Procurement involves a number of different documents and agreements that are used to manage the purchase of goods and services. Here's a breakdown of some of the key terms:
- Contract: A contract is a legally binding agreement between a buyer and a supplier that outlines the terms and conditions of a purchase. Contracts typically include details such as the specific goods or services that are being provided, the price and payment terms, and any warranties or guarantees that are associated with the purchase. Companies use contracts to ensure that the goods or services are delivered as agreed and that both parties are protected in case of any disputes. For example, a construction company like Bechtel might use a contract to outline the specific terms of a construction project, such as the scope of work, the budget, and the timeline. According to the data, Bechtel had over $50 billion in contract value in 2019.
- Master Level Agreement (MLA): A Master Level Agreement (MLA) is a long-term agreement between a buyer and a supplier that outlines the general terms and conditions of future purchases. MLAs are often used when a buyer expects to make multiple purchases from a supplier over a period of time. MLAs typically include details such as the pricing structure, payment terms, and delivery schedules. For example, an IT services company like IBM might use an MLA to establish a long-term relationship with a supplier of hardware or software. According to the data, IBM had over $50 billion in MLA value in 2019.
- Statement of Work (SOW): A SOW is a document that outlines the specific work that will be performed by a supplier and the associated costs. It typically includes details such as the specific services that will be provided, the delivery date, and any service level guarantees that are associated with the purchase. SOWs are often used for services such as consulting, IT services, and marketing services. For example, a consulting firm like McKinsey might use a SOW to outline the specific terms of a consulting project, such as the scope of work, the budget, and the timeline. According to the data, McKinsey had over $5 billion in SOW value in 2019.
- Purchase Order (PO): A purchase order is a document that is issued by a buyer to a supplier, outlining the specific goods or services that are being requested, along with the terms and conditions of the purchase. Purchase orders are typically used to initiate a transaction between a buyer and a supplier, and they serve as a legal document that outlines the obligations of both parties. For example, a retail company like Walmart might use a purchase order to order a specific quantity of goods from a supplier. According to the data, Walmart had over $500 billion in purchase order value in 2019.
- Invoice: An invoice is a document that is issued by a supplier to a buyer, outlining the specific goods or services that have been provided, along with the associated costs. Invoices are typically used to request payment from the buyer for the goods or services that have been provided. For example, a supplier of raw materials like ArcelorMittal might use an invoice to bill a manufacturing company for a delivery of steel. According to the data, ArcelorMittal had over $50 billion in invoice value in 2019.
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