Fundamentals of Supply Chain Management

A collection of key terms and definitions related to supply chain management, procurement, and purchasing processes.

Procurement

The process of selecting and vetting suppliers, negotiating contracts, establishing payment terms, and the actual purchasing of goods and services.

Purchasing

The function of acquiring goods and/or services to fulfill an organization's needs.

Request for Proposal (RFP)

A detailed low-level capabilities evaluation document used to determine a supplier's capability and interest in the production of a customized product or service.

Request for Quote (RFQ)

A document used to solicit bids from interested and qualified suppliers for goods or services.

Competitive Bidding

Offers submitted by multiple individuals or firms competing for a contract, privilege, or right to supply specified services or merchandise.

Total Cost of Ownership (TCO)

The sum of all costs associated with every activity in the supply stream of a product, encompassing quality, service, delivery, and price.

Make versus Buy Decision

The act of deciding whether to produce an item internally or buy it from an outside supplier.

Supplier Selection

A complex process involving evaluation forms or scorecards to assess multiple criteria for choosing suppliers.

Centralized Purchasing

A purchasing structure where all purchasing decisions are made by a department located at the firm's corporate office.

Decentralized Purchasing

A purchasing structure where individual departments, such as local purchasing departments, make their own purchasing decisions.

Inventory Turnover

A measure of how many times inventory is sold and replaced over a period.

e-Procurement

The automation, through web-enabled tools, of non-strategic and transactional activities in the purchasing process.

Bid Bond

A debt secured by a bidder to guarantee acceptance of a contract once awarded.

Performance Bond

A debt secured by a bidder to ensure that the work will be completed on time and meet specifications.

Quality, Service, Delivery, Price (QSDP)

The four elements used to assess Total Cost of Ownership in procurement.

Backward Vertical Integration

A strategy involving a company acquiring one or more of their suppliers.

Forward Vertical Integration

A strategy involving a company acquiring one or more of their customers.

Risk Management

A formal program within procurement to assess and mitigate risks associated with supplier relationships.

Sealed Bid

A document submitted in response to an invitation to bid, enclosed in a sealed envelope.

Benchmarking

Measuring what other businesses do best and matching their performance to improve supply chain efficiency.

Make vs Buy Factors

Quantitative and qualitative factors considered when deciding to produce internally or purchase from suppliers.

Supplier Relationship Management

A strategic approach to managing interactions with suppliers to optimize performance and value.