Purchasing Best Practices Definitions

PurchTips edition #22


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What Are They Talking About?

Many organizations are paying hundreds of thousands of dollars to consultants to implement purchasing best practices. These consultants impress executives with their knowledge of the purchasing profession and their use of terms such as "commodity teams," "process mapping," and "total cost of ownership." Many of these terms are simple names for principles that we apply daily. Here are a few terms and their definitions:

Benchmarking: The comparison of one organization's purchasing performance indicators or processes with those of other purchasing departments or external sources.

Buying Plan: A document prepared annually that summarizes the purchasing department's approach to acquiring each major group of products and services. The buying plan usually includes a forecast of demand, an estimate of spending, and the actions taken by the purchasing department to prudently manage the purchase of each group of products and services.

Commodity Team: A group of individuals representing various departments who are responsible for making key decisions relative to the purchase of a product or service.

Process Mapping: The act of creating a diagram that illustrates all tasks and decisions associated with a process.

Stakeholders: Individuals within an organization who have a vested interest in a specific product or service to be acquired.

Strategic Plan: A document that outlines a long-range approach to purchasing and is closely associated with organizational strategy.

Total Cost of Ownership: An estimate of all costs associated with the acquisition, use, and disposal of a product or service.

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Are You Getting The Most Out of Your NLPA Membership?

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