Glossary of key terms in Supply Chain Management & Manufacturing
End of Content.
ABC Categorization (also known as ABC Analysis) is a supply chain and inventory management technique used to classify items based on their importance, usually in terms of value, usage, or impact. It's rooted in the Pareto Principle—the idea that roughly 80% of effects come from 20% of causes.
In procurement, acceptance criteria are the predefined standards or requirements that goods, services, or deliverables must meet to be accepted by the buyer. These criteria serve as a critical checkpoint to ensure that what is delivered aligns with the expectations set out in the procurement contract or agreement.
Acceptance sampling is a statistical quality control method used to determine whether to accept or reject a batch of products or materials based on the inspection of a sample.
Money a company owes to its suppliers or vendors for goods or services received but not yet paid for. It's recorded as a liability on the company's balance sheet because it's essentially a short-term debt.
Money owed to a company by its customers for goods or services that have been delivered but not yet paid for. It’s considered an asset on the balance sheet because it represents future cash inflows.
In procurement, acquisition cost refers to the total cost incurred by an organization to acquire goods, services, or assets. It goes beyond the purchase price, encompassing all expenses associated with the procurement process, from sourcing to delivery and integration.
An ad hoc purchase refers to a one-time or non-recurring purchase made to address an immediate or unforeseen need, typically outside of an organization’s standard procurement processes or contracts.
Advanced analytics in procurement refers to the use of sophisticated data analysis techniques, such as machine learning, predictive modeling, and artificial intelligence, to extract actionable insights from procurement data.
An Advance Shipping Notice (ASN) is a document or electronic message sent by a supplier to a buyer, providing detailed information about an upcoming shipment before it arrives.
Aftermarket procurement refers to the process of acquiring parts, components, services, or supplies needed to maintain, repair, or enhance products after their initial sale or delivery.
Agile manufacturing is a production approach that emphasizes flexibility, responsiveness, and adaptability to meet rapidly changing customer demands and market conditions.
Agile procurement is a modern approach to acquiring goods, services, or technology that emphasizes flexibility, collaboration, and iterative processes. Unlike traditional procurement methods, which often involve rigid, linear processes and lengthy timelines, agile procurement aligns with the principles of agile methodology—originally developed for software development—to deliver faster, more adaptive, and value-driven outcomes.
An Approved Supplier List (ASL), also known as an Approved Vendor List (AVL), is a curated roster of pre-vetted suppliers that an organization has deemed qualified to provide specific goods or services.
Artificial Intelligence (AI) in procurement refers to the application of advanced algorithms, machine learning, and data analytics to streamline and optimize the processes involved in sourcing, purchasing, and managing goods and services.
Automated invoice processing refers to the use of technology, such as artificial intelligence (AI), robotic process automation (RPA), and optical character recognition (OCR), to digitize, manage, and process invoices with minimal human intervention.
When a company takes control of its supply chain by acquiring or merging with its suppliers or by developing its own capabilities to produce the inputs it previously purchased
Bargaining power refers to the ability of one party—either the buyer (procuring organization) or the supplier—to influence the terms of a transaction in their favor.
BATNA refers to the most advantageous course of action a party can take if negotiations fail and no agreement is reached.
A Best and Final Offer (BAFO) is the final proposal submitted by a supplier or vendor during a procurement process, typically after initial bids and negotiations.
Bid analysis, also known as bid evaluation or bid comparison, is the systematic process of reviewing and assessing bids submitted by suppliers in response to a procurement request, such as a Request for Proposal (RFP), Request for Quote (RFQ), or Invitation to Bid (ITB).
Detailed list of all the raw materials, components, parts, and subassemblies needed to manufacture or assemble a finished product. It’s like a recipe or blueprint for production.
A Blanket Purchase Order (BPO), also known as a standing purchase order, is a procurement agreement between a buyer and a supplier that establishes terms for purchasing goods or services over a specified period, typically without defining exact quantities or delivery dates upfront.
A breach of contract occurs when one party in a procurement agreement—either the buyer or the supplier—fails to fulfill their obligations as outlined in the contract.
Buffer stock, also known as safety stock, is a reserve of inventory held by a business to protect against uncertainties in supply and demand.
Build to Print refers to a procurement and manufacturing process where a buyer provides a supplier with detailed technical drawings, specifications, and documentation for a component or product, and the supplier manufactures it exactly as specified without making design changes.
Build-to-Order, sometimes called Make-to-Order, is a manufacturing process where production begins only after receiving a confirmed customer order.
Supply chain phenomenon where small fluctuations in customer demand cause larger and larger swings in inventory and ordering as you move up the supply chain (from retailer → wholesaler → manufacturer → supplier).
Business Intelligence refers to the technologies, tools, and processes that collect, analyze, and present data to support better decision-making.
A Purchasing Card, also known as a buying card or P-Card, is a type of corporate credit card issued to employees to make low-value, business-related purchases on behalf of their organization.
Strategic approach to organizing and managing groups of related products or services (categories) to improve business results, especially in procurement or retail.
A Capital Expenditure (CapEx) purchase refers to the acquisition of long-term assets that provide value to an organization over an extended period, typically more than one year.
A procurement catalogue is a structured, searchable database or list of pre-approved products and services that an organization’s employees can purchase from designated suppliers.
Also known as centralized purchasing is purchasing strategy where all buying decisions and processes are managed by a single, central department—usually at the company’s headquarters—rather than by individual branches or departments.
A change order is a formal document that modifies the terms of an existing contract or purchase order between a buyer and a supplier.
Supply chain system that integrates forward logistics (moving products from producer to customer) with reverse logistics (returning products from customer back to producer) — with the goal of reusing, refurbishing, remanufacturing, or recycling materials.
Cloud computing refers to the delivery of computing services—such as storage, processing power, software, and analytics—over the internet, hosted on remote servers rather than on-premises hardware.
The cold chain refers to a temperature-controlled supply chain designed to preserve the quality and integrity of perishable or temperature-sensitive products from production to consumption.
Commercial Off-the-Shelf (COTS) parts are pre-manufactured, standardized components or products that are readily available for purchase from suppliers without the need for custom design or production.
Commodity markets are platforms—physical or virtual—where raw materials or primary products, known as commodities, are bought, sold, or traded.
Competitive bidding, also known as competitive tendering, is a procurement method where multiple suppliers or vendors submit bids to provide goods, services, or projects based on predefined specifications.
Compliance in procurement refers to the process of following all applicable rules, regulations, and internal policies during the sourcing and purchasing of goods, services, or projects.
Continuous replenishment, often referred to as Continuous Replenishment Planning (CRP), is a supply chain strategy where suppliers and buyers work closely to maintain optimal inventory levels by automatically replenishing stock based on real-time demand and consumption data.
Contract Lifecycle Management refers to the systematic management of a contract from its inception to its termination or renewal.
Contractual flow downs, also known as flow-down clauses or pass-through provisions, are specific terms, conditions, or obligations from a primary contract (between a buyer and a prime contractor) that are incorporated into subcontracts or supplier agreements.
Cooperative purchasing, also known as group purchasing or collaborative procurement, is a process where multiple entities—such as government agencies, educational institutions, or businesses—pool their resources to negotiate and procure goods, services, or infrastructure through a single contract.
Cost avoidance refers to actions taken by procurement professionals to prevent or reduce future costs that would otherwise occur without intervention.
Cost Breakdown Analysis is the process of deconstructing a supplier’s quoted price into its individual cost elements to understand the factors driving the total cost.
Cycle time refers to the total time it takes to complete a specific process or activity within the supply chain, from start to finish.
Also referred to as Direct Procurement - refers to the money a company spends on goods and services that are directly tied to producing its products or services—essentially, anything that becomes part of the final product.
Also referred to as Direct Procurement - refers to the money a company spends on goods and services that are directly tied to producing its products or services—essentially, anything that becomes part of the final product.
Process of forecasting future customer demand for a product or service so a business can make informed decisions about inventory, production, and supply chain operations.
Demand forecasting is a critical process in supply chain management that involves predicting future customer demand for products or services. By leveraging historical data, market trends, and analytical tools, businesses can estimate how much of a product will be needed, when, and where.
Design and Build is a powerful procurement strategy that streamlines project delivery by combining design and construction under one contract.
A design specification is a detailed document that describes the technical and functional requirements for a product, system, or project.
Also referred to as Direct Procurement - refers to the money a company spends on goods and services that are directly tied to producing its products or services—essentially, anything that becomes part of the final product.
Direct costs are expenses that can be directly attributed to the production of a specific product, service, or project. In the context of procurement, these are costs incurred to acquire goods or services that are essential to delivering a final output.
Digital procurement refers to the use of digital technologies to streamline and optimize the procurement process, which involves sourcing, purchasing, and managing goods and services for an organization.
At its core, digital transformation in procurement is about moving away from manual, paper-based, or fragmented processes to a fully integrated, technology-driven approach.
Deep learning involves training artificial neural networks, inspired by the human brain, to process and analyze complex data.
Downstream operations encompass all the activities involved in delivering a finished product or service from the producer to the final consumer.
Economic Order Quantity (EOQ) is a fundamental inventory management tool used by businesses to determine the optimal order size that minimizes total inventory costs.
E-invoicing, or electronic invoicing, is the digital exchange of invoice documents between suppliers and buyers in a structured format, streamlining the procurement process.
ERP is a suite of integrated applications designed to manage and automate core business processes such as finance, human resources, supply chain, manufacturing, and customer relationship management.
Electronic procurement) refers to the use of digital tools and technologies to automate and streamline the procurement process, which includes sourcing, purchasing, and paying for goods and services.
An escalation clause, also known as a price adjustment clause, is a contractual provision that allows for adjustments to the agreed-upon price of goods or services based on predefined conditions.
E-sourcing, short for electronic sourcing, refers to the use of web-based technologies and platforms to manage the procurement process of identifying, evaluating, and selecting suppliers for goods and services.
E-tendering, or electronic tendering, is the process of managing the tendering process through digital platforms, replacing traditional paper-based methods.
A fixed price contract, also known as a lump-sum contract, is an agreement where the buyer agrees to pay the supplier a predetermined, set price for delivering specific goods, services, or project deliverables.
Fourth Party Logistics (4PL) refers to an outsourcing model where a business delegates the management and coordination of its entire supply chain—or a significant portion of it—to a single external partner, known as a 4PL provider.
Global sourcing is the practice of procuring goods, services, or components from suppliers located in different countries to meet a company’s operational or strategic needs.
A Group Purchasing Organization (GPO) is an entity that aggregates the purchasing power of multiple organizations to negotiate better prices, terms, and conditions with suppliers for goods and services.
Also called indirect procurement - refers to the money a company spends on goods and services that support day-to-day operations but do not directly become part of the final product or service.
Indirect materials are supplies and resources used in the production process that are not directly incorporated into the final product.
Indirect procurement refers to the acquisition of goods and services that are not directly incorporated into a company’s final product or service but are essential for day-to-day operations.
Industry 4.0 represents the integration of advanced digital technologies into manufacturing and industrial processes, creating "smart" systems that are interconnected, automated, and data-driven.
Inferential analytics is a branch of statistics that uses data samples to draw conclusions or make predictions about a larger population.
Inventory control systems are processes, tools, or software solutions designed to manage and track a company’s inventory levels, orders, and stock movements.
Inventory holding costs are the total expenses incurred by a business to store and maintain inventory that has not yet been sold.
Inventory management is the process of overseeing and controlling the ordering, storage, and use of a company’s inventory.
Inventory management systems are software or technology-driven solutions designed to track, manage, and organize a company’s inventory.
Invoice approval is the process a business uses to review, verify, and authorize payment for invoices received from suppliers or vendors.
Invoice management in procurement is the systematic process of handling, processing, and tracking invoices received from suppliers or vendors as part of the purchasing cycle.
Invoice reconciliation in procurement is the process of verifying and matching invoices received from suppliers with corresponding purchase orders (POs), delivery receipts, and contract terms to ensure accuracy before payment.
Item master data, often referred to as the item master or product master, is a centralized repository of standardized, accurate, and detailed information about every item or product managed within a supply chain.
The “last mile” in supply chain logistics refers to the final step of delivering goods from a distribution center or warehouse to the end customer’s doorstep.
Lean procurement applies the principles of lean thinking—originally developed by Toyota in the manufacturing sector—to the procurement process. This involves reducing inefficiencies such as excess inventory, lengthy approval processes, and poor supplier coordination.
A lean supply chain is a management strategy focused on minimizing waste while maximizing value for customers. It applies the principles of lean thinking—originally developed in manufacturing by Toyota—to the entire supply chain process.
Logistics management is the process of planning, implementing, and controlling the efficient flow and storage of goods, services, and information from the point of origin to the point of consumption.
Machine learning is a subset of artificial intelligence (AI) that allows computers to learn from data and improve their performance over time without being explicitly programmed. Instead of following rigid rules, ML algorithms identify patterns in data, make predictions, or take actions based on those patterns.
A make or buy decision is a strategic evaluation process where a company decides whether to manufacture a product, component, or service internally or purchase it from an external supplier.
Manufacturing Resource Planning, or MRP II, is an advanced, integrated planning and control system designed to manage manufacturing processes, resources, and business operations.
Master Data Management (MDM) is a set of processes, tools, and technologies used to create, maintain, and manage a centralized, accurate, and consistent repository of an organization’s master data.
Materials Requirements Planning (MRP) is a system used in manufacturing to manage inventory, production schedules, and procurement. It ensures that the right materials are available at the right time to meet production demands without overstocking or delays.
Materials Management encompasses all activities involved in acquiring, handling, and controlling materials—raw materials, components, and finished goods—throughout their lifecycle.
Maverick buying, also known as rogue or off-contract buying, refers to the practice within an organization where employees purchase goods or services without following the established procurement processes or approved supplier agreements.
Maintenance, Repair, and Overhaul (MRO) refers to the processes, materials, and services required to maintain, repair, and restore equipment, machinery, and infrastructure to ensure operational continuity.
Nearshore sourcing involves procuring products, components, or services from suppliers in neighboring or nearby countries, typically within the same region or time zone.
NPI refers to the end-to-end process of developing, producing, and launching a new product into the marketplace.
An Original Equipment Manufacturer (OEM) is a company that designs and manufactures products or components that are then sold under another company’s brand name.
Open tendering, also known as open bidding or public tendering, is a procurement process where an organization publicly invites suppliers to submit bids for providing specific goods, services, or infrastructure projects.
An open-loop supply chain is a linear process where products or materials flow in one direction—from raw material extraction to production, distribution, and final consumption—without returning to the supply chain for reuse, recycling, or refurbishment.
Order consolidation in procurement refers to the practice of combining multiple purchase orders, requisitions, or demands into a single, larger order before placing it with a supplier.
Order management involves the end-to-end process of handling customer orders, from placement to delivery. It integrates various supply chain functions, including inventory management, order processing, shipping, and customer service.
Order promising is a critical function in procurement and supply chain management that involves committing to customers about when and how their orders will be fulfilled.
Predictive analytics involves using historical data, statistical models, and machine learning algorithms to forecast future outcomes.
The process that a company follows to acquire goods or services from suppliers and make payment for those goods or services. It covers the entire cycle, from identifying a need to paying for the purchase.
The process of overseeing agreements between an organization and its vendors or suppliers. These contracts outline the terms for delivering goods, services, or infrastructure, including pricing, timelines, quality standards, and compliance requirements.
The procurement cycle is a systematic process that organizations follow to identify, acquire, and manage goods, services, or works from external suppliers.
A purchase contract, sometimes called a purchase agreement, sales contract or a purchase order, is a legally binding document that outlines the terms and conditions of a transaction between a buyer and a seller.
A formal, legally binding document issued by a buyer to a supplier that outlines the details of goods or services being purchased. It serves as a contract between the buyer and the supplier, specifying the type, quantity, price, and agreed delivery terms.
An Internal document created by a department or employee within an organization to request the purchase of goods or services. It is a formal request for approval to buy something, typically used before creating a purchase order (PO).
Radio Frequency Identification (RFID) is a wireless technology that uses electromagnetic fields to automatically identify and track objects.
A receipt of goods is the formal acknowledgment that the items ordered from a supplier have been physically received at the buyer’s designated location, such as a warehouse, office, or facility.
A document used by organizations to gather information from potential suppliers or service providers before launching a full procurement process. It’s typically used at the early stage of a project when a company is exploring options, solutions, or market capabilities.
A formal document that an organization issues to invite suppliers or service providers to submit detailed proposals for a specific project, product, or service. It is used when the buyer knows what they need but wants to evaluate multiple approaches, solutions, and costs before selecting a vendor.
A formal document used by organizations to solicit price quotes from suppliers for specific, well-defined products or services. It’s typically used when the buyer knows exactly what they need and is mainly looking for the best price.
A Request for Tender is a formal, public invitation issued by an organization—often a government or public sector entity—to suppliers or contractors to submit bids for providing specific products, services, or infrastructure.
A reverse auction is a procurement method where the roles of buyer and seller are flipped compared to a traditional auction. Instead of buyers bidding up the price for a seller’s goods or services, sellers compete to offer the lowest price to a buyer for a specified product or service.
Reverse logistics refers to the process of managing products that flow back through the supply chain after reaching the consumer. This could involve handling returns, recycling, refurbishing, or disposing of goods.
Sales and Operations Planning is a cross-functional process that brings together various departments—such as sales, marketing, operations, finance, and supply chain—to create a unified plan.
Should cost analysis, sometimes called "should-cost modeling," is a method used to estimate what a product or service should cost based on a detailed understanding of its components, materials, labor, overhead, and other cost drivers.
Source to Contract (S2C) is a comprehensive procurement process that covers the activities from identifying a need for goods or services to signing a contract with a supplier. It encompasses sourcing, supplier selection, negotiation, and contract management, ensuring that organizations procure the right goods or services at the best possible terms.
Source to Pay (S2P) is the end-to-end process that encompasses all activities from identifying a need for goods or services to making the final payment to suppliers.
Sourcing is the process of identifying, evaluating, and selecting suppliers or candidates to meet an organization’s needs for goods, services, or talent.
The process of collecting, cleansing, categorizing, and analyzing an organization’s spending data with the goal of improving procurement efficiency, identifying cost savings, and enhancing supplier management.
Spend leakage refers to the loss of savings or value in procurement processes due to inefficiencies, non-compliance, or missed opportunities.
Spend management is the process of controlling and optimizing an organization’s expenses to maximize efficiency and profitability.
A spend taxonomy is a hierarchical framework that categorizes an organization’s expenditures into predefined, standardized groups.
A specification, often referred to as a "spec," is a comprehensive document that defines the technical and functional requirements for a product, material, or process in the supply chain. It includes details such as:
A standard purchase order is a legally binding document issued by a buyer to a supplier, detailing the products or services the buyer intends to purchase. It serves as an official request for goods or services, specifying quantities, prices, delivery dates, and other terms of the transaction.
A Statement of Work (SOW) is a foundational document that defines the scope, objectives, and requirements of a project or service agreement between a buyer and a supplier.
Strategic sourcing is a structured, long-term process that organizations use to identify, evaluate, and partner with suppliers to meet their needs for goods and services.
Coordination and management of all activities involved in the production and delivery of goods or services, from raw material sourcing to the final customer. It focuses on optimizing the flow of products, information, and finances across the entire supply chain.
© 2025 Lasso Supply Chain Software LLC
