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Procurement savings refer to the cost reductions achieved through various procurement activities and strategies. These savings can be realized in different forms and through multiple approaches, Price Savings, Efficiency Improvements, Demand Management, TCO improvements, and Cash Flow improvements.

Regardless what lever is pulled to generate the savings one or more of these methodologies can be used to calculate the benefit.

Savings Methodology	Description	Category Example	Formula
Baseline Price	Cost savings on recurring spend items w/ known baseline prices	Ink, General Industrial	(Old Price – New Price) * Volume
Cost Plus (Mark-up)	Minimizing the mark-up above cost for a product of service	Electricity transmission cost, Temp Labor	(Old Markup % – New Markup %) * Current Spend / (1 + New Markup %)
List Less (Discount)	Maximizing the discount off of the published pricing	Software	(New Discount % – Old Discount %) * Current Spend / (1 – New Discount %)
Extrapolated	Savings estimated based on the savings from a representative sample of items	Office Supplies, MRO	Current Spend * (MB Savings % / (1 – MB Savings %))
Substitution	Savings generated by identification of alternate products	Demand Management, Specification Change	(Old Price * Old Volume) – (New Price * New Volume)

A procurement savings baseline is a reference point used to measure cost savings achieved through procurement activities. It is typically established based on historical spending data, market benchmarks, or projected costs without any current procurement interventions. By comparing the costs after procurement intervention to the baseline, organizations can quantify the savings achieved through various procurement initiatives, such as supplier negotiations, bulk purchasing, process improvements, or strategic sourcing.

The by defining the baseline before the sourcing event starts, procurement, finance and the business can all agree on how the success of the event is going to measured.

Methodology	Description	Common Finance Objection	Category Example
Historical Price	Uses historical pricing to identify last price paid of weighted average baseline	Not visible in budget for many categories because of environmental, buyer behavior  or corporate policies	Direct Materials, Corrugated Containers, Janitorial Services
Mark-up/Discount	The negotiated portion of spend is a multiplier of cost.	There is no control of the price of the underlying good or service	Temporary Labor
Market Basket	A representative sample of SKUs by spend, locations and volume	Only a small number of items have a known price and other items could offset savings.	Office Supplies, General Industrial
Index Adjusted	A government or industry index is used to define the market conditions over time.	Changes in the market can create procurement savings or pressures that aren’t visible in the spending.	Metals, Petroleum Products, Energy
Average of Top “X”	Average of top “X” bids.	Initial bids are poor substitutes for market prices. Final offer sets the market price.	Any new product or service
Sole Source	Using a non-final bid as a baseline with no other valid bids.	The baseline can be gamed by a high opening bid.	Any
Budget	Using previously defined budget	Finance rarely has an objection.	Capital, Any previously budgeted spend.

Procurement terms are not difficult, but sometimes words have slightly different meanings than they do in other parts of the organizations. This page is here to help you understand the nuances of procurement speak.

A

Agreement Term noun
The period of time an agreement in effect.

Alternate Item noun
An item that is sufficiently comparable in form, fit, and function as to interchangeable with another item. Differences in quality or user preferences need to reviewed to verify it is fit for use.

Award noun
A formal notification to a supplier that they have been chosen to be a preferred supplier or for a specific statement of work, that usually precedes the final contract negotiations and execution.

B

Baseline Cost noun
The cost of goods or services prior to start of a sourcing, continuous improvement or cost reduction project. The cost the project results are compared against.

Buyer noun
An individual who specializes in the acquisition of goods, services, or raw materials required by the organization to operate efficiently and effectively.

Buying verb
A discount is a reduction in the original price or cost of a product or service. It is typically offered by a seller or provider as an incentive to encourage customers to make a purchase.

Buying Desk noun
A specialized department or team within an organization responsible for managing and facilitating the procurement of goods and services. Its primary purpose is to streamline and centralize the buying process, ensuring that the organization’s needs are met efficiently and cost-effectively.

C

Catalog verb
An organized listing or database of products and services available for purchase from a specific supplier or vendor. It serves as a reference tool for individuals or organizations looking to procure goods or services.

Category noun
A way to classify and group similar products, services, or commodities that an organization procures. Categorizing procurement helps streamline the procurement process, improve supplier management, and enhance cost control.

Change Orde noun
A formal written document that is used in various industries, such as construction, engineering, manufacturing, and project management, to request, approve, and document changes to an existing contract, project, or scope of work. Change orders are typically used when adjustments are needed due to unforeseen circumstances, alterations in project specifications, or changes in client requirements.

Code Of Federal Regulation (CFR) noun
A collection of regulations that are published annually by the federal government of the United States. It serves as the official and comprehensive compilation of all the regulations issued by federal agencies and departments. The CFR is organized into 50 titles, each covering a specific area of federal regulations. These titles are further subdivided into chapters, parts, and sections, providing a detailed breakdown of the rules and regulations that govern various aspects of government operations and activities.

Compliant Spend noun
The portion of an organization’s expenditures or spending that adheres to established policies, regulations, and procurement guidelines, including preferred vendors.
See Preferred Spend

Confidential Disclosure Agreement (CDA) noun
See Non-disclosure Agreement (NDA)

Contingent Labor noun
See Temporary Labor

Contract Labor noun
See Temporary Labor

Contractor noun
An individual or organization that enters into a contractual agreement with another party to provide goods, services, or perform work according to specific terms and conditions. Contractors are typically hire to complete projects, tasks, or assignments that require specialized skills, expertise, or resources.
see Subcontractor

Cost noun
The total amount of money required to acquire a good or service including the price, switching costs, training, logistics, processing, management, etc.
See Price, Total Cost Of Ownership

Cost Plus noun
A pricing model that is defined by increasing the price of goods or services that are obtained from a 3rd party and passed through to cover a suppliers variable cost of acquiring the product or service and profit.

D

Defense Federal Acquisition Regulation Supplement (DFARS) noun
The DFARS is used in conjunction with the Federal Acquisition Regulation (FAR) and adds additional procurement rules, requirements, and clauses that are unique to DoD contracts and acquisitions. It provides detailed guidance and procedures for the acquisition and contracting processes within the DoD.

Delegation Of Authority (DOA) verb
Involves transferring decision-making authority and responsibility from a higher-level individual or manager to a lower-level individual or subordinate within an organization. The primary purpose of delegation is to empower employees, distribute workloads, and enable more efficient and effective decision-making throughout the organization while maintaining accountability. Often this includes the authority to commit the company to financial obligations up to a specific threshold.

Demand Management verb
A set of practices and strategies used by organizations to plan, monitor, and respond to demand for products or services. The primary goal of demand management is to ensure that an organization can meet customer demand while optimizing resources, minimizing costs, and maintaining efficient operations. It is an essential component of supply chain management and overall business planning.

Direct noun
The expenditures incurred by an organization for goods, materials, components, or services that are directly related to and necessary for its core business activities or the production of its primary products or services.
See Indirect

Discount noun
A reduction in the original price or cost of a product or service. It is offered to customers as an incentive to encourage purchases, attract business, or reward customer behavior, like early payments.

Discount Terms noun
The specific conditions and terms under which discounts or price reductions are applied to the purchase of goods or services. These terms are commonly used in business-to-business (B2B) transactions and are negotiated between a buyer and a seller as part of their contractual agreement. Discount terms help determine when and how discounts will be applied, based on factors like payment timing or order quantity.

E

Escalation Clause noun
A provision typically found in contracts, especially those related to long-term agreements or leases. This clause allows for the adjustment of certain terms, such as prices or payments, under specific circumstances. The purpose of an escalator clause is to account for changes in external factors that may affect the contract’s performance or financial terms over time.

Evergreen noun
A type of contractual agreement that renews itself automatically for a specified term or period unless one of the parties takes action to terminate it. These contracts are commonly used in various industries and are often associated with subscription services, leasing agreements, and other ongoing arrangements.

F

Federal Acquisition Regulation (FAR) noun
A comprehensive set of rules and guidelines used by federal agencies in the United States to govern the acquisition and procurement process for goods and services. The FAR is designed to ensure that federal agencies follow uniform and consistent procedures when acquiring goods and services, and it helps promote fairness, transparency, and competition in the federal contracting process.

Fixed Cost noun
Costs that do not change with changes in volume of goods or services produced and are incurred regardless even if production or sales activity is halted.

G

Goods noun
Physical, tangible products that you can touch, see, and handle. They are typically manufactured, produced, or extracted from raw materials and can be transferred from the seller to the buyer, and ownership is easily transferred through a sale or exchange.

I

Index Adjusted Savings noun
A method of calculating savings that holds constant factors outside of procurements control like exchange rates or the cost of raw materials.

Indirect noun
The expenditures an organization incurs for goods and services that are not directly tied to its primary business activities or core operations.
See Direct

L

Letter Of Intent (LOI) noun|
A a written document that outlines the intentions of one party to engage in a particular action or transaction with another party. While an LOI is not typically a legally binding contract, it serves as a preliminary agreement or statement of intent that expresses the parties’ willingness to proceed with negotiations or formalize a future contract or agreement.

List Less noun
A pricing model that is defined by reducing the published price of goods or services based on a negotiated amount as a discount due to volume or other consideration.

M

Manufacturer noun
The company that produced the item being discussed

Market Basket Savings noun
A method of calculating savings based on a statistical sampling of a subset of goods. This method of calculation is good when there is a huge number of line items and asking a vendor to price them all would be cost prohibitive or when the annual variation in items is so large that repeat purchases would not accurately reflect the expected cost.

Mutual Non-Disclosure Agreement (MNDA) noun
A legal contract used to establish confidentiality and protect sensitive information that either party shares with another. MNDAs are commonly used in business, research, and other contexts where sensitive information needs to be shared between 2 or more parties while ensuring that the information remains confidential and is not disclosed to third parties without proper authorization.
See Non-Disclosure Agreement

N

Negotiation noun
A process between two or more parties with the goal of reaching a mutually acceptable agreement or resolution to a dispute, issue, or decision.

Non-Compliant Spend noun
Antonym of Compliant Spend
See Compliant Spend

Non-Disclosure Agreement (NDA) noun
A legal contract used to establish confidentiality and protect sensitive information that one party shares with another. CDAs are commonly used in business, research, and other contexts where sensitive information needs to be shared while ensuring that the information remains confidential and is not disclosed to third parties without proper authorization.
see Mutual Non-Disclosure Agreement

Notification Period noun
The number of day before a contract renewal the buyer is required no notify the vendor that they will not be renewing an agreement.

P

PART 11 noun
see 21 CFR Part 11

Part Number noun
A unique alphanumeric identifier or code assigned to a specific component, part, or item for organizational, inventory management, and identification purposes. In procurement 2 items with the same Manufacturer and Manufacturer’s part number are identical.

Payment Terms noun
The conditions and deadlines agreed upon between a buyer and a seller regarding when and how payment for goods or services will be made. They are usually defined by the frequency and timing of invoices and the number of days they payment is due after receipt of the invoice.

Personal Services Contract noun
A contract that, by its express terms or as administered, makes the contractor personnel appear to be, in effect, an employee

Power Of Attorney verb
The authority given one person or corporation to act for and obligate another, as specified in the instrument creating the power

Preferred Spend noun
The portion of an organization’s expenditures that align with its preferred suppliers, vendors, or contracted partners. It reflects the amount of money spent on goods, services, or materials from suppliers that have been officially designated as preferred or approved by the organization. Preferred suppliers are typically chosen based on factors such as quality, reliability, pricing, and the ability to meet specific contractual or performance requirements.
See Compliant Spend

Preferred Supplier noun
A supplier, vendor, or business partner that an organization has formally identified, selected, and designated as its preferred source for specific goods, services, or materials.

Price noun
The amount or amounts to be paid for goods or services.
See Cost, Total Cost Of Ownership

Procure verb
To obtain, acquire, or secure something, typically through deliberate effort or a formal process. The term is often associated with the acquisition of goods, services, or resources, especially in a business or government context.

Procurement noun
Procurement involves the identification of needs, the selection of suppliers or sources, negotiations, and the final acquisition of the desired items or services. It can encompass various activities, such as purchasing, sourcing, contracting, and supply chain management, depending on the context. The goal of procurement is to obtain the necessary items or services efficiently, cost-effectively, and in accordance with established procedures and requirements.

Purchase Order (PO) noun
A legally binding document issued by a buyer or purchasing department to a seller or supplier. It outlines the specific details of a proposed transaction, including the types and quantities of goods or services to be purchased, the agreed-upon prices, delivery terms, payment terms, and other relevant terms and conditions.

Q

Qualification verb
Relates to assessing whether someone or something meets the necessary requirements or standards for a specific purpose.

Quotation Or Quote noun
A formal statement or written document provided by a seller or service provider to a potential buyer or client. It outlines the specific terms, conditions, and costs associated with a proposed product or service. Quotations are commonly used in business and commercial transactions to provide pricing information and details about the goods or services being offered.

R

RACI Model noun
Sometimes referred to as the RACI matrix, is a project management and organizational tool used to clarify and define roles and responsibilities for tasks or activities within a project, process, or workflow. RACI stands for Responsible, Accountable, Consulted, and Informed, and it is used to establish a clear understanding of who is involved in a particular task or decision and to what extent.

Receive verb
The process of formally acknowledging that you have received the item in the condition described in the purchase agreement, and it is often an important step in the procurement or supply chain process.

Request For Information (RFI) noun
A formal document or solicitation used by organizations to gather information from potential suppliers, vendors, or service providers. RFIs are commonly employed in the procurement or purchasing process as a preliminary step before issuing a formal Request for Proposal (RFP) or Request for Quotation (RFQ). The primary purpose of an RFI is to collect relevant information about potential suppliers, their capabilities, and their offerings in order to make informed decisions about future procurement actions.

Request For Proposal (RFP) noun
A formal document or solicitation used by organizations to invite suppliers, vendors, or service providers to submit detailed proposals for the provision of specific products or services. RFPs are commonly employed in procurement and purchasing processes when the organization requires a more comprehensive and detailed response from potential suppliers or providers.

Request For Quotation (RFQ) noun
A formal document or solicitation used by organizations to invite suppliers or vendors to submit price quotations or bids for specific products or services. RFQs are commonly used in procurement and purchasing processes, especially when an organization has a clear idea of its requirements and seeks competitive pricing from multiple suppliers before making a purchase decision.

Requirements noun
The specific criteria, conditions, or specifications that need to be met or satisfied in order to achieve a particular goal, complete a project, or fulfill a task. Requirements are essential in various contexts, such as business, technology, engineering, and project management, as they provide a clear framework for what needs to be accomplished

Requisition noun
A formal request or written order made by an individual, department, or organization to obtain specific goods, services, or resources. It is a fundamental part of the procurement and purchasing process, serving as the initial step in acquiring items needed for various purposes, such as fulfilling operational needs, projects, or inventory replenishment.

Rogue Spend noun
See Non-Compliant Spend

S

Sarbanes-Oxley Act noun
The Sarbanes-Oxley Act, otherwise known as SOX, is a United States federal law designed to further protect shareholders and the public from general accounting fraud in public and private companies by improving the accuracy of corporate disclosures.

Savings noun
A calculation of the change in monetary value due intentional intervention when compared to the historical baseline or external market changes.

Savings Type noun
A classification of savings based on either the methodology used to calculate it or the how the savings are viewed with respect to the budget.

Scrap noun
personal property that has no value except its basic metallic, mineral, or organic content

Self-Insurance noun
The assumption or retention of the risk of loss by the contractor, whether voluntarily or involuntarily. Self-insurance includes the deductible portion of purchased insurance.

Service Level Agreements (SLA) noun
A legally binding contract or agreement between a service provider and a customer that outlines the level of service the customer can expect to receive. SLAs are commonly used in various industries, especially in the context of IT services, telecommunications, outsourcing, and customer support. The primary purpose of an SLA is to define the terms, conditions, and quality standards that both parties agree to abide by.

Services noun
Services are often produced and consumed simultaneously, and the provider and the customer may interact directly during the service delivery and are often consumed at the time of delivery or shortly thereafter. Evaluating the quality of services can be more subjective and may depend on customer experiences, interactions, and outcomes.

Shall adjective
Denotes an imperative.
See Should

Shipment noun
Freight transported or to be transported.

Should adjective
An expected course of action or policy that is to be followed unless inappropriate for a particular circumstance
See Shall

Should Cost Model noun
A method for evaluating the expected or “should” cost of a product, component, or service based on a detailed analysis of its components, materials, production processes, and other cost factors. The goal of a Should Cost Model is to provide a realistic estimate of what a product or service should cost to manufacture or deliver under ideal conditions, without taking into account external market factors like supply and demand.

Signature Or “Signed” noun
A person’s electronic or handwritten representation of their name, typically used as a means of authentication, approval, or endorsement on a document, contract, or record.

Sole Source verb
Contracting for the purchase of supplies or services that is entered into or proposed to be entered into after soliciting and negotiating with only one source.

Sole Source Justification noun
A sole source justification is a document or statement provided by a government agency, organization, or business to explain why a particular procurement or contract should be awarded to a specific supplier or vendor without a competitive bidding process.

Source verb
To find, acquire, or obtain something, often with the implication of identifying its origin or locating where it comes from. It involves the process of researching, searching, or procuring something, especially for a specific purpose or need. When you source something, you may be looking for information, products, materials, services, or personnel, among other things.

Specifications noun
Sometimes referred to as “specs,” are detailed and precise descriptions or requirements that define the characteristics, features, and qualities of a product, service, or project. Specifications are essential in various fields, including manufacturing, construction, engineering, technology, and procurement. They serve as a clear and standardized set of guidelines that help ensure that the end result meets the desired standards and expectations.

Spend noun
Refers to the amount of money that an individual, organization, or entity disburses or expends on various expenses, purchases, investments, or activities over a specific period of time. It is a financial term used to track and manage financial transactions and resources.

Spend Assessment noun
A comprehensive analysis and evaluation of an organization’s expenditures or spending patterns across various categories, departments, or projects. The primary goal of a spend assessment is to gain a detailed understanding of how and where the organization is allocating its financial resources. This analysis helps in identifying cost-saving opportunities, optimizing procurement practices, and making informed decisions about resource allocation.

Statement Of Work (SOW) noun
A formal document that outlines the specific details, objectives, scope, deliverables, and requirements of a project, task, or contract. It serves as a foundational document in project management and procurement, providing a clear and comprehensive description of what needs to be accomplished and how it should be accomplished.

Strategic Sourcing verb
A structured and systematic approach used by organizations to efficiently and effectively procure goods, services, and materials while aligning with their strategic goals and objectives.

Subcontractor noun
A company, individual, or entity that is hired by a primary contractor to perform a specific portion of a larger project or job. Subcontractors are typically specialists in their respective fields and are brought in to handle specialized tasks or components of a project that the primary contractor may not have the expertise or capacity to complete in-house.
See Contractor

Supplier noun
A person, company, or entity that supplies goods, products, or services to another organization or individual.

T

Temporary Labor noun
The employment of individuals on a short-term or temporary basis, typically through an company or agency, to fulfill specific roles or complete specific tasks within an organization. These workers are typically not considered permanent employees and are not entitled to the benefits of company employees.
See Contingent Labor, Contract Labor

Termination For Cause verb
The right to completely or partially terminate a contract because of the contractor’s actual or anticipated failure to perform its contractual obligations.

Termination For Convenience verb
A contractual clause or provision found in many contracts and agreements, that allows one party to the contract to terminate the contract without having to establish or prove any wrongdoing or breach of contract by the other party.

Total Cost Of Ownership (TCO) noun
The total amount of money required to acquire a good or service including the price, switching costs, training, logistics, processing, management, etc… plus the ongoing maintenance and disposal costs
See Price, Cost

U

Unallowable Cost noun
Any cost that, under the provisions of any pertinent law, regulation, or contract, cannot be included in prices, cost-reimbursements, or settlements under a contract to which it is allocable.

V

Variable Cost noun
Costs are directly tied to the volume of goods or services produced and are not incurred if production or sales activity is halted.

Vendor noun
See Supplier

W

Warranty noun
A promise or affirmation given by a contractor or manufacturer regarding the nature, usefulness, or condition of the supplies or performance of services furnished under the contract.

0-9

21 CFR Part 11 noun
A federal regulation that details the criteria under which electronic records and signatures are considered to be trustworthy and equivalent to paper records.