Economic Order Quantity - EOQ, Exempt Commodities, E-Business

 

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Detailed terminology list , in pdf form, will soon be available

 

 

 

Early Purchasing Involvement (EPI)
A practice involving supply management professionals in a new product development process from its inception

Early Supplier Involvement (ESI)
A practice that brings together one or more selected suppliers with a buyer's product design team early in the product development process

E-Business
A means of doing business that uses electronic technologies such as EDI, Internet, Web based supply chain integration to the benefit of an organisation. It's also known as E-commerce

Economic Indicators
Activities that change relative to the economy

Economic Order Quantity - EOQ
A deterministic model that minimizes total acquisition and inventory carrying cost. Popularly it is known as EOQ

Economies of Scale
The reduction in average unit costs experienced as an orgnisation's volume increases

Electronic Commerce
Utilization of technology of the computer , including such tools as EDI, the internet, intranets , Extranets to do commercial transaction

Electronic Data Interchange
Popularly known as EDI it's computer to computer exchange of business information in a standard format. Transaction documents are transmitted electronically from purchaser's computer to the seller's computer

Electronic Fund Transfer
The electronic transmission of funds from one party, usually the Purchaser to other party, usually the Supplier. The transfer is often done through internet using credit card

Electronic Requisitions
Purchase requisitions / Indents generated and transmitted by computer, replacing paper forms

eMarketplace
A place to conduct e-commerce where sellers and purchasers meet on the net. It is used for purchasing , auctioning etc.

Embargo
A government's total ban on trade with a specific country

Enterprise
A complete business organisation from front line employees to top management, all functions in between

ERP
Enterprise Resource Planning refers to a system that integrates various functions within an organisation. It may be used for forecasting, Materials Management etc. It's a computerised system now a days

Escalation Clause
A contract clause permitting a specified increase in the price of goods or services in the event of certain conditions. Such a clause also specific de-escalation

Established Market Price
A current price generated in the usual course of business between buyers and sellers free to bargain and which can be substantiated from an independent source

Exchange Barriers
The restrictions imposed on exchanging a country's currency against those of other countries

Exchange Rate
The price of a currency as it is being exchanged for another

Exempt Commodities
Commodities that are not subject to import duties or can be transported exempt of regulation

Expediting
Contacting a supplier or carrier with the goal of speeding up the delivery date of an inbound shipmen

Export license
A permit from a host country government, enabling organisations to take goods out of a country

Express Warranty
A specific assurance made by the seller concerning the performance , quality, or nature of the goods or services sold

External Customer
The ultimate marketplace purchaser / user of an organisation's outputs

 
 
 
 
E-RFx

RFx refers collectively to the procurement sourcing terms:

 

  • RFI (Request for Information)
  • RFP (Request for Proposal)
  • RFQ (Request for Quotation)
  • and RFT (Request for Tender)

For example, a job ad for a procurement role might say "the applicant must have RFx experience", which refers to all of the processes collectively.

E-RFx is the same except it refers to managing the complete RFx process via a web-based solution.

e-sourcing

E-sourcing is the procurement practice of finding new suppliers for products or services via Internet technology.

Economies of scale

Economies of scale is the idea that when a company increases in size, it can obtain higher cost savings in areas such as:

 

  • production (lower cost per unit)
  • purchasing (buying power via larger volume orders). 
     

The disadvantages that can arise through a company's expansion are simply called Dis-economies of scale.

EDI

Electronic Data Interchange (EDI) refers to the system protocols that companies use to communicate information between each other.

For instance, some companies are fully integrated to send/receive communications between each other's ERP systems (eg: SAP & Ellipse), for transactions such as Purchase Orders, Invoices, Order Acknowledgments, and Change Orders.

For example, a Purchasing Officer for a mining company creates a purchase order in the SAP system for three hydraulic pumps. The order then transmits through an online portal, where it is converted into a computer language that can be read by the supplier's Ellipse System.

The order then appears on the supplier's Ellipse system, where it is automatically accepted due to the part number and price being correct. An order acknowledgment is automatically transmitted back to the purchasing officer's SAP system, confirming the order has been accepted.

elasticity of demand procurement

What does the term Elasticity of Demand mean? This refers to the effect that a change in price of a product of service has on the demand for that product or service.
 

entire agreement clause

An Entire Agreement Clause can be placed in a contract to make it clear that all agreed terms between two parties are covered in the contract, and that there are no additional agreements (verbal or otherwise) outside of this contract.

epcm

You may have seen the term EPCM in job advertisements, eg: "Procurement Specialist required for Global EPCM company..." or "our EPCM client needs experienced Purchasing Officer..".

An EPCM is a company that is contracted to handle the Engineering, Procurement, and Construction Management of a project.

This differs from an EPC (Engineering, Procurement, and Construction) company, in that an EPC would have a contract solely with the project owner, whereas an EPCM would form multiple contracts with many suppliers in the course of their management of the project.

ERP systems

ERP stands for Enterprise Resource Planning, and refers to the procurement management software used in business to support its functions such as Procurement, Payroll, Manufacturing, Inventory, Importing, Sales etc.

Examples of popular ERP system vendors are SAP, PRONTO, JDE, ORACLE, MINCOM ELLIPSE, MOMENTUMPRO, MYOB etc.

The Procurement module of an ERP system, depending on its complexity, would generally cover Procurement functions from Requisition-to-Pay (R2P). Example: Work Orders, Purchase Requisitions, Purchase Orders, Receipting

Essential Purchasing Skills 1: ERP Are you competent with an ERP (Enterprise Resource Planning) system such as Pronto, Momentum Pro, SAP etc?  Every Purchasing role requires using one of these programs.

2: SPREADSHEETS Can you use spreadsheets (namely Excel)? They are vital in your Purchasing role, and you will notice this as an 'essential requirement' in most Purchasing job advertisements.  Most companies use spreadsheets for analysis and reporting.  Make sure you know your way around a spreadsheet. and that you understand more advanced functions such as Pivot Tables and V-Lookups.

3: CONTRACT LAW A general understanding of Contract Law is essential, because on a daily basis you are entering into contracts with Suppliers and Customers (whether you realize it or not) and its important to know the principles. 

ETA

What is the difference between ETD (Estimated Time of Delivery) and ETA (Estimated Time of Arrival)?  They both sound like they mean the same thing, but that's not the case.

If a supplier advises an ETD, this is the date the goods will leave that supplier's premises.

On the other hand, the ETA is the date the goods will arrive at the destination, or in the case of importing/exporting, it is the date it will arrive at the destination's port/airport.

It's important to distinguish between the two.

The following example shows the importance of distinguishing ETD and ETA.

A Purchasing Officer places an order for fibre-optic cable from a supplier in China. The supplier advises an ETD of December 2nd. The Purchasing Officer then advises the sales department that the ETD on the cable is 2nd December. The sales department advise the customer that the cable will be delivered to their store on the 2nd of December!!! On the 3rd of the December, the customer phones up the sales department asking where their cable is. The sales department ask the Purchasing Officer where the cable is and the Purchasing Officer explains that the goods have only just left China on seafreight on December 2nd, and therefore won't arrive (ETA) until January 5th.

As you can see, not understanding the difference between ETD and ETA can cause confusion.

ETD

What is the difference between ETD (Estimated Time of Delivery) and ETA (Estimated Time of Arrival)?  They both sound like they mean the same thing, but that's not the case.

If a supplier advises an ETD, this is the date the goods will leave that supplier's premises.

On the other hand, the ETA is the date the goods will arrive at the destination, or in the case of importing/exporting, it is the date it will arrive at the destination's port/airport.

It's important to distinguish between the two.

The following example shows the importance of distinguishing ETD and ETA.

A Purchasing Officer places an order for fibre-optic cable from a supplier in China. The supplier advises an ETD of December 2nd. The Purchasing Officer then advises the sales department that the ETD on the cable is 2nd December. The sales department advise the customer that the cable will be delivered to their store on the 2nd of December!!! On the 3rd of the December, the customer phones up the sales department asking where their cable is. The sales department ask the Purchasing Officer where the cable is and the Purchasing Officer explains that the goods have only just left China on seafreight on December 2nd, and therefore won't arrive (ETA) until January 5th.

As you can see, not understanding the difference between ETD and ETA can cause confusion.

EXW

Ex-Works (EXW) is an incoterm whereby the seller makes the goods available for collection at their premises, and it is the buyer's cost and risk to have the goods loaded and delivered.

A seller will often quote goods EXW, and this makes it clear that the price they are quoting doesn't include charges such as freight, loading, insurance, clearance etc.

For example, a procurement officer sends an RFQ to a pump supplier, who quotes the pump EXW. The order is then placed and the supplier advises the date when the goods will be ready for collection. The buyer, at their own cost and risk, organizes their own freight company to collect and deliver the pump.

Expediting

The process of Expediting means to chase up purchase orders to ensure the most timely delivery possible.

Expediting is usually done by the Purchasing Officer, but some larger companies employ Expediting Officers purely to focus on this process.

Here are some of tasks of an Expediting Officer:

  • Running regular reports on overdue orders
  • Phoning/emailing suppliers to chase orders
  • Sending Expedite Requests to suppliers
  • Visiting suppliers' premises and inspecting their production processes
  • Following up on Expedite Responses
  • Organizing best freight methods to ensure delivery times are met
  • Fixing any issues which are affecting the flow of deliveries
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