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 documents a buyer sends with an RFQ so every supplier prices the same scope. It typically includes drawings, specifications, quantities, required dates, delivery terms, and a quote template. An incomplete package produces quotes that can’t be compared.

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. Also called an outstanding PO. Aging open POs are often the first place to look for late or incomplete supplier commitments.

A report of every purchase order line with quantity still to be received, usually pulled from the ERP. Each row typically shows the supplier, item, open quantity, and requested or promised date. It is only as accurate as those dates, so a stale promise date makes a late line look on time.

A purchase order line whose due date has passed without the full quantity being received. State which date you measure against: a line can be late to the buyer’s requested date but still on time to the supplier’s promise date.

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.

A supplier’s response confirming it received a purchase order and accepts it, rejects it, or accepts it with changes. Some teams separate it from a confirmation, which commits to quantities, prices, and dates for each line. An acknowledgment that only says “received” gives the buyer no usable promise date.

The date a supplier commits to for shipping or delivering a purchase order line. It differs from the requested date, when the buyer wants the goods, and from the actual ship date. Confirm whether a promise means ship or arrival, since transit time sits between them.

A formal revision to an issued purchase order, such as a new quantity, price, delivery date, or specification. The supplier should acknowledge the change so receiving and invoice matching use the current terms. In EDI, the X12 860 carries the buyer’s change and the 865 the supplier’s response.

The work of getting an at-risk order delivered on time: checking status, escalating delays, and arranging faster production or freight. Premium freight adds cost, so teams usually reserve it for lines that would stop production or delay a customer.

A message a supplier sends before goods arrive, listing what shipped, the quantities, the carrier, tracking, and expected delivery. In X12 EDI it is the 856 transaction. Suppliers without EDI often send the same details by email or on a packing list.

A delivery measure that counts an order or line as successful only if it arrives on time and in the full quantity ordered. Companies define the on-time window and target date differently, so compare OTIF only across suppliers measured the same way.

The X12 electronic data interchange transaction set a supplier uses to acknowledge, change, or reject a purchase order. It works well for suppliers with EDI infrastructure, but many direct-materials suppliers still confirm POs by email.

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 manufacturers and manufacturer part numbers that engineering has approved for an internal part number. An AML controls who may make a part; an approved supplier list controls who you may buy from, which can include distributors of the approved part.

The complete set of supplier records a company keeps, often stored as the vendor master in its ERP. Unlike an approved supplier list, it includes suppliers not approved for new purchases. Duplicate or stale records can send orders or follow-ups to the wrong contact.

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.

The share of requests to suppliers, such as RFQs or PO status follow-ups, that get a reply within a set time. Track response time alongside it, since a slow reply can matter as much as no reply.

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.