Procurement terms: F

Facilitation involves supporting a team to achieve their goals by focusing on the process rather than the content. A team leader may direct the team on what to focus on, but a facilitator is usually neutral about the content but the champion of the process. Facilitators may help a group plan their tasks and achieve consensus, or overcome conflict. In the procurement process, procurement champions often steer or guide the team by suggesting a process to resolve issues and achieve ‘buy in’ in a collegiate way, proposing and achieving support, rather than being directive. The key skills of the facilitator are ‘pull’ influencing skills, including listening, empathy and persuasion. See also Persuasion. Communication Skills training is available at Academy of Procurement.

Failure mode and effects analysis [FMEA] is an approach to quality management which seeks to identify how a system may fail due to defects in process or design, and anticipate the consequences of failure, so that design changes can be made to improve the reliability of the system. See also Root Cause.

One of the five levels of classes in the United Nations Standard Products and Services Code [UNSPSC]. The other four levels of classification are Segment, Commodity, Class and Business Function (optional). The UNSPSC for any given item is therefore composed of four or five two-digit identifiers, which together universally categorise items. See also UNSPSC.

An Incoterm relevant only for bulk cargo transported by ship. The term means ‘free alongside ship’ (named port of shipment). The supplier must clear the goods for export and deliver them alongside the ship at the named port. See also Incoterms.

An Incoterm meaning ‘free carrier’ (named place of delivery). The supplier transfers the goods, cleared for export, to the buyer-nominated carrier at the named place. The supplier pays for carriage to the carrier at the named place of delivery, and risk passes when the goods are transferred to the carrier. See also Incoterms.

Refer to Full Container Load

Refer to Structure, Federal

Feedback is the commentary on performance exchanged between the parties. Most procurement departments review supplier performance periodically, and the meetings are an opportunity for both parties to exchange feedback on what has happened and why. There are two broad types of feedback: motivational feedback, which recognises good performance; and developmental feedback, which highlights sub-standard performance and identifies opportunities for improvement.

Refer to First in, First Out and Fly In, Fly Out.

In inventory control, first in, first out [FIFO] means that stock is issued and charged out on the basis of the age of the inventory; the oldest stock is issued first. From an inventory control point of view this reduces the likelihood of stock write-offs, of obsolete or age-expired stock. From a costing point of view it reflects the actual price paid for the inventory. If stock is replenished at a different price, there is then a dilemma about pricing stock that has been bought at different prices. See also Last in, First Out.

This means that the good or service is good enough to do the job it was designed to do. When procuring a good or service, if the buyer states the purpose for which the good or service is required, the Competition and Consumer Act 2010 implies a term into the contract that the supplier must supply a solution which is appropriate for that purpose. Some suppliers will seek to limit their liability by denying that salespeople can make representations that their solutions are fit for any specific purpose. See also Merchantable Quality.

Five forces analysis is an approach to understanding market dynamics using the interaction of five key market forces. The market forces are the bargaining power of buyers, the bargaining power of suppliers, the threat of new entrants, the threat of substitutes, and the degree of competitive rivalry. The aim is to understand the profitability of the industry. The significance for buyers is that, by understanding the trends impacting on the market, the buyer can model what is likely to happen in the market. Buyers can also exert influence on a number of the forces, most obviously the bargaining power of buyers, but also the threat of new entrants and the threat of substitutes. See also Market Analysis.

A traditional aphorism listing a number of key objectives of purchasing: ‘every purchasing act must satisfy the following five criteria: to buy goods or services of the right quality, in the right quantity, from the right source, at the right time and at the right price.’ The concept is based on the premise that purchasing is about trade-offs: if we specify a lower grade or quality, this may result in a lower price, if we buy more, we may access a lower price. Price is always listed as the last ‘right’ as it is often the permutation of the other factors that affects what price is paid. The concept has largely been superseded, as, while conceptually attractive, there is no advice about what is ‘right’, or how to achieve it. Furthermore, the criteria listed are transactional in character, and contemporary perspectives on procurement would add a variety of other dimensions to be considered, such as risk, sustainability, total cost and stakeholder engagement. See also Portfolio Analysis and Risk.

Refer to Cost, Fixed

Refer to Price, Fixed

Fly in, fly out, sometimes abbreviated to FIFO, refers to the practice of rostering workers on shift patterns that allow them to fly in to a remote site to work for intensive periods, and then fly home for an extended break. It is favoured by resources companies when the cost of establishing and sustaining a local settlement to support the site's workforce is higher than the cost of commuting, and where employees prefer to live in their original homes rather than move to a local settlement.

Refer to Failure Mode and Effects Analysis

An Incoterm meaning ‘free on board’ (named port of shipment) where the seller delivers the goods on board a ship nominated by the buyer, and clears the goods for export, but the buyer is responsible for all subsequent costs and risks. It is recommended for use only for maritime and inland waterway transport.  The term FCA is preferred for multimodal sea transport in containers. See also Incoterms.

Where prices are subject to regular fluctuations, rather than negotiate the rates at every price review, the parties to the negotiation may agree a formula that is transparent so that each party can validate the price that should apply. For example, sugar is sold at the ruling market price, as published in a trade journal, with an agreed premium of 20% to the supplier for the purchase, storage, processing, packaging and delivery of the good. The buyer can validate the supplier’s price by referencing the published index for unrefined sugar. Buyers and sellers of more complex goods and commodities can also modify the formula they use to their specific purposes and refer to published indices for labour, overheads and materials using an agreed cost build-up. For example, as each index number changes, so the cost model can calculate the overall impact to the price of a quarterly increase in labour costs, or a 5% reduction in the cost of steel. Formula pricing may appear to be fair, logical and transparent. However most buyers note that usually published indices rise, rather than fall. See also Price Variation Formula.

Refer to Bullwhip Effect.

Purchasing materials in excess of current requirements in order to secure economies of scale, to ensure continuity in the event of a shortage, or to speculate in the event of an anticipated price rise. See also Contract, Futures.

Forward commitment procurement is an approach to ‘market making’ in which potential buyers of solutions that are not currently available on the market commit that, should solutions be developed which meet defined standards in terms of performance and price, they will buy the solutions. As an example, the public sector can stimulate innovation in sustainable solutions by committing to purchase solutions that meet defined requirements. Suppliers who might otherwise be reluctant to invest in the absence of clear market demand may enter the market and meet the latent demand. See also Market Failure and Market Maker.

Freight forwarders, or forwarding agents, arrange cargo movement to international destinations. They are typically non-asset based and organise the supply chain, as well as preparing and processing documentation needed to ship goods internationally. Information processed by freight forwarders includes the commercial invoice, the bill of lading, the shipper's export declaration, and other documents required by the carrier or country of export and import. They are 3PL providers in the landscape of logistics intermediaries. See also 4PL.

A full container load [FCL] is a standard container that has been fully loaded by one customer. FCL shipments are at lower freight rates than either bulk freight or less than container loads. See also Less than Container Load.

Refer to Specification, Functional

Refer to Contract, Futures