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1. Re-buy It is not necessary to specify a new

specification or to source the mar-
ket. Call-off or framework agree-
ment. A preferred supplier is in
place

2. Modified Buy Review of existing contract require-

ments and making any necessary
amendments such as to build addi-
tional benefits, streamline the busi-
ness or to establish new KPIs/SLAs.
Where some of the specification or
requirements have changed.

3. New Buy A new purchase outlines require-

ments that have not been spec-
ified before. There is a higher
risk involved in procuring a new
purchase, demand/supplier/market
analysis should be conducted, and
new specific KPIs should be includ-
ed in the specification.

4. Business Needs The mission of the organisation

determines its requirements and
therefore what procurement needs
to source.

5. R - regulatory (any legal require- A model that can be used to identify

ments) business needs.
A - availability (supply of goods/ser-
vices when required, risk, financial
and capacity)
Q - quality (consistency, repeatability,
and fit for purpose)
S - service requirements (flexibility,
support, availability)
C - cost (target costs, total cost
of ownership, continuous improve-
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ment)
I - innovation (improving customer
experience)

6. Kraljic Matrix A matrix that allows procurement to

prioritise spend in line with business
needs.

7. Leverage - Kraljic Matrix Business needs met by using pur-

chasing department buying power
to gain the best price and terms e.g.
competitive tendering.

8. Example of Leverage item (Kraljic Ma- Company cars or mobile phones.

trix)

9. Strategic - Kraljic Matrix Business needs met by develop-

ing long term relationships such as
partnerships to ensure security of
supply.

10. Example of Strategic item (Kraljic Ma- Capital assets such as premises
trix)

11. Routine - Kraljic Matrix Business needs met by trying to buy

these more efficiently through blan-
ket ordering, e-procurement and
vendor managed inventory leader-
ship in procurement and supply.

12. Example of Routine item (Kraljic Ma- Stationary

trix)

13. Bottleneck - Kraljic Matrix Business needs met by develop-

ing appropriate contracts (such as
call off contracts, framework agree-
ments) in which the buyer can en-
sure that stock levels and main-
tained and speed of re-ordering.

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14. Example of Bottleneck item (Kraljic Spare parts or oil for machines
Matrix)

15. Cost and risk - Kraljic Matric Low cost / high risk - Bottleneck
High cost / high risk - Strategic
High cost / low risk - Leverage
Low cost / low risk - Routine

16. Total cost of ownership Is how much it costs to own the

product over its lifetime until dispos-
al.

17. Whole life costing Is a technique used to arrive at the

total cost of ownership

18. Planning, preparation and implemen- Three stages of WLC

tation

19. WLC - planning Determines the budget for the as-

set being purchased, helps improve
the specification to reduce cost, and
simulation or decision support mod-
els can be used to assist.

20. WLC - preparation Testing the various models for cal-

culating WLC and is necessary to
choose the best model.

21. WLC - implementation Implements the model to get the

results. A review and intervals for
regular recalculation.

22. Acquisition, operation and disposal There is a vital difference between

purchase price and total cost of
ownership. This includes 3 cate-
gories.

23. Cost based pricing Allows the supplier to cover its costs
and make a profit.

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24. Limits to cost based pricing
Ignores competition and other influ-
ences on pricing and are quite in-
flexible. They also don't give a sup-
plier an incentive to reduce or man-
age costs.

25. Cost behaviour The way in which costs of outputs

are affected by fluctuations in the
level of activity.

26. Open book costing The supplier provides the buyer

with information about their costs to
be scrutinised e.g. reassures there
is VFM, facilitates cost based pric-
ing.

27. Costing methods Marginal, absorption, activity based

28. Marginal costing method Is widely used by managers and

is useful in the distinction between
variable costs and fixed costs. Vari-
able costs are always the relevant
costs in terms of decision making.

29. Absorption costing method The challenge is to attribute a 'fair'

amount of fixed costs to each unit
of production output. Traditionally
this has been done by determining
the amount of some measurable re-
source consumed in a production
period and the overheads of that
resource.

30. Activity based costing method This is based on the identification of

cost drivers and cost pools. There
is a difference between purchase
price and total cost of ownership.
Best value = the lowest whole life
cost.

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31. Profit The difference between the selling
price of a product and the cost of
producing the product.

32. Cash flow forecast Is designed to identify the sources

and amounts of cash inflows, and
the destinations and amount of
cash outflows, over a given bud-
getary period.

33. Cash flow projection Designed to project the future cash

position of the firm or project.

34. Cash flow management Ensuring that we time incoming and

outgoing cash flows.

35. Business case Is the justification for undertaking

an action and its purpose is to seek
approval and finance for the recom-
mended action.

36. Companies will use a substitute prod-
uct/service if the economics of doing
so are favourable. This depends on 3
things:
The relationship between the val-
ue the org gets from the product
and it's price, how costly the change
would be, and the inclination of the
buyer to make a change.

37. Line of best fit The line that goes approx. through
the middle of the data points with an
equal number of data points above
and below it.

38. Open-ended problems When something is stopping the

achievement of an objective or
blocking progress e.g. agreement
from senior management is re-
quired before progressing.

39. Closed problems These appear when something

happens that should not have hap-
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pened e.g. price of raw materials
suddenly increase.

40. Primary market data Is collected for a specific purpose,

direct from relevant sources e.g.
customers. This data is tailor made
and is considered direct and a re-
liable source. However it is timely,
costly and possibly considered bi-
ased.

41. Requests for information If further detail/analysis is required

to establish a full list of require-
ments. This can be requested from
suppliers.

42. Secondary data Data that has already been gath-

ered and assembled for other pur-
poses e.g trade publications. This
data is readily available and is cer-
tified as a recognised source. This
is also considered 'desk research'.
Further examples, markets reports,
official statistics, internet.

43. Direct costs Costs directly associated with the

production of a service or good.

44. Indirect costs General running costs that cannot

easily be attributed to specific prod-
ucts (also known as overheads).
Expenditure on labour, materials
and other items.

45. Fixed costs Costs that do not vary irrespec-

tive of the volume of activity in a
business e.g. salaries of permanent
staff.

46. Variable costs

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A cost that varies with the level of
output of an organisation.

47. Semi-variable costs A cost made up of both fixed and

variable costs.

48. Budgets Budgets plan quantified in mone-

tary terms and are important for
time phased income and expendi-
ture management, to understand in-
coming and outgoing cash flow over
a specified period.

49. Fixed budget These are budgets that's are fixed

and have to be operated within.

50. Flexible budget These are budgets which move with

business needs and change in line
as the volume output changes.

51. Variance to budget reasons Costs of materials changing

Fluctuation in exchange rates
Increase or decline in sales versus
forecast
Economies of scale

52. Break-even analysis Calculates the point in a business

where revenue equals total costs.
There is a point where the sales line
and total cost line cross over. Un-
derstanding this point can be useful
in negotiations.

53. Purchase cost analysis (PCA)
A tool used to analyse the costs
of things bought so that strate-
gies can be developed for reduc-
ing costs and at the same time
improve supplier relationships. The
analysis of the cost of individual ma-

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terials, components and activities
that make up a purchases item.

54. Benchmarking A strategic analysis process of con-

tinuously measuring an organisa-
tions products, services and prac-
tices against a recognised leader in
the studied area.

55. A result of benchmarking Enables pegs to learn from success

and failures of other business and
allow you to build competitive ad-
vantage and understanding of the
bigger picture with their business or
industry.

56. Benchmarking process Planning, analysis, integration, ac-

tion, maturity.

57. Financial budget Is a plan for a defined period, usual-

ly 12 months, showing revenues or
costs, or both.

58. Zero based budget Where managers must bid a budget

from 0 and assume they have no
resources.

59. Incremental budget Based on a previous budget with a

% increment applied dependant on
internal and external factors.

60. Cost entries Revenue, direct costs, overheads,

depreciation, bank loans, invest-
ments, dividends.

61. Cash flow cycle Receive raw materials/components

> manufacture products > store in
inventory > pay suppliers > sell
products > receive funds from cus-
tomers.
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62. Budget control Involves comparison of actual ex-

penditures against the cost budget.

63. Variances to budget The difference between actual fig-

ures and budgeted figures should
be investigated.

64. Price variance May have occurred due to purchas-

ing more / less due to demand.

65. Quantity variance May be due to stock shortages, lead

times, change in specification or
product obsolescence.

66. Labour variance Could be more or less time than

expected on a project due to diffi-
culties.

67. Manufacturing Market utilised by procurement and

supply

68. Construction Market utilised by procurement and

supply

69. Retail Market utilised by procurement and

supply

70. Financial Market utilised by procurement and

supply

71. Agricultural Market utilised by procurement and

supply

72. Services Market utilised by procurement and

supply

73. Technology Market utilised by procurement and

supply

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74. Potential new entrants To an industry that may make
it more competitive by: expanding
supply, striving to penetrate the
Mark and build market share...etc

75. Barriers to entry Economies of scale, high capi-

tal investment requirement, prod-
uct differentiation and brand identi-
ty, switching costs and existing play-
ers control over supply distribution
channels.

76. Potential substitute products Alternative products that serve the

same purpose, making it easy for
buyers to switch to alternative sup-
pliers, and therefore limiting the
price that suppliers can charge for
products. Demand for a product is
likely to be relatively price sensitive.

77. Buyer and supplier power May make an industry or supply

market more competitive by en-
abling buyers to force down prices,
bargain for higher quality or im-
proved services or play competing
providers against each other.

78. Supplier power In a given industry or supply market

is generally excised to raise prices,
squeezing buyers profits (especial-
ly if they are unable to recover their
cost increases by raising their own
prices).

79. Competitive rivalry Among current competitors may

range from collusion between com-
petitions (in order to maintain and
share the profits available in the
industry) to the other extreme of
aggressive competitive strategies
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such as innovation, price wars
and promotional battles, where one
firms gain is another firms loss.

80. Barriers to exit Factors which make it difficult for an

existing supplier to leave the indus-
try if it proves unattractive or unprof-
itable.

81. Availability of substitutes and threat The availability of substitutes and

of entry threat of new entrants means the
market is shared with more rivals,
reducing the amount of profit for an
organisation.

82. Sources of information to breakdown Company annuals reports, market

costs between direct/indirect data, RFI, plant visits, discounts list.

83. Company annual reports Means of communicating the per-

formance of the company in the pre-
vious accounting period to share-
holders and other stakeholders.
Can still be used to deduce some
potential info for further analysis
or comparison. Contains values for
last years sales and profits.

84. Market data These reports contain both prima-

ry research and financial analysis
which can be used to analyse a sup-
ply market for procurement.

85. Requests for information/technical This is used to build useful info for
data procurement such as a suppliers
likely direct and indirect costs. A
standard process that is often used
to collect info when an org is not
yet sure of the details of the prod-
uct/service.

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86. Plant visits Viewing facilities can give an org an
insight into how well the company is
doing, how old the equipment is and
the work practices.

87. Discount lists Sometimes companies are pre-

pared to give discounts once their
break-even point is reached in order
to win market share. The extent to
which a company offers discounts
and the size of the discounts for dif-
ferent additional order volumes can
give and insight into its fixed and
variable costs and also direct/indi-
rect costs.

88. The role of a specification Defines the requirements and pro-

vides a means of evaluating the
quality or performance.

89. Conformance specification Tells the suppliers exactly what you

want by providing a technical spec-
ification. This type of specification
focuses on inputs. Is the ability of
a product or service to meet its de-
sign spec.

90. Definitions, samples, drawings, mod- A technical specification (confor-

els and the purpose. mance) typically includes.

91. Performance specification Tells the suppliers what you want a

product/service to do and achieve.
This type of specification concen-
trated on outputs (the end results).

92. Advantages of a conformance spec Supports fair competition, offers a

precise standard, minimises risk,
and conveys a lot of technical pre-
cise detailed information.

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93. Disadvantages of a conformance Costly and time consuming, re-
spec stricts supplier base, buyer bears
the risk if the design doesn't per-
form to expectations, and restricts
innovation.

94. Drawings Are a visual form of the technical

specification. Scale used, symbols
for common items, reference sym-
bols, abbreviations and tolerances.

95. Brand name specification Where a specific brand name is re-

quested by the customer. The cus-
tomer knows there are other alter-
natives available but wants a specif-
ic brand.

96. Advantages of a brand name spec Quick and easy to administer, qual-
ity, easy to source, perhaps essen-
tial if a particular product is patent-
ed.

97. Disadvantages of a brand name spec Restricted choice of brands, might

be fake, restricts new innovation
and costs more.

98. Sample specifications Where the buyer already has a

sample/prototype of what they re-
quire and asks the supplier to dupli-
cate its features and performance.
Buyers can simply specify the mod-
el to be duplicated.

99. Advantages of sample spec Buyer is entitled by law sale of

goods act 1979) to receive goods
that correspond with the original
sample. Some samples can be
used/tested to test suitably prior to
purchase. Quick and easy to speci-
fy.
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100. Disadvantages of sample spec May be difficult to measure the

product supplied against the sam-
ple. Lengthy testing may be nec-
essary to check strength, flexibility
etc.

101. Spec by market grade These are where a material, such

as gold or steel are subject to a
grading system. Purity, strength or
flexibility is standardised. Would or-
der to grade required.

102. Advantage/disadvantage of spec by A simple way of ordering and has

market grade a wide acceptance within an indus-
try, however, it doesn't necessari-
ly specify the full range of require-
ments.

103. Conformance specification The supplier may not know what

the product is going to be used for
but will be legally protected if they
have confirmed to the specification,
regardless if it's useable.

104. Situations where using a confor- For matters of national security, in

mance spec is appropriate a situation where quality is key and
where the part is a component of a
larger product.

105. Performance specification Usually a brief statement. It mainly

tells the supplier what the desired
output is, what they want it to be
able to do.

106. Advantages to a performance specifi- Easier and cheaper to produce,

cation suppliers can use their full exper-
tise, risk with supplier, widens the
supplier base.

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107. Disadvantages to a performance May be over specified adding un-
specification necessary costs, risk over confiden-
tial info, product will be designed
around what the supplier can do,
perhaps not the best option for the
buyer.

108. Specify services A service can be defined as any

activity or benefit that one party can
give to another.

109. Standards Are documents that stipulate or rec-

ommend minimum levels of perfor-
mance and quality of goods/ser-
vices.

110. Different standards Corporate, trade or industry, nation-

al (BSI), international (ISO).

111. The internet A good starting point to find infor-

mation about a specification.

112. Information from suppliers This point of view can be valuable,

particularly on a complex prod-
uct. Early involvement has the fol-
lowing benefits: process improve-
ments; supply chain improvements;
reduced supply risk.

113. Drafting specifications Must be clear and unambiguous,

concise, comprehensive, compli-
ant, current, value analysed and de-
sign / engineering functions.

114. Dialogue with suppliers Outlines any cost / budget con-

straints, take into account suppli-
er process, and ensure compliance
with company policies.

115.
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Information from directories when Can be a source of information.
creating specs There are also specialist online
sources of information for recog-
nised classifications, such as con-
struction.

116. Acceptance testing Is a process for determining

whether a product meets its spec-
ification before it is released to the
customer.

117. 5 main types of acceptance testing Alpha and beta, contract accep-
tance, regulation acceptance, oper-
ational acceptance and black box
testing.

118. Alpha testing Takes place during the develop-

ment phase and generally only in-
volves contractor employees.

119. Beta testing Takes place on the customers

premises and involve the customers
staff using the product in a real-life
environment.

120. Contract acceptance testing The product is tested against crite-

ria and standards that were set out
in the specification.

121. Regulation acceptance testing Tests the product for compliance

with any regulations required by
law, such as H&S requirements.

122. Operational acceptance testing
Is the final testing and is done after
the previous user acceptance test-
ing such as alpha beta. This tests
that all operational functions of the
product are in working order.

123. Black box testing

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Most commonly used in testing soft-
ware. It focuses on inputs and out-
puts without consideration for the
internal workings of the product.

124. Target costs The expected cost of making a

product or delivering a service.

125. Continuous improvement The ongoing activities involved in

improving a process, product or
service.

126. Requisition An internal document raised by a

user or store to communicate to
procurement the need to buy the
product/service specified.

127. Purchase order A commercial document issued by

a buyer to a seller confirming the
goods or services required together
with the quantity and specification
needed.

128. Annual planning cycle A cycle of activities as a result

where each activity might need the
previous activity revised before the
final plan is accepted.

129. Terms and conditions The rules that must be adhered to

during a contract (also called terms
of service or terms of use).

130. Trigger events A set of circumstances that start an

activity.

131. Collaborative agreement A long-term agreement between a

buying organisation and a selling
organisation which sets out how
each party purposes to share infor-
mation, costs, risks and results by
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working together on a product/ser-
vice.

132. Cost-out approach The elimination of a cost in the man-

ufacture of a product or the delivery
of a service by means of removing
an item from the specification.

133. Cost-down approach The reduction of a cost in the man-

ufacture of a product or the delivery
of a service by means of changing
an item in the specification.

134. Type of checklist SCAMPER

135. Defining R&R - matrix Responsible, accountable, consult-

ed, informed (RACI)

136. Cross-functional collaboration A group of people with different

skills and specialisms coming to-
gether to achieve a common pur-
pose.

137. Asset value The value of everything an organi-

sation owns.

138. Return on investment (ROI) A measure of profitability that indi-

cates whether a gain or loss has
been generated compared with the
initial cost.

139. Value chain The set of activities that add value

to the items an organisation buys so
that the finished product can be sold
at a profit.

140. Break-even point The level of output of a business

at which revenue equals total cost.
Can be stated as the fixed cost di-
vided by the marginal profit.
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141. Cost estimating The process for arriving at the ap-

proximate cost of a product or ser-
vice.

142. Value analysis The systematic analysis and chal-

lenge of the component parts of a
product or service to ensure that the
cost is fair.

143. 'Should cost' analysis A technique used by procurement

for determining what a purchased
product or service should cost
based on the materials, compo-
nents cost processes and over-
heads of the supplier.

144. Total cost modelling A process using algorithms de-

signed to arrive at the provable cost
of a product or service.

145. Target cost analysis Analysis of market price, volume

and profit, from which a target pro-
duction cost is derived.

146. Purchase price cost analysis Helps to answer key questions that
ultimately determine the cost of
what an org buys.

147. A purchase price cost analysis on Benchmark the resulting price

its own is rarely sufficient. What else
should you do?

148. Function al requirements Describe what a product or service

should do

149. Non-functional requirements Describe how a product or service

should operate

150. Ergonomics
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The consideration of people's effi-
ciency in the work environment.

151. Out-come focused specification Type of performance spec that de-

scribes the functions or perfor-
mance that a product must fulfil.

152. Business requirements definition Sets out what the product or service
(BRD) needs to achieve if all stakeholders
are to be satisfied.

153. Output specification Defines specific deliverables that

can be measured in terms of time to
deliver, their quality and their cost.

154. Disadvantage of an outcome specifi- Can be difficult to measure, so out-

cation put specifications are often used in-
stead in the belief that these out-
puts will deliver the outcome need-
ed.

155. Statement of work (SoW) Detailed description of the specific

tasks or services a contractor must
perform under the terms of a con-
tract.

156. Through-life contracts Gives a contractor sole accountabil-

ity for the design, acquisition, oper-
ation, maintenance and disposal of
an asset.

157. Decommissioned Withdraw an item from active use or

service

158. Limitation of liability A limit placed on the financial oblig-

ations of a party within a contract.

159. Warranties A written guarantee that requires

a supplier to exchange or rectify a

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malfunction of a product or service
within a specified time.

160. Functional tests Form of testing whether the func-

tions of a product as set out in the
specification are achieving their ob-
jective.

161. Sponsor Person that assumes accountability

for a project.

162. Type of contract common when Through-life contracts

procuring an asset such as machin-
ery or IT equipment.

163. Social capital The network of relationships be-

tween people who work in a partic-
ular environment.

164. Four step process to managing risks Identify, assess, control and moni-
tor.

165. Three factors that determine the im- Impact if it was to occur, the likeli-
portance of a risk hood of the risk being detected be-
fore causing damage, and the like-
lihood of eliminating the risk.

166. Project initiation document (PID) Precede any specification writing

project and sets out the scope of the
project and it's the teams mandate
from senior management.

167. Opportunity costs The benefits an organisation miss-

es out in when one course of action
is chosen from a number of alterna-
tives.

168. Three levels of stanardisation Individual parts and components,

end products they are used in, and
the processes used to make them.
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169. Job shops Where a wide range of end prod-

ucts each calling for a different
range of materials, parts or compo-
nents. Often made to order.

170. A concept to implement standardisa- The lean concept

tion in a service company

171. Lean design concept Is about maximising the value that a

customer receives and at the same
time minimising waste in deliver-
ing that value. Creates more value
for customers with fewer resources,
achieved by standardising process-
es.

172. Standardisation of process Helps to regulate specifications

173. Product standardisation The org produces no variations and

if there are variants then the pro-
duction line has to stop when suffi-
cient numbers of one variant have
been produced to meet customer
needs.

174. Learning curve A graphical representation of how

unit costs reduce the greater the
number of those items produced.

175. Logarithmic scale A scale in which the distance of a

point from the scales zero is propor-
tional to the logarithm of the number
rather than to the number itself.

176. Pugh analysis A tool for facilitating a team-based

approach that converts customer
expectations into a number of po-
tential solutions and then evaluated
them to choose the best one.
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177. Functional analysis In this phase of value analysis, the

team identifies the key components
and determines their functions.

178. Primary functions The reasons for the product/service

being in existence.

179. Secondary functions The things the product can do in

addition to its primary functions.

180. 'Creative' Generally refers to an abundance of

ideas that are more than just super-
ficial changes.

181. Value engineering A review of an existing product/ser-

vice with the aim of reducing costs
and increasing value to the cus-
tomer. Used the same or similar
techniques, but is applied to new
products or services.

182. Hybrid strategies Strategies that combine the best

parts of two or more strategies.

183. Six sigma A management technique for identi-

fying and reducing variability in any
process.

184. Cost benefit analysis A technique for deciding whether to

follow a particular course of action
based on its financial impact.

185. Cash flow The net amount of cash received

and spent by an organisation in a
given period of time.

186. Accrual An adjustment made to a set of fi-

nancial accounts to reflect activity

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that has occurred but for which cash
has not yet been received or paid.

187. Mission statement A written statement of the purpose

of an org which does not change
over time.

188. Vision statement Sets out the rules by which the org
will conduct its affairs in order to
achieve its mission.

189. Cost leadership A strategy used by businesses in or-

der to gain a competitive advantage
by having the lowest cost of opera-
tion within their particular industry.

190. Premium price When a product is sold for a higher

price than its competitors.

191. Bargaining power The ability of a company or individ-

ual to influence another.

192. Consumer markets A marketplace involving individual

consumers rather than businesses
or companies.

193. Innovators People who like to be the first to try

new ideas, goods and services.

194. Middle majority A group of consumers who buy or

use a new product or technology
after seeing it used successfully by
innovators and early adopters.

195. Laggards The last group of consumers who

buy or use a new product or tech-
nology.

196. A useful tool for value engineering Kano model

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 CIPS L4M2
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197. Quality function deployment (QFD)
A way to collect and analyse all of
the data needed. A way of organis-
ing the data and relating the compo-
nents and functions of the product
or service to the customers require-
ments.

198. Monte Carlo model A mathematical technique that gen-

erates and uses random numbers
in the modelling of the risk.

199. Histograms A graphical display in which data is

grouped into ranges and then the
frequency of those ranges is shown
as a bar chart.

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