Procurement terms, in plain English.

The broader process of defining a need, selecting suppliers, buying, and managing delivery and supplier performance. Procurement includes sourcing and purchasing, but also the controls and relationships around them.

The work of finding, evaluating, selecting, and negotiating with suppliers for a business need. Sourcing happens before and around the transaction; it is more than placing an order.

The transactional work of ordering and acquiring goods or services from a supplier. It commonly covers requisitions, approvals, purchase orders, receipts, and order changes.

Buying the materials, components, and services that become part of a company’s product. A robotics company’s motors, fasteners, and custom enclosures are direct spend.

Buying goods and services that support the business but do not become part of what it sells. Office supplies, software, and facility services are common examples.

A structured request used to learn what suppliers can provide before asking for a formal proposal or price. An RFI helps a buyer understand capabilities, certifications, and fit during early research.

A request that asks suppliers to propose an approach, scope, and commercial offer for a defined need. An RFP is useful when the buyer is comparing solutions, not just unit prices.

A formal request for a supplier’s price, lead time, and terms on a defined scope of work or parts. A good RFQ gives every supplier the same inputs so quotes can be compared fairly.

The process of normalizing supplier responses so a buyer can compare price, timing, terms, and risk on equal footing. It prevents a low unit price from hiding a longer lead time or higher freight cost.

Using software to carry out repeatable procurement work, from supplier outreach and data capture to approvals and follow-up. The goal is fewer manual handoffs while people keep control of decisions and exceptions.

An internal request to approve a purchase before an order is issued to a supplier. A requisition usually records what is needed, why it is needed, the expected cost, and the budget owner.

The smallest quantity a supplier will accept for a production run or order. A lower unit price can still be a poor deal if the MOQ creates excess inventory or ties up cash.

The full cost of buying and using something over time, not just its quoted price. For direct materials, TCO can include freight, duties, quality failures, carrying cost, tooling, and supplier management.

The total cost to bring a purchased item to its destination and make it available for use. It can include the item price, freight, insurance, duties, taxes, brokerage, and handling.

A buyer’s formal authorization for a supplier to deliver specified goods or services at agreed terms. A PO turns an approved buying decision into a trackable commercial commitment.

A purchase order that still has an outstanding quantity, shipment, receipt, invoice, or other obligation. Aging open POs are often the first place to look for late or incomplete supplier commitments.

Monitoring a purchase order from release through supplier acknowledgment, shipment, receipt, and closeout. Useful tracking surfaces changes early enough for a buyer to act before a line goes late.

The time between placing an order or request and receiving the promised goods, service, or response. Always clarify what a supplier’s lead time starts from and whether it includes transit.

A purchase order that authorizes repeated purchases from a supplier over a set period or up to an agreed value. It reduces repetitive ordering work, but releases and remaining commitments still need to be tracked.

Demand that a supplier has accepted but cannot fulfill by the requested date because the item is not currently available. Teams should distinguish a backorder from a canceled line and agree on the revised date or an approved substitute.

Extra inventory held to protect against uncertainty in demand, supply, or lead time. More safety stock can reduce shortage risk, but it also increases working capital and carrying cost.

Eleven trade rules published by the International Chamber of Commerce that divide delivery tasks, costs, and risk between buyer and seller. They do not determine price, payment terms, product ownership, or what happens if a contract is breached.

The seller makes the goods available at a named place, usually its premises, without loading them or clearing them for export. The buyer takes on most transport work, cost, and risk, which is why EXW is often better suited to domestic trade.

The seller clears the goods for export and delivers them to the buyer’s nominated carrier or person at the named place. FCA can be used for any transport mode and is commonly appropriate for container or multimodal shipments.

The seller clears the goods for export and delivers them on board the buyer’s nominated vessel at the named port of shipment. Risk transfers once the goods are on board; FOB is for sea or inland-waterway transport, not container delivery to a terminal.

The seller pays the cost and freight to the named destination port and obtains the minimum required cargo insurance. Risk still transfers when the goods are on board at the shipment port; CIF is only for sea or inland-waterway transport.

The seller delivers the goods ready for unloading at the named destination and bears the transport risk to that point. The buyer handles import clearance, duties, taxes, and unloading unless the contract says otherwise.

The seller delivers the goods ready for unloading at the named destination and handles export and import clearance, duties, and taxes. DDP places the greatest delivery obligation on the seller, but local import rules can make it impractical in some countries.

A maintained list of suppliers that have passed a company’s requirements for quality, capability, risk, or compliance. An ASL gives buyers a trusted starting point without preventing a documented exception.

The process of collecting, checking, and activating the information a supplier needs to do business with a company. Typical inputs include tax details, payment terms, certifications, contacts, and banking information.

A repeatable view of supplier results against agreed measures such as quality, delivery, responsiveness, and cost. A scorecard is most useful when its measures and review cadence are clear to both sides.

An accounts-payable control that compares a purchase order, receiving record, and supplier invoice before payment. Matching catches quantity or price differences while the transaction is still easy to investigate.

A structured list of the parts, quantities, and sometimes suppliers or revisions needed to make a product or assembly. Procurement teams use a BOM to turn a product design into a sourcing plan.

The full procurement lifecycle, from finding and selecting a supplier through ordering, receiving, and paying. S2P is broader than a single RFQ or PO because it connects the decisions and transactions around them.

The transactional part of procurement that starts with a purchase request and ends when the supplier is paid. P2P usually covers requisitions, approvals, POs, receipts, invoices, and payment.

AI that creates new text, images, code, or other content from instructions and context. In procurement, generative AI can draft supplier messages or summarize documents, but creating content is different from taking action.

A software system that uses AI, context, and tools to work toward a delegated goal and take actions across multiple steps. In procurement, an agent might read quote attachments, compare terms, and request missing information within defined controls.

An approach in which AI systems can plan and carry out multi-step work toward a goal instead of only producing a response. An agentic procurement system can use tools, react to new information, and route decisions or exceptions to people.

An AI model trained on large amounts of text to understand and generate language. An LLM can help extract quote data or draft supplier communication, but it is not the system of record for the transaction.

Additional training that adjusts a pre-trained model using examples selected for a particular task or behavior. Fine-tuning can improve a specialized task, but it does not automatically connect a model to current ERP or supplier data.

Repeatable tests that measure how an AI system performs against defined tasks, examples, and success criteria. Procurement evals might test extraction accuracy, supplier-email handling, tool selection, and whether approval boundaries are respected.

A technique that retrieves relevant information at run time and gives it to a model as context before the model responds. RAG can ground an answer in current POs, supplier records, policies, or specifications without retraining the model on every change.

Connecting an AI response or action to verifiable source information rather than relying only on the model’s training. A grounded procurement recommendation should trace back to the actual quote, contract, ERP record, or approved policy.

A capability that lets an AI model select a defined software function or API operation and provide structured inputs for it. The surrounding application—not the language model—should enforce permissions before reading an ERP record or changing a PO.

Rules and technical controls that constrain what an AI system may accept, produce, access, or do. Procurement guardrails can include approval thresholds, supplier allowlists, field validation, access controls, and blocked actions.

An AI-generated statement that sounds plausible but is incorrect, fabricated, or unsupported by the available evidence. Grounding, validation, evals, and human review help reduce the chance that unsupported output becomes a procurement decision.

A repeatable process in which AI handles one or more steps alongside business rules, software systems, and people. A quote workflow might extract line items, flag missing fields, compare bids, and prepare a recommendation for review.

A system design that requires a person to review, approve, or correct an AI decision at defined points. The review point should match the risk—for example, before awarding an RFQ or changing a purchase order.