I asked two former students to log Procurement Abbreviations during their first days as a professional buyers. This is the result /// Fredrik
These are the words from one of the students:
“My first days on the job have been pretty intense but exciting! I quickly realized there’s a whole language one must know. Every meeting, email, and document is packed with these short terms and acronyms that everyone seems to know — I know some but not all! Some abbreviations are generic to procurement and some specific to my company.
It felt a bit overwhelming, like trying to understand a foreign language. But as I started to pick up on what these abbreviations mean, I realized they actually make things a lot easier. They help everyone talk and work faster, which is super important since there’s so much going on in procurement.
To keep up, I started writing down every new term I came across. This quickly turned into a cheat sheet that I’ve been using non-stop. It’s been helping me figure out what people are talking about and understand all the documents I’m reading. As I added more terms to my list, I began to see how they all fit together, and that’s been helping me get a better grip on how everything works.
These first few days have definitely been a lot to take in, but they’re also really exciting. There’s so much to learn, and I’m starting to see how knowing this stuff will be key to doing well in my job. The learning curve is steep, but every day I’m getting a little more confident and feeling I belong to the procurement team and made the right choice to sign up for this position.
Content…
Procurement Abbreviations Day 1 (only the generic).
1. RFP (Request for Proposal)
Imagine you’re seeking comprehensive solutions from vendors for a new inventory management system. An RFP allows you to outline your project’s scope and requirements, inviting suppliers to propose their best solutions and pricing.
2. RFQ (Request for Quotation)
You need 10,000 units of high-quality aluminum sheets. An RFQ is your go-to, requesting detailed pricing for these specific items from several suppliers to compare costs directly.
3. RFI (Request for Information)
Curious about the latest warehouse management technologies? An RFI helps you gather general information from vendors, aiding in market research and preliminary supplier discovery.
4. PO (Purchase Order)
After selecting a supplier for those aluminum sheets, a PO is issued, formalizing your intent to purchase and detailing the transaction’s terms and conditions.
5. PR (Purchase Requisition)
Before the PO, there’s the PR, an internal document you submit to your procurement department indicating the need to purchase goods or services, kickstarting the procurement process.
6. SO (Sales Order)
Once your supplier confirms the PO, they issue a SO, acknowledging they’ve accepted your purchase request and will fulfill the order as agreed. From your perspective an OA (Order Acknowledgement).
7. SLA (Service Level Agreement)
Ensuring your new inventory management system operates flawlessly, an SLA between you and the provider specifies performance criteria and remedies for non-compliance.
8. BOM (Bill of Materials)
Developing a new product requires a BOM, listing all the raw materials, sub-assemblies, and parts needed, helping procurement source the right quantities and components.
9. MOQ (Minimum Order Quantity)
Your supplier of LED components stipulates an MOQ, the smallest amount you can order, affecting inventory strategies and negotiations.
10. SKU (Stock Keeping Unit)
Each product variant, from size to color, gets a unique SKU, facilitating inventory tracking and sales analysis.
11. EOQ (Economic Order Quantity)
To optimize your ordering quantity for those LED components, EOQ calculates the ideal order size to minimize holding and ordering costs.
12. JIT (Just in Time)
Adopting a JIT approach means you’re ordering goods to arrive as they’re needed, reducing inventory costs but requiring precise timing and reliable suppliers.
13. TCO (Total Cost of Ownership)
Evaluating software for your procurement team? TCO includes purchase price, implementation costs, and operational expenses over its lifespan, ensuring you see the full picture.
Procurement Abbreviations Day 2
14. KPI (Key Performance Indicator)
To gauge procurement’s efficiency, KPIs might include metrics like cost savings, supplier lead times, or contract compliance rates.
15. P2P (Procure to Pay)
This end-to-end process, from purchasing goods (PR) to making payment (settling the invoice), is the heartbeat of procurement operations.
16. SOW (Statement of Work)
For service-based contracts, such as consulting, a SOW defines the project’s scope, deliverables, timelines, and payment terms.
17. MRO (Maintenance, Repair, and Operations)
MRO goods are the essentials keeping your operations running smoothly, from office supplies to machinery parts.
18. NDA (Non-Disclosure Agreement)
Before sharing sensitive project details with potential suppliers, an NDA protects your confidential information.
19. FOB (Free on Board)
Importing goods? FOB defines when the responsibility and ownership shift from the seller to you, affecting insurance and liability.
20. CIF (Cost, Insurance, Freight)
CIF includes the goods’ cost, insurance, and freight to your nearest port, giving you a clear picture of total import costs.
21. DDP (Delivered Duty Paid)
With DDP, your supplier bears all risks and costs, including duties, until the goods are delivered to your warehouse.
22. ERP (Enterprise Resource Planning)
An ERP system integrates all facets of an operation, including procurement, inventory, finance, and HR, for seamless data flow and decision-making.
23. VMI (Vendor Managed Inventory)
In a VMI partnership, your supplier monitors your inventory levels and replenishes stock as needed, ensuring you never run low.
24. ESG (Environmental, Social, and Governance)
Increasingly crucial, ESG criteria help you evaluate suppliers’ sustainability practices and ethical standards.
25. ABC Analysis
This inventory categorization technique prioritizes items based on their impact on overall inventory cost, helping focus your management efforts.
26. LTA (Long Term Agreement)
Securing an LTA with a key supplier guarantees supply and price stability over an extended period, benefiting both parties.
27. OEM (Original Equipment Manufacturer)
OEMs produce components or products that are then used in another company’s end product, crucial for manufacturing and product development.
28. ODM (Original Design Manufacturer)
ODMs design and manufacture products that are branded and sold by other firms, offering a way to expand your product line without in-house R&D.
29. RFx (Request for x)
A catch-all term for any request document (RFI, RFP, RFQ), RFx is used when discussing procurement documents in general.
30. WMS (Warehouse Management System)
A WMS optimizes warehouse operations, from inventory management to order fulfillment, crucial for efficient logistics and distribution.
By familiarizing yourself with these procurement abbreviations, you’re not only enhancing your procurement vocabulary but also unlocking a deeper understanding of the processes, strategies, and challenges that shape our profession. This guide serves as your first step towards fluent navigation in the procurement world, paving the way for effective communication and successful collaborations. Welcome aboard, and may your procurement journey be both enlightening and prosperous!
A recommended start to a procurement career is the course Introducing the Procurement area and Learn How to Source. By completing this Introduction course, you will learn:
- a model presenting the skills you need as a buyer.
- how to get the most out of Learn How to Source.
- an introduction to the key Procurement Roles.
and hopefully lot of Procurement Abbreviations 🙂
Another 30 Procurement Abbreviations (rest of the week)
Expanding our glossary will further demystify the world of procurement and sourcing. Here’s a continuation with 30 more abbreviations, each contextualized to illuminate its significance within the procurement sphere.
31. CAPA (Corrective and Preventive Action)
When a supplier’s performance falls short, CAPA is the process to rectify issues and prevent their recurrence, ensuring continuous improvement in quality and operations.
32. COGS (Cost of Goods Sold)
Understanding COGS helps procurement professionals evaluate the direct costs involved in producing goods sold by the company, influencing sourcing strategies to optimize profitability.
33. CPFR (Collaborative Planning, Forecasting, and Replenishment)
This approach involves collaborating with suppliers to forecast demand and plan production and replenishment, ensuring efficient supply chain operations and reduced inventory costs.
34. CSR (Corporate Social Responsibility)
Procurement is increasingly evaluated on CSR metrics, ensuring that sourcing practices align with ethical, environmental, and social standards.
35. DPA (Data Processing Agreement)
In an era where data privacy is paramount, a DPA between your organization and suppliers ensures compliance with data protection laws when processing personal data.
36. EDI (Electronic Data Interchange)
EDI is the electronic exchange of business documents (like POs and invoices) in a standard format, streamlining procurement processes and reducing paperwork.
37. FMEA (Failure Mode and Effects Analysis)
A proactive tool used in risk management, FMEA helps identify potential failures in products or processes and their possible effects, guiding preventive measures.
38. GPO (Group Purchasing Organization)
Joining a GPO can leverage collective buying power, securing better discounts and terms from suppliers than individual companies might achieve alone.
39. HSE (Health, Safety, and Environment)
Procurement decisions often consider HSE standards to ensure suppliers’ operations do not adversely affect health, safety, or the environment.
40. INCOTERMS (International Commercial Terms)
These predefined commercial terms clarify the roles, costs, and risks involved in the delivery of goods from sellers to buyers internationally.
41. JIT II (Just in Time II)
An evolution of JIT, JIT II involves a supplier representative working on-site at the buyer’s facility, further optimizing inventory management and procurement processes.
42. Kaizen (Continuous Improvement)
Adopted from Japanese management, Kaizen in procurement emphasizes continuous, incremental process improvements, involving everyone from the CEO to the floor workers.
43. LCC (Low-Cost Country) Sourcing
LCC sourcing refers to procuring goods from countries with lower labor and production costs, aiming to achieve cost savings while maintaining quality standards.
44. MRP (Material Requirements Planning)
MRP systems calculate the materials and components needed to manufacture a product, ensuring that items are available for production at the right time.
45. NPI (New Product Introduction)
Procurement plays a crucial role in NPI, sourcing materials and components for prototypes and scaling up for production, balancing cost, quality, and time-to-market.
46. OEE (Overall Equipment Effectiveness)
A measure of manufacturing productivity, OEE helps procurement identify the impact of equipment efficiency on production capacity and material needs.
47. PPV (Purchase Price Variance)
PPV tracks the difference between the standard cost and actual purchase price of goods, highlighting opportunities for cost reduction or signaling issues with budgeting.
48. QBR (Quarterly Business Review)
Procurement conducts QBRs with key suppliers to review performance, discuss challenges, and plan for future collaboration, strengthening strategic relationships.
49. RPA (Robotic Process Automation)
RPA in procurement automates routine tasks like invoice processing and data entry, improving efficiency and allowing staff to focus on strategic activities.
50. SCM (Supply Chain Management)
SCM encompasses the end-to-end oversight of materials, information, and finances as they move from supplier to manufacturer to wholesaler to retailer to consumer.
51. S&OP (Sales and Operations Planning)
S&OP is a process to align sales forecasts with production and procurement plans, ensuring that supply meets demand efficiently.
52. TQM (Total Quality Management)
TQM is a comprehensive approach to long-term success through customer satisfaction, where all members of an organization participate in improving processes, products, services, and the culture.
53. UCP (Uniform Customs and Practice)
UCP is a set of standardized rules endorsed by the International Chamber of Commerce, governing the issuance and operation of letters of credit, facilitating international trade. (Maybe it should not qualify on the list with Procurement Abbreviations, but still the students noted it).
54. VAVE (Value Analysis/Value Engineering)
VAVE is a practice in procurement to optimize the value of products and services by examining function versus cost, maximizing functionality while minimizing costs.
55. WEEE (Waste Electrical and Electronic Equipment)
Procurement policies often include WEEE considerations to ensure the responsible disposal of electronic waste, reflecting environmental stewardship. (Maybe it should not qualify on the list with Procurement Abbreviations, but still the students noted it).
56. X-efficiency
This concept captures the effectiveness of internal competition within a company, including procurement processes, driving efficiency and reducing complacency.
57. YOY (Year-Over-Year)
Procurement uses YOY comparisons to evaluate performance, costs, and savings, identifying trends and areas for improvement over annual cycles.
58. ZBB (Zero-Based Budgeting)
In ZBB, procurement budgets are built from scratch each year, justifying every dollar spent, ensuring resources are allocated efficiently based on current needs.
59. 3PL (Third-Party Logistics)
Outsourcing logistics and distribution functions to a 3PL can optimize supply chain operations, from warehousing to transportation, based on expertise and economies of scale.
60. 4PL (Fourth-Party Logistics)
A 4PL provider acts as a single interface between the client and multiple logistics service providers, strategically managing the entire supply chain.
Embarking on your procurement and sourcing journey equipped with these procurement abbreviations not only prepares you for the terrain ahead but also empowers you to communicate with confidence and clarity. As you weave through the complex networks of suppliers, contracts, and operations, remember that each abbreviation is a piece of the puzzle, helping you to construct a more efficient, effective, and collaborative procurement landscape. Welcome to the world of procurement, where every abbreviation unlocks a new opportunity for growth, innovation, and success.
Note: Illustration to blogpost “Procurement Abbreviations” is created by CHAT-GPT on February 24, 2024.
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