Glossary

Welcome to the Fairmarkit glossary, your one-stop guide for all things procurement and spend management. Bookmark this page as we'll be updating this knowledge base regularly with new definitions, guides, and resources.

Agile Procurement

Agile procurement is a procurement methodology that borrows elements of the agile approach to software development. The core concepts of any agile methodology are to work in small, fast increments that build flexibility into the process. As such, agile procurement is an approach that is open, collaborative, and less strict than other procurement methodologies.

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Best Practices for Vendor Management

Vendor management requires great communication, the right technology, and regular risk assessments to build long-term profitable relationships.

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Business Process Outsourcing (BPO)

Business process outsourcing (BPO) allows companies to tap into third-party resources to take on important business processes, freeing up internal resources for high-value activities. Many companies outsource strategically important activities, like manufacturing or R&D. BPO in procurement and sourcing, however, is becoming more common.

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Competitive Bidding

Competitive bidding allows companies to find the goods and services they need for the best possible price. Through the competitive bidding process, an organization can solicit bids from contractors, suppliers, or vendors to get the raw materials, equipment, and other products needed to support key business functions and serve customers.

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Direct And Indirect Spend

Direct procurement refers to the process of buying raw materials and goods for production, while indirect procurement relates to purchasing services or supplies required to keep the day-to-day business running.

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Direct Procurement

Direct procurement is perhaps the most important function of a procurement team, given its impact on the business’ success. And while many organizations ignore indirect procurement to their detriment, focusing on direct procurement in times of crisis is a sound business strategy. If you can’t find ways to reduce risk and control costs for your direct spending, there’s a serious flaw in your operations.

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E-Procurement

E-procurement involves the purchase and/or sale of supplies, work, and services through the Internet as well as other digital information and networking systems, such as electronic data interchange and enterprise resource planning. This form of procurement can take place on a business-to-business, business-to-consumer, or business-to-government level.

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Lean Procurement

You may have heard of lean project management or lean software development. Lean is an approach or philosophy that seeks to maximize customer value by minimizing waste. The lean approach has been applied to everything from executive coaching to product development — and naturally, to procurement.

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MRO (Maintenance, Repair, and Operations)

MRO is a category of spending that covers all maintenance parts used for repairs and to support production at an organization. MRO, despite being vital to operations, is considered part of indirect spending. MRO procurement includes things like office and cleaning supplies, computers, and items related to maintaining tools needed for production.

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Managed vs Unmanaged Spend

Managed and unmanaged spend, naturally, require different approaches. Procurement teams simultaneously must try to optimize managed spend by managing supplier relationships, practicing strategic procurement, and monitoring the procurement cycle for inefficiencies. Meanwhile, teams must also identify unmanaged spend and try to reduce its negative impacts.

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Maverick Spend

Maverick spend — sometimes called rogue spend — refers to any purchases that don’t follow the organization’s established procurement rules and procedures. Maverick spending is the result of either deliberately ignoring procurement processes or of a purchasing mistake that doesn’t align with previously negotiated purchasing terms.

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Procure-To-Pay Process

Procure to pay, sometimes abbreviated as p2p procurement, is the integration of purchasing and accounts payable tools to become more efficient. Procure-to-pay is a subset of the overall procurement process.

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Procurement Analytics

Procurement analytics offer the key to long-term, sustainable growth, according to research by a number of consulting firms. EY found that with the right metrics, organizations can transform procurement from a traditional cost-management activity to a competitive advantage. Likewise, Deloitte’s 2021 survey of chief procurement officers found that most view analytics as the technological activity with the most impact on business.

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Procurement Center of Excellence

A procurement center of excellence (COE) is a specialized team that provides leadership, training, and support to improve procurement best practices across an organization.

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Procurement Cycle

Procurement is cyclical, meaning it follows a set process of steps from start to finish. The procurement process is typically made up of six steps, starting with the identification of a business need.

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Shadow IT

Shadow IT is an IT system (device, application, or software) that was bought or built without approval from the IT department. In some instances, shadow IT is relatively innocuous: for instance, an employee bringing in a USB drive to work from home. Shadow IT is often deployed to increase productivity, solve a workflow issue, or to provide education and training.

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Should-Cost Analysis

Should-cost analysis, also known as cost breakdown analysis, is the process of breaking down why a product or service costs what it does. This process considers factors such as the cost of materials, production and labor costs, profit margin, and market conditions such as demand and competition.

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Source-to-Contract

Source-to-award, or source-to-contract, is a group of procurement activities that can be optimized virtually overnight — with the right tools. Digital platforms that allow for automated bidding, virtual purchase orders, and online payments, as well as collaboration with suppliers, make the source-to-contract process more manageable, transparent, and compliant.

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Spend Analytics

Spend analytics or spend analysis is the process of identifying areas where you can cut costs, improve strategic sourcing, and ultimately reduce expenses throughout the procurement process.

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Spot Buying

A spot buy is a purchase that is unplanned, often considered an “emergency” or a one-time buy. Just like with any other type of spend, it is important to keep spot buys in check. 

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Strategic Procurement

Strategic procurement, also known as strategic sourcing, is the process of planning to ensure that the goods and services needed to do business successfully are obtained on time as needed — and on budget. Strategic procurement involves carefully optimizing everything from vendor selection, payment terms, vetting, contract negotiation, and the purchase of goods and services.

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Supplier Relationship Management (SRM)

Supplier relationship management (SRM) provides a strategic way for a company to invest in strategic sourcing, find efficiencies in the supply chain, and reduce costs.

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Supply Base Rationalization

Supply base rationalization, or supplier rationalization, is the practice of reducing the number of active suppliers to streamline an organization’s spend. Ideally, intentionally shrinking a supply base will allow the organization to spend more time and focus on building value from existing supplier relationships.

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Sustainable Procurement

Sustainable procurement is defined by the United Nations Procurement Practitioner’s Handbook as the process of procurement while taking social and environmental factors into consideration, as well as financial factors. 

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Tactical Sourcing

As technology transforms procurement, organizations are better able to use data to unearth and resolve inefficiencies in their sourcing process. Many organizations are spending this year focusing on tail spend: unmanaged or off-book purchasing that can quickly drag down a company’s bottom line.

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Tail Spend

Tail spend is often defined as the money a company spends on purchases that account for roughly 80% of total transactions, which makes up about 20% of the company's spend by volume.

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Unmanaged Spend

Unmanaged spend, tail spend, rogue spend, maverick spend: no matter what you call it, it’s all a type of spending that puts an organization’s bottom line at risk. Unmanaged spend is the result of procurement processes that are too complex, too archaic, or too inefficient. This type of spending opens an organization to all kinds of problems, from wasted resources to compliance risk and even a competitive disadvantage.

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Vendor Master Data

In Deloitte’s 2021 global survey of Chief Procurement Officers, some surprising trends emerged. The procurement landscape has changed as a result of the pandemic, but high performers who have been able to adapt share one key feature: agility.

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