Purchasing and procurement management are essential parts of any enterprise. They serve as the basis for business operation. Whether you sell products or offer services to consumers, you need inventory supplies to accommodate your business needs. There are many steps involved in purchasing and procurement management. To carry out each operation effectively, procurement teams have dedicated resources.
Any miscommunication between the team members can lead to huge problems. Regardless of the team’s capabilities, it is inevitable to have an organized system to carry out everyday tasks.
To ensure the accuracy of purchasing and procurement tasks, it is vital to understand some of the commonly used terms and their meanings. Professional teams use these terms to minimize communication gaps and save time.
Standard Terms in Procurement Management
Ad-Hoc purchases refer to the orders made for one-off use items. Such orders are typically not included in the yearly tender. Procurement teams may send an urgent request to the supplier for ad-hoc purchasing. These one-off orders may arrive with unexpected costs. While this may be true, unexpected prices may not necessarily be additional costs. Suppliers charge urgent supply orders at the time of purchase instead of following the annual costing terms.
Ad-Hoc orders are precise and may cost shipment charges for third-party logistics services. If you have an in-house logistics department, you may be able to cut down the shipment costs on your urgent purchases.
Benchmarking in purchase and procurement management refers to comparing a group of suppliers for the quality of their services. The process may also evaluate other attributes, including product quality, response time, capacity, costs, and product recalls. Benchmarking helps enterprises measure the overall performance of suppliers to make calculated decisions.
The benchmarking process is typically divided into qualitative and quantitative categories. Qualitative benchmarking helps enterprises evaluate the processes and techniques opted by suppliers to carry out supply management tasks. On the other hand, quantitative benchmarking focuses on the figurative analysis of KPIs, including cost estimation, revenue opportunities, etc.
Blanket orders refer to placing purchase orders with a particular supplier to leverage pre-determined pricing of goods. Also known as call-off orders, these purchase orders are expandable over time depending on the needs. Buyers can change the number of items within the product guidelines and delivery schedule. As a purchaser, you may have to make multiple payments for blanket orders over the years.
Common examples include maintenance supply orders and open orders of recurring supplies.
Capital purchase refers to the items bought to enhance the enterprise’s manufacturing processes. Such purchases include buying machinery, technical equipment, or a production facility to effectively carry out the manufacturing tasks. Capital purchases are long-term investments for fixed assets. If you need specific machinery to produce a new batch of products, you may place a capital purchase order with the supplier.
Common examples of capital purchases include warehouses, buildings, packaging machines, office furniture, electronic equipment, etc.
Open-book contracts refer to all the agreements made between the buyer and its supplier with financial breakdowns. Such agreements may include information about the contract terms, supply information, quantities, types, and cost breakdown. Open-book agreements aim to maintain a transparent relationship between the buyer and its supplier.
Typically, open-book contracts also include confidential data that may otherwise be excluded from the agreements.
Roll-over contracts refer to renewable contracts that do not expire unless either side intends. If you follow a fixed set of terms with your supplier for inventory management, you may automatically use roll-over agreements to renew the contract. Such contracts are most suitable for relationships with the least number of order variations. You may decide on the product types, quantity, packaging, delivery schedule, and cost with your supplier.
Buyers can terminate the roll-over contracts by calling them off and overriding new contracts. However, you may need to discuss it with your supplier before the renewal timeline.
A qualified bid refers to a limited bid issued by a supplier with exemptions to the terms proposed by the buyer. In such bids, suppliers may not be able to fulfill all the buyer’s demands. They prepare a qualified bid to state the exemptions from specific requirements explicitly. In the cases where suppliers may not have the required quantity or type of supplies, or there is a possibility of delays in the delivery schedule, it can exempt itself from the related clauses of the agreement.
Buyers may have to agree or disagree with the qualified bid depending upon the level of flexibility they can show.
A variant bid refers to a proposal that complies with the essential criteria of the buyer’s requirements using an alternative strategy to accomplish them. In such bids, the supplier may fulfill the buyer’s demands by suggesting a strategy that it can employ effectively. While this may be correct, any party submitting a variant bid must also submit a complaint bid to state the problems with the initially proposed idea.
The purpose of variant bids is to offer an economically beneficial alternative to achieve the listed requirements of the agreement.
The Role of Purchasing Management Tool
The terminologies mentioned above only highlight some of the many processes involved in procurement management. It may be challenging to remember all the terms while performing purchasing operations. Using a purchasing management tool can help you streamline procurement tasks without making mistakes. The robust functionality of the software allows you to manage everyday RFQs, POs, and invoices using a single online platform. Moreover, you can also find ready-to-use templates to generate multiple forms.
SimplyPurchasing is an all-in-one purchasing management tool to carry out procurement operations effectively. Developed by Microsys, this cloud-based application minimizes the risks involved in manual data management. You can also reduce time, costs, and communication gaps between internal and external departments. SimplyPurchasing has a user-friendly interface to offer an easy-to-navigate multi-user experience.
If you want to streamline your purchasing and procurement management tasks using this tool, feel free to contact Microsys today.