Procurement terms: P

The Australian Packaging Covenant is an agreement between companies in the packaging supply chain and government to reduce the environmental impact of consumer packaging. The goals will be achieved by designing packaging that is more resource efficient and more recyclable, thus increasing the recycling of used packaging, and reducing litter. The Covenant is based on the premise that industry self-regulation is preferable to government imposing its own regulations on the industry, which may be much harsher. See also Corporate Social Responsibility.

Panel arrangements are sourcing arrangements with multiple suppliers for the same category. They are used in situations where there are irreconcilable user preferences or when it is not possible or desirable to single source, or when the buyer wants to promote and stimulate competition. For example, the consultancy category is one in which there is a wide variety of user requirements, and it is not realistic to rationalise variety into ‘standard’ work scopes. The procurement strategy may be to reduce the number of providers, and place the selected providers on a panel arrangement, so that the category spend can be consolidated with a reduced number of providers, each of whom agrees to the organisation’s terms and conditions. A rate card may be negotiated for ad-hoc work. See also Sourcing Strategy.

The Pareto Principle has expression in many fields of procurement. One is that a small number of categories represent the majority of the total spend and a small number of suppliers cause a disproportionate number of the problems. The principle has also evolved into the ’80:20 rule’, which underpins many situations in economics and management where scarce effort needs to be focused to best effect. For example, if 20% of all purchase transactions account for 80% or more of the total spend, focusing on these acquisitions, so that managerial effort is used to best effect can optimise the return on procurement effort. Pareto analysis is usually seen as one dimensional, as it does not consider the business impact of the categories, or the market complexity. See also Portfolio Analysis.

Partner is a label applied to suppliers with whom the buying organisation enjoys a longer term and cooperative relationship. It is part of a classification of potential buyer-supplier relationships, and represents a type of relationship in which both parties work to reduce waste, reduce cycle time, and create joint profit and other forms of value. The creation of joint working teams and the adoption of common work practices are linked to longer term relationships, in which both parties forego opportunism, and work towards longer-term goals. Such relationships are; however, time consuming to create and resource hungry. See also Cooperation, Lean Supply, and Win:Win.

Partnering refers to the process of developing a relationship to one in which both parties are prepared to work cooperatively. It requires selecting the potential partner and facilitating changes in behaviour, such as the replacement of competition with cooperation and the development of trust. If the parties have been used to claiming value from each other in win:lose negotiations, partnering implies creating and sharing that value. For example, the parties may align the buyer’s ordering and the supplier’s fulfilment processes in a way that allows the supplier to reduce inventory levels by $100,000. In a win:lose relationship, the party with the most power would claim that benefit. In a partnership, the parties would expect to share that benefit in a more equitable way. Partnering also describes the creation of a culture where the seller is open about their costs, and the buyer declines to behave opportunistically. See also Partner and Win:Win.

Partnership is a label given to a relationship in which the parties forego short-term opportunism and demonstrate a longer-term commitment to jointly strive for lower costs and the creation of new ways of working together to improve joint competitiveness. In a partnership, senior managers from both organisations will meet to align longer term planning and goals, and commission joint teams to work across organisational boundaries to align systems, processes and behaviours. In practice the label is sometimes used in situations that do not qualify as a partnership. It is not possible, for example, to have partnerships with every supplier in the supply base, and ‘preferred suppliers’ do not meet the criteria for a partnership. See also Partner and Win:Win.

A patent is a temporary monopoly that is granted for any device, substance, method or process that is new, inventive, and useful. In return for the right to exploit the monopoly commercially, usually for 20 years, the applicant agrees to publish the details of their idea and to allow the use of the invention by others after the expiry of the patent. Patents may be granted for a range of inventions, such as mechanical devices, computer software and some business methods. You cannot patent an idea, only the expression of an idea. See also Intellectual Property.

The term ‘payment profile’ describes the timing and scaling of a contractor’s remuneration. For example, some contracts include a retention clause, under which the client retains a sum of money until a defined period has elapsed. In other contracts, the client may make interim payments to the contractor to cover out-of-pocket expenses such as the purchase of materials, based on a claim by the contractor for the value of those expenses. Alternatively, the client may define key milestones that trigger the release of a payment on completion by the contractor. Such stage or milestone payments represent a payment profile, and this profile is used where it is not possible or appropriate to create a simple lump sum payment upon completion of the work. See also Incentive.

A clause in a contract that seeks to punish one party for breaching the agreement. Remedies for breach of contract seek to restore parties to where they would have been had the breach not taken place. It is not possible for the injured party to benefit beyond that from the other party’s breach, so damages which have a punitive effect on the party who breaches the agreement by enriching the injured party are not enforceable in law. See also Damages, Liquidated.

Penetration pricing is a pricing strategy used in procurement and marketing to gain rapid market share by setting a low initial price for a product or service.

Refer to Contract, Performance Based

A performance bond is a sum of money lodged by a contractor with a third party, typically a bank, which is forfeited in defined circumstances. The purpose is to compensate the client for lack of contract performance. For example, where a catering contractor is engaged to run a catering operation, the client may seek a performance bond to be lodged with a bank, which would be triggered upon the insolvency of the caterer, or the termination of the contract for poor performance. The scale of the bond would be calculated to equate to the switching costs of demobilising the incumbent and mobilising a new contractor. See also Sanctions.

Refer to Key Performance Indicator

The label given to a suite of measures in a contract, which have the effect of defining the level of performance required and create a framework to measure the provider’s actual performance and motivate improved performance. The framework typically has the following elements: the standards in the contract, the metrics used to measure performance, the review mechanisms for feedback and discussion of performance, the incentives and/or sanctions which may motivate better performance, and the termination provisions in the event of sustained poor performance. See also Incentives and Sanctions.

A performance review is the process of monitoring and evaluating performance, i.e. a supplier’s during a contractual agreement. As part of supplier relationship management, buyer and seller meet periodically to review performance and plan for any potential deviations from agreed standards. For example, a provider delivers a service where one of the standards required is 99% uptime. At the scheduled performance review meeting the actual uptime is reviewed and root causes to variations in the standard are investigated. To improve service reliability and meet uptime standards action plans are agreed for implementation moving forward. See also Supplier Relationship Management. Take the Contract Management Knowledge Evaluation at Skills Gap Analysis.

Refer to Specification, Performance

When negotiating or influencing we are seeking to persuade the other party to allow us to achieve our objectives. If objectives are the ‘what’, then persuasion is the ‘how’ of negotiation. Most procurement practitioners use facts, data and information to persuade others, as the presentation of evidence creates legitimacy around the position adopted. For example, a supplier’s objective is to achieve a 5% price increase but knows that simply asking for it will not achieve results. Instead the seller attempts to persuade the buyer by producing facts, charts and information as evidence to support the claim that a 5% price increase is warranted. The buyer responds with their own facts, for example, that their budgets have been cut by 5%. The parties then explore alternative methods of persuasion, such as bargaining. The buyer offers an extended contract if the supplier withdraws the proposed increase. If persuasion does not work, the parties may agree to ‘split the difference’, as that is ‘fair’. For example, the supplier may be proposing 3% price rise and the buyer offering a 1% price rise, and the parties may settle on a 2% increase. Each party loses a little, but an equal amount, and agreement is reached. See also Negotiation and Win:Win.

PEST analysis involves is the systematic exploration of the political, economic, social and technological environments that may have an impact on an organisation or a supply market. The acronym is sometimes expanded to PESTLE, which adds ‘legal’ and ‘environment’ to the list of domains reviewed. The purpose of the analysis is to identify the key drivers of change in the market, and anticipate how they may interact to affect the future evolution of the market. For example, a rise in inflation in China may fuel expectations of increased wages among workers in China’s east. As these workers seek higher wages to meet their needs and expectations, some suppliers may need to increase prices, reducing their competitiveness compared to that of other low cost economies. STEER analysis is similar, simply reflecting a more contemporary definition of the factors to be analysed: socio-cultural, technological, economic, ecological, and regulatory.

Refer to Stock, Pipeline

Prior to a negotiation, both parties will set clear objectives and develop a plan as to how the negotiation may play out. Typical activities in negotiation planning include setting objectives, understanding the likely goals of the other party, deciding a sequence of issues, identifying knowledge gaps and the questions needed to be asked, allocating roles and responsibilities, choreographing the initial greeting and the first 15 minutes, and developing a ‘script’ of who will say what, when and how to persuade the other party. Most negotiators identify planning as a key negotiation activity, and to be effective the ratio of planning time to negotiation time should range from 1:1 to 1:3 depending upon the value and criticality of the issue at hand. See also Negotiation and Persuasion. Business Acumen and Commercial Skills training is available at Academy of Procurement.

Procurement planning involves adopting a coherent approach to the acquisition of a category, the sequencing of events, the engagement of stakeholders and the governance of the project. Typical tasks include initial opportunity analysis of the category spend, identification of stakeholders and their engagement, identification of the organisation’s needs from the category, analysis of the supply market, the development of a strategy for the category, execution of that strategic plan, including engagement of the supply market through a request for proposal [RFP] and/or negotiation, and award of the contract. These sourcing phases will usually be supplemented by plans for mobilisation of the new arrangement, management of the new contract and the provider(s), and periodic review and evaluation of the benefits realised. Procurement projects often result in change, and need to be planned as any other 90 -180 day change program might be, with roles and responsibilities allocated, clear milestones, clear governance and executive sponsorship, and alignment of the project with corporate goals. As an example, an organisation buys fresh fruit and vegetables on a weekly quotation basis, as the auditors require evidence that prices are competitive. There are separate agreements for fruits and vegetables, and this has led to multiple suppliers, low leverage and low supplier commitment. A plan was therefore developed for working out a long-term agreement, so that the chefs could select the provider that offered the best value produce, as opposed to the lowest price. The procurement plan involved understanding the spend, engaging with a small team, including audit, developing a strategy based on the needs of the business and the character of the supply market, and letting a longer term arrangement with a reduced number of suppliers. See also Category Analysis and Market Engagement. Enabling Better Outcomes from the Contracting Process and Enabling Better Business Outcomes from the Procurement Process training is available at Academy of Procurement.

Porter's Five Forces is a framework to analyze the competitive dynamics and attractiveness of an industry or market. It helps organizations assess the competitive landscape and potential risks when selecting suppliers or sourcing goods and services. The five forces are: Supplier power, buyer power, threat of substitutes, threat of new entrants and industry rivalry.

One of the most widely used tools in procurement is portfolio analysis, based on the work of Peter Kraljic. Published in 1983, in the Harvard Business Review, Kraljic’s article, ‘Purchasing must become supply management’, was a milestone in the evolution of procurement. Kraljic pointed out that organisations should not buy their goods and services mechanistically by inviting three bids for all requirements. Instead, he proposed two key factors that should be considered in developing supply strategies. The first was the strategic importance of the category in terms of the value added by the category, the percentage of total spend and the impact on profitability. The second factor was the complexity of the supply market gauged by supply scarcity, the pace of technology, the availability of alternatives or substitutes, the barriers to entry, and market structures such as oligopoly or monopoly. Kraljic proposed that senior managers and procurement staff should develop category-specific categories based upon understanding the balance between risk and opportunity. Routine categories should be subject to lower level effort, as they were unimportant categories sourced from simple markets, although he anticipated that many categories were not sourced from simple markets. Leverage categories represented an opportunity to use competition to generate profit for the buyer, though he suggested that, leverage should not be a universal strategy. Bottleneck categories involved lower value acquisitions that were sourced from complex markets and strategic categories required careful management and longer-term agreements. The significance of Kraljic’s work was his emphasis on strategy, and the use of the word ‘strategy’ would have been considered revolutionary in the context of purchasing at that time. Rather than ad-hoc tactics, he advocated the need for business managers to be involved in strategising, and the necessity for different strategies across the spend portfolio. See also Critical, Leverage and Routine.

Refer to Negotiation, Post Offer

Power users are those who are most influential in the decision-making process. Typically they are the key budget holders with the highest spend, or the most technical expertise, who may also be engaged as stakeholders to participate on a cross-functional team to understand a category better. As stakeholders, their significance relates to the impact of the category on their department’s performance, rather than their technical insight, unlike the subject matter expert whose expertise lies predominantly in their technical competence. See also Subject Matter Expert.

Pre-qualification describes the evaluation of potential bidders, before tenders are invited, against a list of criteria to ensure that only bidders which meet defined standards are eligible to bid, which can reduce the cycle time of the procurement process. Competitive tendering is predicated on the evaluation of offers on an ‘apples with apples’ basis, to ensure that bidders are of equal capability, or meet minimum professional and financial accreditation. In addition, the maintenance of standing lists of approved bidders can ensure that fair and open competition is demonstrated, and that bids can be evaluated on a broadly ‘like-for-like’ basis. See also Competition.

Refer to Customer, Preferred

Refer to Supplier, Preferred

Price is the monetary sum exchanged for goods and services. Price levels are an outcome of competitive processes, such as the levels of supply and demand in the market. In procurement, most buyers are measured on the ‘hard dollar’ savings that they make, and so have a keen interest in optimising price. Most total cost models demonstrate that purchase price, while not the only component of total cost, is a key part of the total cost of most categories, and so procurement practitioners will focus on price as one procurement goal. The definition of ‘best value’ in most categories includes both quantitative and qualitative elements, such as quality, service and performance times, as well as price and other commercial terms. Like total cost, best value is a difficult concept to measure and validate accurately, as price is easier to measure and an important component of both value and total cost, price remains an important focus for most procurement processes. See also Competition. .

When competing suppliers agree on a pricing structure amongst themselves, the practice is known as price fixing. It can take various forms and includes establishing minimum prices or an agreed formula for the pricing of goods and services or the non-competitive discounting of same. Usually such agreements are informal and verbal, although some may be in writing.

Depending upon the level of competition in the market, firms may either have enough market power to set prices and be a price maker, or have so little market power that they have to follow the market price set by others, and be a price taker. For example, when petrol retailers make decisions about pump pricing, each of the largest players is big enough to create a precedent, and once one company moves and sets a price, the other companies tend to display ‘orderly marketing’ and respond at or around that price. Smaller independent retailers are price takers, and have to respond to the market price set by the larger retailers. See also Market Concentration and Market Structure.

A formula to adjust pricing in the future based upon relating changes in cost elements to independent indices. When negotiating long-term pricing arrangements, each party faces risk and uncertainty. The risk is that, if the parties agree a fixed price for an extended period of time, the buyer may pay more or less than the market price prevailing in the future, and the seller may make more or less profit than they might have done if the pricing was subject to a ‘rise and fall’ clause. The uncertainty comes from agreeing a rise and fall clause, as each party has no knowledge of what future pricing may be, so cannot anticipate costs and revenue. As an alternative to a fixed price or a rise and fall clause, the parties may agree a price variation formula. The parties identify the key variable cost elements in the supplier’s cost structure, the proportion of the total selling price represented by each cost element, and the most appropriate index which can be used to assess future changes in the cost element. For example, labour and material costs are typically included, while overheads and profit are typically excluded. The values are baselined at contract start and then reviewed periodically to assess changes in the published indices, in order to gauge whether a change in pricing is warranted and, if so, in what direction and by how much. See also Logic and Price.

Fixed price can have a variety of meanings in contracting and procurement, depending upon the context. In contracting, when a bidder is invited to tender a price, which cannot be subsequently varied unless by mutual agreement, when the scope or other terms change this becomes a fixed price contract. Contractors may include contingencies if there are uncertain elements in the contract, but the client has confidence that the final price is known at the outset. In procurement, when negotiating an agreement with an extended term, the parties have a choice to fix the price for the duration of the agreement, or to agree some form of price-variation mechanism. The parties may choose a fixed price when inflation is relatively low and the supplier can anticipate what their cost will be without including unnecessarily large contingencies. See also Cost Plus and Lump Sum.

Pricing strategy refers to the approach adopted by the seller in determining their market pricing. The simplest pricing strategy is cost plus pricing, which involves calculating costs and adding on a margin for profit. However, as the identification of product or service costs involves multiple choices, such as the way in which overheads are apportioned, even this approach is not as simple as it may seem. There are many other pricing strategies, from penetration pricing, loss leader pricing, predatory pricing, target pricing, marginal cost pricing to ‘freemium’ pricing. All these examples are discounted pricing strategies, and may be used at different times in the product or service life cycle. Premium pricing strategies may include skimming, value-based pricing, and total absorption pricing. See also Life Cycle, Product, Overhead Allocation and Price.

This is a form of value analysis, in which client and service provider jointly review the cost elements involved in the provision of a good or service and determine whether the contribution to value is proportional to the contribution to cost. This is a decision about the design of goods or services in order to minimise overall cost.

Probity is demonstration that the procurement process will be conducted ethically and fairly, with all participants provided an equal opportunity. All procurement processes need to win the trust of suppliers so that they feel confidant that their offers will remain confidential and that the best offer will win. However, probity is of especial concern to the public sector, as not only do public sector procurement processes need to be conducted in a transparent and impartial way, officers need to be able to demonstrate the integrity of the process in the event of challenge. For example, if one supplier asks a question about a tender, the answer may be shared with all tenderers. Procurement consultants play a key role in ensuring that probity policies and probity audits are an integral part of procurement governance to ensure that decision making is transparent, confidential information is treated appropriately, and that there is effective management of conflicts of interest. See also Governance.

Probity for Commercial Managers training is available at Academy of Procurement.

Procurement describes all those processes concerned with developing and implementing strategies to manage an organisation’s spend portfolio in such a way as to contribute to the organisation’s overall goals and to maximise the value released and/or minimise the total cost of ownership. Procurement is a more comprehensive term than purchasing, which is more focused on the tactical acquisition of goods and services and the execution of plans rather than the development of strategies. Procurement can be a department, a role and/or a process. As a process, procurement begins with the review of the spend portfolio and the development of an opportunity analysis. Once categories are defined, the procurement process involves identifying and engaging with potential stakeholders, defining business needs and preparing a business case. Once the market has been reviewed, a reconciliation of the business need and the supply market character ensures that appropriate procurement strategies are developed. Strategies may involve insourcing, outsourcing, competitive bidding, direct negotiation, and a variety of other sourcing strategies. Once the strategy is developed, the execution will involve market engagement and the issue of the RFI and the RFP and/or negotiation. Once offers are evaluated, the optimum solution will be selected and the appropriate contractual agreement established. Procurement differs from sourcing in that the procurement process addresses all pre-contract and post-contract processes. Supplier relationship management, performance management and supplier development are key procurement activities to realise the potential value created during the sourcing phase. Procurement as a full-time role is a specialised job requiring a range of skills and capabilities. Traditional analytical capability is helpful to undertake spend analysis and evaluate offers, but the ability to understand and interact with supply markets is just as important. In terms of interpersonal skills, influencing skills and facilitation skills are just as important as negotiation skills. As an organisation, procurement structures vary with the culture and structure of the host organisation. Many organisations have a centre-led structure with a small central team setting policy and standards and coordinating activity, which is primarily undertaken in the spending departments.The following table seeks to distinguish between commonly used labels for procurement-related processes. While there are no universally accepted standards, most people agree that vendor management applies to post-award processes (though some vendor managers do manage the end-to-end process apart from market engagement). Similarly, sourcing involves all those processes up to the award of the contract. In Europe and Asia, the term ‘purchasing’ is used to describe transactional processes such as raising purchase orders and reconciling invoices. However, in North America the term ‘purchasing’ is sometimes used to describe the whole procurement process. The procurement process in North America usually begins with the review of an organisation’s spend portfolio, and the development of appropriate strategies, and proceeds right the way through to the review of procurement arrangements and the disposal of goods at the end of their life. Some category managers are not full-time procurement staff but functional practitioners who also undertake business planning for that discipline. For example, a company counsel may be the category manager for legal services, but also plan the size and shape of the organisation’s legal services. Police officers with special responsibility for firearms may be the category manager for weapons. In such cases, category management will not only comprise the application of the procurement process to a specific category, but may include elements of business planning as well. See also Category Management and Purchasing. Procurement Essentials and Facilitating the Procurement Process training is available at Academy of Procurement.

A procurement card [PCard] is a credit card used by some organisations as an alternative acquisition method to raising a requisition and/or purchase order. PCards were initially used to acquire low-value and low-risk categories, such as travel and entertainment, though because of their low transaction costs, they are increasingly being used for a wide variety of acquisitions.Most PCard systems incorporate a variety of controls to prevent abuse, and a key control is to limit the number of staff who have access to a PCard. Other controls can include a single purchase dollar limit, a monthly expenditure limit and a control on which merchants can be used. Once expenditure has been incurred, the card provider will issue a statement to the buying organisation, which will allow reconciliation of expenditure and attribution to the appropriate budget and expenditure accounts.The use of PCards can reduce the transactional workload for purchasing teams and focus activity upon establishing agreements for the key category spends, rather than managing individual transactions. See also Acquittal.

The procurement process is responsible for spending more than half of most organisations’ total budget, and so it is appropriate that there are controls on the process. One of the most common controls found in procurement is the separation of roles within the procurement process, so that the same person cannot authorise, order, receive and approve an individual transaction. Written policy and procedures detail how the procurement process is to be managed, usually focusing particular attention on higher value acquisitions. Position descriptions define roles and responsibilities, and selection and training ensures that staff are competent in the duties of their post. Approvals ensure that managers maintain supervision of higher value acquisitions, and review processes ensure that compliance with the controls framework allows effective operation. See also Governance and Procurement. Operational Procurement e-Learning courses are available at Academy of Procurement.

Refer to Planning, Procurement

Profit has several different definitions. Gross profit is the difference between sales revenue and the cost of goods sold, and is one measure of company profitability. Gross profit margins vary from industry to industry, and as a measure of the profitability of a business gross profit may make a business appear more profitable than it really is, as the company has to pay for overheads, interest and taxes from its gross profit. Operating profit is sometimes known as Earnings Before Interest and Tax [EBIT] and this is calculated by deducting the cost of goods sold and all expenses, except for interest and taxes, from sales revenue. This measure of profitability focuses on the surplus generated by the company’s operations. Net profit is calculated as total revenue minus total expenses. For example, a company has sales of 100,000 widgets, sold at $5 each, with a cost of goods sold of $2 each. Sales revenue is $500,000, and cost of goods sold is $200,000, making a gross profit of $300,000. Operating expenses of $100,000 to calculate EBIT are then subtracted. The operating expenses are comprised of sales and administration, research and development etc. The sum is now $200,000 profit before taxes. Deducting $50,000 in tax leaves a net profit of $150,000. Most published financial accounts aggregate information at a high level, which makes assessing a supplier’s profitability more difficult for the procurement practitioner. Most practitioners select a number of profitability ratios and consider the trends in the data in order to reach judgements about the firm’s overall profitability. When the market is in recession, solvency measures tend to assume a greater significance than profitability measures for buyers concerned with supplier viability. See also Ratio Analysis.

When companies publish their financial accounts, the profit and loss statement, together with the balance sheet, provides valuable information about the company’s financial status. The profit and loss statement is sometimes called the statement of financial performance or an income statement, and measures the profit – or loss – of a business over a specified period. The statement typically outlines income over the given period, then subtracts the expenses incurred for the same period and calculates the outcome for the business.

When developing a category or procurement plan, the financial analysis of the suppliers in the supply market, their pricing strategies, and the total cost of the category are collectively called profit, price and cost analysis [PPCA]. Profit analysis involves comparing the profitability of potential suppliers against each other, and also identifying trends through time. Price analysis involves decomposing the tendered prices into their constituent parts, such as materials, labour, overheads and profit. The buyer is looking for opportunities to release value. Cost analysis implies both ‘should-cost’ analysis, (an estimate of what a realistic price should be) and total cost analysis. Total cost analysis involves analysing both the purchase price and all other costs associated with the acquisition during its life cycle such as maintenance, training, consumables and disposal. See also Profit, Should-Cost Analysis and Total Cost of Ownership.

Refer to Request for Proposal

Public Private Partnership [PPP] refers to a project that is operated and funded by a partnership between private sector companies and government. Typically, the PPP involves the private sector entity injecting capital into the development of an asset, which it may then operate and assume some financial risk for. For example, a government may plan a tunnel, but be reluctant to levy taxes on the public to raise the capital. Instead, they may enter into a PPP with a contractor, or an alliance of contractors. The contractor invests the money and manages the building of the tunnel in return for the right to levy tolls on road users of the tunnel for a defined period, for example 30 years. At the end of the period the ownership of the asset may transfer to the government, and so the contractor’s risk would be that patronage of the tunnel might be less than anticipated, and they might not make as much profit as planned, or even make a loss.The use of PPPs has been controversial, as private sector access to capital depends upon the liquidity of the financial markets, and notable PPP contractor failures have led to assets reverting to public sector ownership following the insolvency of the contractor appointed to operate the project, calling into question the real level of risk that is transferred. See also Contract, BOOT.

In pre-contractual representations, puffery refers to expansive statements made about the product or service by the supplier that are not intended to be taken literally. Puffery often involves sales staff making subjective claims, rather than objective statements, in order to promote their products or services. For example, if a manufacturer of photocopier paper described their paper as ‘whiter than white’, it would be a subjective statement that no reasonable person would rely upon to make a sourcing decision. However, if the same salesperson stated that the paper contained ‘100% recycled materials’ and the buyer relied upon that statement to award the contract, only to subsequently learn that the claim was false, then this would not be mere puffery. In this case, the representation might be a fraudulent misrepresentation, unless the salesperson genuinely believed the statement, in which case it might be an innocent misrepresentation. See also Misrepresentation.

Refer to Logistics, Pull

Refer to Order, Purchase

Formal document issued by a buyer (typically an organization, business, or government agency) to a seller or supplier. It serves as a legally binding agreement between the buyer and the seller for the purchase of goods or services

A comprehensive and integrated software solution used in the procurement process to streamline and manage the entire purchasing lifecycle

Refer to Goods, Dangerous

Purchasing describes all those transactional processes concerned with acquiring goods and services, including payment of invoices. It is a narrower term than procurement, describing reactive, tactical processes. Typically purchasing processes are triggered by the development of a request to purchase by a user. The purchasing process differs from sourcing or procurement in three key aspects: the scope of the process, the degree of influence exerted on the process, and the nature of the choices made. In terms of scope, the purchasing process typically begins after a user has selected the solution, or defined the need, and ends on the receipt of the good or service and payment of the supplier’s account. In terms of influence, the purchasing process is primarily concerned with selecting the supplier and agreeing the terms, though the acquisition may be made against an existing agreement. In terms of the nature of decisions made, purchasing decisions tend to be focused on individual transactions, and not aligned to the organisation’s overall goals, or to choices with longer-term strategies.There is little consensus on the precise definitions of terms such as ‘procurement’ and ‘purchasing’, and in the United States, in particular, the term ‘purchasing’ describes what in Australia, New Zealand, Europe and Asia is more widely known as procurement. See also Procurement.

Refer to Procurement Card

Refer to Logistics, Push