract. While some suppliers will seek to cap their liability, the buyer may need to make a commercial judgement about the appropriateness of transferring all of the risk to a supplier. See also Damages, Unliquidated.

Whereas liquidated damages represent damages which have been quantified in advance, unliquidated damages may be awarded by a court when no specified sum has been determined between the parties and incorporated into a contract.

Refer to Goods, Dangerous

An Incoterm meaning ‘delivered at place’, such as a nominated place or destination. The seller pays for carriage to the named location, and assumes all risks up to the point of delivery. The buyer has to arrange and pay for import duty and taxes, but the seller pays for transport to the final destination.  See also Incoterms.

An Incoterm meaning ‘delivered at terminal’, such as a nominated port or destination. The seller pays for carriage to the terminal, and assumes all risks up to the point of delivery. The buyer has to arrange and pay for import duty and transport to the final destination.  See also Incoterms.

Data refers to qualitative or quantitative variables. Data is unstructured information, such as individual order values for a given category. When totalled, the structuring of the data changes the data into information. Data is often viewed as the lowest level of information from which knowledge is then derived. See also Information.

In supply chain management the movement of personnel or materials from one location to another because they were in the wrong position is known as deadheading. It is uneconomic but essential to sustain networks.

Decentralisation is the process of dispersing decision-making abilities closer to the point at which decisions have their consequence.  The more decentralised a system is, the more it relies on lateral relationships and the less it can rely on central direction. See also Centralisation and CLAN.

Formal notice issued by one party to a contractual agreement to another party that has breached its contractual obligations. Many contracts define the process through which the agreement may be terminated and often the issue of a default notice is an important stage in allowing the other party a reasonable time to meet their contractual obligations. See also Contract, Termination of and Show Cause.

In economic terms, deflation is a decrease in the general prices of goods and services and occurs when the inflation rate falls below 0%. Organisations often postpone expenditure under deflation, as materials will cost less in the future than they cost at that time.

The term ‘delayering’ is used in the management of corporate restructuring and refers to a planned reduction in the number of layers of corporate hierarchy. For example, many organisations seek to have a minimum number of tiers between the CEO and the most junior employee. The consequence is that managers often have more direct reports. See also Structure, Organisational.

Delegations of financial authority involve a hierarchy of financial thresholds that empower officers at different grades within an organisation to commit expenditure and incur liabilities or debts on behalf of the organisation. In some organisations expenditure authority - the ability to spend from an approved budget - is separated from commitment authority - the ability to commit the organisation to enter into contracts. This disempowers non-procurement staff from entering into contracts and circumventing the procurement process. See also Governance.

The process of delivering goods or services. Supply chain management is concerned with the flow of materials and services, including delivery to the ultimate customer, as well as the associated flows of money and information. The ‘last kilometre’ is often seen as a key challenge, as delivery to a dispersed customer base is a greater challenge than delivery to points or nodes in the supply chain such as warehouses.

Delivery in full and on time [DIFOT] combines both the completeness of the order and the timeliness of the delivery. A multidimensional measure of supplier performance, it is calculated by multiplying the in-full rate by the on-time rate [both as percentages]. For example, if a buyer places three orders each for 500 units and the first order is delivered with one delivery of 250 by the due date and a further delivery of 250 a week later, the second order is delivered with 500 by the due date, and the third order is delivered with a delivery of 50 by the due date and a second delivery of 450 a week later, then the actual DIFOT by order is 11%, being 33% x 33%..

The process of estimating the quantity of a product or service that will be purchased is called ‘demand forecasting’. Traditional approaches to demand forecasting were often informal, but contemporary information systems frequently employ more formal and quantitative methods.  Sharing demand forecasts with suppliers is a key to matching supply and demand and helps reduce system-wide inventory. See also Supply Chain Management. Demand Planning e-Learning courses are available at Academy of Procurement.

Demand management refers to the analysis and influence of levels of consumption. It involves understanding what is bought, by whom, when, how and why, and then seeking to change patterns of consumption so that total cost is minimised. For example, procurement processes may negotiate the rate for electricity so that it is purchased at the best possible tariff, but if usage is cut this will result in the largest saving of all.

Demand-pull describes a supply chain where the trigger for supply is customer demand. As an example, at the start of a new academic year, a university bookshop stocking a popular text places a requisition card halfway down the pile. As the texts are purchased the requisition card is exposed and the triggers the buyer at the bookshop to raise an order for more. The logic being that the order will be received, processed and delivered before the last text in stock at the bookshop is sold.This contrasts with ‘supply-push’, which would see the publisher automatically shipping a set number of the same text every week to the bookshop irrespective of customer demand. Should the book no longer be a required text and demand subsequently halves, a supply-push scenario would see the bookshop receiving too many copies for the revised level of demand. However, the demand-pull model of replenishment would ensure a slowing of the re-order process and avoid the potential for being over-stocked. See also Lead Time.

Charges levied for extending the rental of an asset beyond the originally agreed time period.

This is a method of delivering projects in which the contractor undertakes both the design and the construction of the project, based on a brief by the client. It differs from more traditional approaches under which the client would appoint a designer to deliver the design and tender the construction of the design as a separate project. The approach creates a single point of responsibility and, as the design and construct contract is often on a fixed price basis, the approach creates certainty for the client. Other claimed benefits are shortened timescales as there are fewer handovers in the process and greater opportunity for innovation. See also Contract.

Refer to Specification

Refer to Delivery in Full and On Time

An integrated and technology-driven platform that streamlines and automates the procurement process

Refer to Materials, Direct

Disaster recovery describes the process, policies and procedures created to allow business continuity, particularly, continuity of technology infrastructure, which is vital to an organisation after a disaster. Whilst business continuity involves planning for keeping all aspects of a business functioning in the midst of a crisis, disaster recovery focuses on the technology systems that support business functions.

A discount is a reduction in the listed or stated price of a good or service. Discounts can be applied to manufacturer's list prices, trade or retail prices. There are many reasons for discounting, including to increase short-term sales, to move out-of-date stock or to reward valuable customers. Many list prices are deliberately inflated to allow participants in the supply chain to grant discounts so, for procurement practitioners the negotiation of a discount is less significant than the scale of that discount.

Discounted cash flow is a way of calculating the current value of future sums of money. Future cash flows are estimated and then discounted to give their current value, or net present value. The approach requires the use of a discount rate, to discount the future cash flows. For riskier projects a higher discount rate should be used. Future cash flows may not occur to the value anticipated, or when the calculations assume they will happen. Despite these problems, discounted cash flow is widely used as a means of investment appraisal. See also Investment Appraisal and Net Present Value.

Disintermediation is the removal of layers in a supply chain, or ‘cutting out the middleman’. Instead of going through traditional distribution channels that have multiple intermediaries, for example wholesaler, broker, agent or distributor, buyers choose to deal with the manufacturer directly or eliminate other stages in the supply chain. See also Supply Chain.

The process of resolving disputes between two or more parties. Dispute resolution fall into two categories: adjudication involving a judge or arbitrator, such as litigation or arbitration; and, consensual solutions such as mediation, conciliation or negotiation. Legal adjudication can be time consuming and expensive so alternative dispute resolution mechanisms are sometimes used in preference. See also Alternative Dispute Resolution. Legal e-Learning courses are available at Academy of Procurement.

Refer to Market Distortion

Distribution refers to the process of moving materials or products from one supply chain participant to another. Supply chain management involves aligning the supply chain participants so that decisions are made which optimise performance of the supply chain as a whole, for example minimising system-wide inventory. See also Alignment and Supply Chain.

A project methodology that is part of the Six Sigma approach to quality management. The word is an acronym for Define the problem, Measure key aspects of the current process, Analyse the data, Improve the current process and Control the future state process. See also Six Sigma.

A dock leveller is a device fixed to a loading dock that allows vehicles of different heights to load and unload from the dock. The leveller is a simple metal plate that is raised or lowered onto the back of the truck in order to bridge the gap between the truck and the dock to allow material handling equipment to be used on both truck and dock.

The word ‘downstream’ is used in two contexts in procurement: to describe parts of the procurement process, and to describe parts of the supply chain. Those activities, which occur after the contract is let, or the purchase order raised, are known as downstream procurement activities. In supply chains, the phases that occur after your stage are also described as downstream. See also Supply Chain.

Downtime refers to that period when a system is unavailable. Typically applied to servers, websites or equipment, downtime may occur for scheduled maintenance or as a result of unplanned outages. Service level agreements often specify the minimum uptime that a system should provide and reliability is a key driver of increased uptime. See also Service Level Agreement and Uptime.

Duress occurs when pressure is applied to a person or an organisation. Contracts agreed between two parties may be voidable if one party has entered into the agreement under duress. In procurement the most likely form of duress is economic duress. An example might be that a supplier is coerced into signing a contract on unfavourable terms because the loss of the contract would mean certain bankruptcy. Although it is hard for the courts to determine what is legitimate commercial pressure and what is coercion, the supplier might seek the contract to be set aside due to economic duress.