Purchasing & Supply Chain Glossary A to Z — Purchasing & Supply Chain

Purchasing & Supply Chain glossary — 143 definitions

Every term defined across the 29 sections of the guide, in alphabetical order.
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3-way match: Pre-payment control: invoice = purchase order (what was ordered, agreed prices) = receipt (what was actually received); the main protection against errors and fraud.
5S: Sort, set in order, shine, standardize, sustain: the workspace discipline that makes the abnormal visible — the foundation of any high-performing warehouse.
ABC analysis: Ranking items by decreasing annual consumption value: A (~20% of items, ~80% of value), B, C — to differentiate the management effort.
Acceptance criteria: Verifiable conditions under which a delivery is judged compliant on receipt (checks, tolerances, tests); to be written BEFORE the purchase, not after the dispute.
Addressing (location coding): Coding every location (aisle-bay-level) with a system match: find without searching, put away without memory, count without chaos.
Advance/downstream (upstream/downstream): Upstream is the supplier side (before the company), downstream the customer side (after it); physical flows move downstream, money flows back upstream.
B2B marketplace: Online platform connecting professional buyers and suppliers (notably for imports); useful for spotting, but qualification remains essential.
Batch traceability: Recording, at each step, the batch involved (which batch received from which supplier, shipped to which customer); the condition for a targeted recall — often mandatory by sector and country.
BATNA (best alternative): Best Alternative To a Negotiated Agreement (another supplier, postponement, another solution); the real source of negotiating power.
Bullwhip effect: Amplification of demand variations as you move up the chain, caused by decisions made link by link without sharing information.
Buffer functions (stock functions): Service (serve without waiting for replenishment), safety (absorb variability), cycle (economic lots and minimums), anticipation (seasonality), speculation (before a price rise).
Continuous evaluation: Regular measurement of real performance (OTIF, non-conformities, disputes, price) shared with the supplier; feeds retention, improvement plan or exit.
Continuous improvement (Kaizen): Improvement in small steps, driven by those who do the work: one concrete problem at a time, measured, corrected, standardized — then repeat.
Carrying cost (holding cost): Annual cost of holding stock: tied-up cash + storage + depreciation (breakage, theft, expiry, obsolescence); typically 15 to 30% of stock value per year.
Circular economy: Purchasing options beyond new-and-disposable: refurbished, second-hand, rental/usage, repairability, recovery of waste and unsold goods.
Click & collect: Order online, pick up in store or at a point: minimal logistics cost and in-store traffic — the cheapest mode for the retailer.
CIF (Cost, Insurance, Freight): Sea freight: the seller pays transport and insurance to the arrival port, but RISK transfers to the buyer as soon as goods are loaded at departure — the classic trap.
CMR / B/L / AWB: Transport documents: international road consignment note (CMR), sea bill of lading (B/L — represents the goods), air waybill (AWB).
Consultation (tender / RFQ round): Requesting offers from several suppliers on a common basis (specs), with a deadline and imposed response format, to compare and choose.
Container (TEU): Twenty-foot Equivalent Unit: the unit of containerized capacity (a 40-foot container = 2 TEU).
Continuity plan (BCP): A response prepared per major risk: warning signals, first actions, an owner, PRE-QUALIFIED alternatives — in a crisis you execute instead of discovering.
Cross-docking: A storage-free scheme: received goods are reallocated straight from receiving to shipping; demanding on synchronization, very stock-efficient.
Cost of stockout: The cost of a shortage: lost sales, halted production, lost customers, emergency buying at a premium — the highest and most underestimated of the three costs.
Distribution platform: An intermediate warehouse that consolidates goods from several origins to redistribute them to points of sale or customers.
Distributive / integrative negotiation: Distributive: splitting a fixed value (win-lose, on one line). Integrative: widening the scope (volumes, duration, services) to create shared value.
Dormant item: An item with no movement for several months; costs its carrying rate for nothing — to be dealt with (clearance, return, scrap) without sentimentality.
Double sourcing: Two qualified sources (ideally in different regions) for critical items; the redundancy that turns a failure into a simple switch.
Duty of vigilance: An obligation (growing by country, cascading via large buyers) to identify and prevent serious harm to human rights and the environment in one's supply chain.
EAN-13 / GS1: Worldwide standard product barcode (unique item identifier), administered by the GS1 organization that issues company prefixes.
Economic order quantity (Wilson): The order quantity that minimizes ordering cost + carrying cost; simplistic assumptions but a robust order of magnitude, to align with MOQ, packaging and free-freight thresholds.
ERP: Enterprise Resource Planning: all processes (purchasing, stock, sales, accounting) on a SINGLE database — the end of re-keying and contradictory spreadsheets; SAP is the large-account reference.
Escalation: Graduated handling of a dispute: operational level first, commercial next, contractual/legal last — skipping steps needlessly destroys the relationship.
EXW (Ex Works): Goods made available at the seller's factory: the buyer handles everything (loading, transport, export and import customs); minimal price, maximal complexity.
FCL / LCL: Containerized sea freight: Full Container Load (a container to yourself) vs Less than Container Load (groupage paid by volume in a shared container).
FEFO: First Expired, First Out: issue first the batches whose expiry date is nearest; the rule for dated products, requiring batch management.
FIFO (physical): Goods rotation rule: issue the oldest batches first to avoid ageing and obsolescence — independent of the accounting valuation method.
FIFO (valuation): First In, First Out: issues are valued at the prices of the oldest batches; the remaining stock reflects recent prices.
FOB (Free On Board): Sea freight: the seller clears export and loads on board at the departure port; costs and risks pass to the buyer once the goods are on board (for containers, prefer FCA).
Framework contract: A contract setting the general terms of a recurring purchasing relationship (price, quality, logistics, responsibilities); successive orders attach to it.
Functional specification (functional spec): Describes the need in expected results and functions, without imposing the solution; lets suppliers propose and keeps competition alive.
General terms (GTP / GTS): General Terms of Purchase (the buyer's) and of Sale (the supplier's); contradictory by design — the conflict is settled BEFORE signing.
Incoterms: Standardized rules (ICC, 2020 version) allocating costs, obligations and risk transfer of international transport between seller and buyer; always cite rule + place + version.
Inventory discrepancy: Difference between counted stock and system stock; handled in two steps: fix the figure AND find the process cause (receiving, picking, entry) — otherwise it returns.
Just-in-time (JIT): Supply/produce what is requested, when and in the quantity requested; a machine for building reliability (low stock reveals problems) — demanding and to be balanced with resilience.
Kanban: A visual pull-flow replenishment signal (the empty bin, the card that triggers the order): simple, robust, self-regulating.
Last mile: The final delivery segment to the customer: the shortest and most expensive (often a third to a half of total cost) because consolidation reverses there.
Lead time: Total delay between placing the order and goods availability (preparation + transport + customs + receipt); a key parameter for sizing stock.
Lifecycle cost: TCO extended to the product's whole life: purchase + energy + maintenance + lifespan + end of life — often reconciles ecology and economy.
LIFO: Last In, First Out: issues at recent prices, stock at old prices; banned by many accounting standards (notably IFRS) — worth knowing, rarely worth using.
Link (chain link): A stage of the chain (sourcing, production, storage, distribution, customer); the chain moves at the pace of its slowest link.
Logistics: The operational component of the supply chain: warehousing, handling, order preparation and transport of goods.
Logistics cost / revenue: Transport (and preparation) costs as a share of revenue or per unit: the ratio that makes logistics costs comparable over time.
Lot / weighted average cost (WAC): Weighted Average Unit Cost: each receipt recomputes the average cost (total value ÷ total quantity); issues are at the average cost — smoothing price variations.
Make or buy: The trade-off between doing it yourself and buying (or renting, pooling, refurbishing); the first question to ask before any major purchase.
Messenger / groupage / full truck (parcel/LTL/FTL): Road segments by shipment size: parcels (express networks), pallets grouped with other customers (LTL), a whole dedicated vehicle (FTL) — each segment jump changes unit prices.
Milk-run / periodic review: Periodic replenishment: order on a fixed date to reach a target level; groups orders per supplier (transport, free freight) at the cost of a slightly higher safety stock.
Mono-sourcing / multi-sourcing: A single source per item (simplicity, concentrated volumes, dependence) vs several sources (security, competition, heavier management).
MOQ: Minimum Order Quantity imposed by the supplier; a high MOQ forces overstocking and is negotiated like price.
Muda (waste): Anything consuming resources without value for the customer: overproduction, excess stock, useless transport and motion, waiting, over-quality, defects.
Multi-criteria grid: An offer-comparison table on weighted criteria defined BEFORE opening the offers; makes the choice objective, traceable and explainable.
Need expression: Formalizing what must be bought: what (required characteristics), how much, when, at what quality level, within what budget.
Obsolescence: Loss of value of stock become unsellable or unusable (fashion, technology, expiry); the silent depreciation of sleeping stock.
Order point (reorder point): The stock threshold that triggers the order: (average demand × average lead time) + safety stock — covers consumption during the replenishment lead time.
OTIF: On Time In Full: % of deliveries on time AND complete; measured both ways (your suppliers to you, you to your customers) — the definition must be pinned down precisely.
Overspecification: Requirements above the real need (top-of-range by default, copying a specific brand); the leading source of avoidable extra costs.
P2P (Procure-to-Pay): The full purchase-to-payment process: purchase request → purchase order → confirmation → controlled receipt → invoice → matching → payment.
Pallet rack: Metal racking for pallets; maximum loads displayed and respected, guards and periodic checks — rack collapse is the warehouse's major accident.
Pareto's law: The 80/20 principle: a minority of causes concentrates the majority of effects; the basis of ABC and a universal prioritization tool.
Performance review: A periodic meeting with a key supplier: measured indicators, mutual listening, a dated improvement plan, outlook — the central steering tool.
Pick by order / batch picking: Order by order (simple, one trip per order) vs by batches/waves: a single route picks several orders, sorted afterwards — a major gain on many small orders.
Pick-to-light / voice picking: Picking aids: lights showing location and quantity, or hands-free voice guidance; for the volumes that justify them, AFTER the organization.
Picking: Retrieving an order's items from stock, followed by grouping, checking and packing; the warehouse's top labor cost.
Pickup point / locker: Pooled delivery at a partner retailer or an automated locker: reduced cost, near-zero delivery failure, time flexibility for the customer.
Picking path: Sequencing pick-ups along a logical route (by aisle, no backtracking); a simple sort by location address achieves it.
Progress plan: Dated, measurable improvement commitments, agreed at review, on BOTH sides (the customer also has progress to make: forecasts, orders, payments).
Proof of delivery (POD): Signed/time-stamped confirmation of handover to the recipient; closes shipment tracking and stands as evidence in a dispute.
Purchase order (PO): The contractual document by which the buyer formally orders (references, quantities, prices, deadlines, terms); the piece that binds both parties.
Purchase request (PR): An internal request approved before commitment: the budget control point (who can commit what, up to what amount).
Purchasing: Strategic function: supplier market analysis, selection, negotiation, contracting and panel steering — decides from whom and on what terms one buys.
Qualification: Verifying that a supplier can deliver compliantly and sustainably: legal existence, financial health, references, capacity, certifications — proportionate to the stake.
Reception reserves (delivery reservations): Written, immediate, precise notes of anomalies found on receipt (missing, breakage, non-conformity); they condition later recourse.
Referencing (approval): The decision to approve a supplier to the panel after qualification/selection; opens the right to place orders with them.
Replenishment (periodic): Ordering on a fixed date to bring stock back to a target level; groups orders per supplier at the cost of a slightly higher safety stock.
Requirements challenge (need challenge): ~80% of cost is locked at the specification of the need — so CHALLENGE the need (overspecification, "just in case" quantities, false urgencies, imposed brands).
Responsible purchasing: Integrating environmental, social and ethical criteria into buying decisions, alongside cost/quality/lead time — prioritized by risk mapping.
Reverse logistics: Returns logistics: the reverse flow (customer → seller) to design as a process (label, drop-off, sorting, refund) — framed by distance-selling law, varying by country.
Reversibility (exit terms): Contractual end-of-relationship terms: notice, transfer (tooling, stock, documentation), continuity during transition — negotiated at entry, not at exit.
RFID: Radio tags read without contact or aim, in bulk and at a distance; costlier per tag than a barcode, worthwhile when read speed matters (flash inventories).
RFQ / RFI / RFP: RFQ: a priced quotation request. RFI: a request for information on a supplier's capabilities. RFP: a full proposal request (solution + price) for a complex need.
Risk mapping: An inventory of risks (suppliers, logistics, geopolitical, market, internal, climate) rated on probability × impact; prioritizes action on the 3-5 major risks.
Rotation (turnover): Annual consumption ÷ average stock (in value): the number of times stock renews in a year; judged in trend and internal comparison.
Safety stock: A reserve sized to absorb the variability of demand AND lead time, per the target service level; the price of irregularity (yours and the supplier's).
Savings: Realized purchasing savings, measured by an explicit methodology (baseline, scope, validation) — otherwise a communication figure, not a management one.
Scope of stock (coverage): Stock ÷ average consumption, in days or weeks of demand ("6 weeks of stock"); the telling inverse of rotation.
Selection criteria: An explicit grid for appraising a supplier: price, quality, lead time, financial health, capacity, certifications, location, CSR — weighted by purchasing family.
Single point of failure: An element with no alternative whose failure stops everything: a sole supplier of a critical item, a single route, a single site, a single person — the priority target for treatment.
Slotting (layout): Placing items by their pick frequency: fast movers near shipping and in the "golden zone", slow movers up high/at the back — periodically reviewed.
S&OP: Sales & Operations Planning: a monthly ritual aligning sales, supply and management on ONE shared set of figures (demand, capacity, stock) — forecasting as a collective process.
Sourcing: Searching, identifying and qualifying potential suppliers for a purchasing family; aims for several credible candidates, the condition for competition.
Specifications (statement of work): The reference document describing what is expected of the product or service; the common basis for costing, comparing offers and judging conformity.
SRM: Supplier Relationship Management: structured management of supplier relationships over time — segmentation, performance reviews, progress plans, dispute handling.
SSCC: Serial Shipping Container Code: a worldwide unique number for a shipping unit (pallet, parcel) — the "license plate" the whole chain can read and track.
Stock reliability (IRA): Inventory Record Accuracy: the % of items whose physical stock matches system stock (within tolerance); aim for 95-98% — below 90%, every calculation runs on sand.
Strategic stock: A deliberate buffer on vital items, sized by calculation: carrying cost vs (probability-weighted) cost of the stoppage avoided — a costed insurance, not a return to overstock.
Supplier audit: A structured visit to a supplier's site (facilities, organization, quality) to check the reality behind the commercial file; reserved for high stakes.
Supplier charter: A contractual document stating the CSR commitments expected of suppliers (working conditions, environment, ethics), with audit rights and consequences.
Supplier lock-in: A situation where the specification (imposed brand, characteristics copied from a specific product) effectively bars all competition; to hunt down in every spec.
Supplier panel: The set of qualified/approved suppliers, by purchasing family, drawn on for consultations; maintained continuously (entries, exits, monitoring).
Supplier risk: The probability that a supplier fails (finances, capacity, dependencies, location); the fourth purchasing dimension, assessed alongside CQD.
Supplier scoring: A weighted score summarizing a supplier's evaluation criterion by criterion; makes selection and monitoring objective and comparable.
Supplier segmentation: Ranking the portfolio (strategic / important / transactional) to concentrate relationship time where the stakes are.
Supply: The operational function: place orders at the right time, track deliveries, chase, keep stock at the right level within the terms negotiated by purchasing.
Supply chain: The end-to-end view of flows, from the supplier's supplier to the customer's customer (production, storage, transport, distribution).
The three flows: Physical flow (goods), information flow (orders, forecasts, tracking) and financial flow (invoices, payments) — the supply chain synchronizes them.
Total cost of ownership (TCO): The full cost of a purchase: price + transport + customs + stock + non-quality + admin costs + risk — the real basis for comparing offers.
Preparation error rate: Errors / lines picked; reduced by clear labeling, scanning at location and item, and a proportionate final check — each error costs disproportionately.
Push / pull flow: Push flow: produce/stock from forecasts, ahead of demand. Pull flow: produce/order in response to real demand.
Prescriber / requester: The one who expresses the need (user, technician, department); the buyer challenges them constructively without replacing their functional expertise.
Price revision clause: A contractual term framing price change over time (indexation, cap, review meeting); negotiated BEFORE signing, never after.
Purchasing leverage: A piece of value to exchange: volume, commitment duration, documented competition, regularity, fast payment, flexibility on lead times or specs.
Demand forecast: A projection of future demand from cleaned history (trend, seasonality, randomness); always wrong by nature — its measured error margin sizes safety stock.
Return rate: The share of sales returned; steered downstream (an efficient returns process) and above all upstream (precise product sheets, sizes, photos, reviews) — the best return is the one avoided.
Service level (supplier): The percentage of demand served on time and in full; measures the reliability of a supplier or chain toward its customers.
Service level (stock): The probability of not being out of stock over a cycle; aiming for 95% costs far less than 99% — the last points are the most expensive.
Break point (walk-away point): The threshold (price, terms) beyond which one gives up the deal; set cold, before negotiating, so as not to cross it under pressure.
Shrinkage (unknown loss): The unexplained part of discrepancies (theft, undeclared breakage, untraced errors); reduced by organization: dedicated locations, all movements recorded, restricted access.
Tender (call for tenders): A structured form of consultation for complex or high-stakes purchases: a full file, a framed process, sometimes a shortlist then a detailed offer.
Three flows synchronization: See "The three flows": physical, information and financial flows kept in step across the chain.
TMS: Transport Management System: transport optimization — carrier choice, routing, shipment tracking, freight-invoice control.
Total quality dashboard (KPI dashboard): One monthly page: 5-10 indicators with value, trend, target, variance comment — each indicator has an owner and triggers decisions.
Turnover ratio: See "Rotation": annual consumption ÷ average stock, judged in trend and comparison, always paired with service level.
Freight forwarder: An organizer of international transport: mode choice, groupage, documents, customs, insurance — buys freight wholesale and secures formalities.
CQD triangle (cost-quality-lead time): Cost, quality, lead time: the three demands of any purchase, impossible to maximize at once — buying means consciously arbitrating between them.
Value need (right-sizing): A specification level that covers real use — neither under-sized (risk) nor over-sized (a permanent extra cost for unused performance).
Weighting: The weight given to each criterion (price, quality, lead time, services) per the purchase's criticality; a fundamental decision that pre-determines the choice.
WMS: Warehouse Management System: fine steering of the warehouse (locations, picking paths, waves, scanning, cycle counting) — the detail the ERP ignores.
Zoning: Dividing the warehouse into flow-dedicated zones: receiving, storage, picking, packing, shipping — with a flow that crosses without backtracking (I- or U-shaped).
Annual full inventory: An exhaustive periodic count (often at year-end), mainly for accounting; precise obligations vary by country — a useful snapshot but poor for management.
Cycle counting (rolling inventory): Continuous counting in small portions (A items several times a year, C items once); detects errors near their cause, without stopping activity.
Delivery note (DN): The document accompanying the goods listing what is actually delivered; the basis for receipt checking, to reconcile with the PO and the invoice.
Late penalties: Sums owed by the supplier if the contractual deadline is missed; realistic and applied, they make the deadline credible — spectacular and ignored, they protect nothing.
Lot traceability: See "Batch traceability": recording the batch at each step to enable a targeted recall.
Best value / lowest bid: Lowest bid: the offer at the lowest price. Best value: the best overall offer per the weighted criteria — the goal of a professional purchase.