Procurement terms, defined plainly.

ABC analysis ranks stock items by annual consumption value into classes A, B and C, so the few high-value items get the tightest control.

A typical split puts roughly 10–20% of items in class A, carrying 70–80% of consumption value, with class C forming the long tail. Maintenance stores often pair it with VED analysis (vital, essential, desirable), because a cheap oil seal can still stop a line.

Guide: How to reduce machine downtime caused by waiting for spare parts →Related: Reorder level, Safety stock, Critical spares, Item master

An advance-payment PO is a purchase order whose payment terms require the buyer to pay some or all of its value before the vendor dispatches.

Vendors usually ask for one on small orders, made-to-order items or a new customer's first order, and raise a proforma invoice to collect the money. The risk sits with the buyer until the goods arrive, so finance needs to see these POs early. Track each advance against its PO so it's adjusted on the final tax invoice.

Module: Buy Now & PO →Related: Proforma invoice, Payment terms, Purchase order (PO)

An approval matrix is the rule set that says who must approve a purchase, based on its value, category, plant or cost centre.

A common pattern: the department head signs routine indents, the plant head signs anything above a set value, and capital items go to a director. Without one, a ₹500 consumable and a ₹5 lakh motor wait in the same queue. Log every approval and rejection with a reason, so an auditor can see who approved what, and when.

Guide: How to design a purchase approval matrix →Related: Spend limit, Indent, Purchase requisition (PR), Cost centre

An authorised distributor is a vendor appointed by a manufacturer to sell its products, so parts are traceable to the brand and covered by its warranty.

Ask for the current authorisation letter, which names the territory and validity period. Buying bearings, contactors or drives through an authorised channel cuts the risk of counterfeit or grey-market parts and keeps warranty claims simple.

Guide: How to compare vendor quotes →Related: Stockist, Vendor master, Critical spares

A blanket PO is one purchase order covering repeated deliveries of agreed items over a set period, up to a total value or quantity.

Releases are drawn against it as needed, so the plant doesn't raise a fresh PO for every lot of gloves or grinding discs. It differs from a rate contract, which fixes prices but isn't itself an order; a blanket PO is an approved order up to its limit.

Related: Rate contract, Purchase order (PO), Volume discount

Breakdown maintenance is repair carried out after a machine has failed, when the line is already stopped and the spare is needed now.

Its real cost is the downtime, not the part: a low-cost bearing can hold up a whole shift. Plants reduce it with preventive maintenance and critical spares held in store. Record the machine and the downtime on every breakdown indent, so the spares worth stocking show up over time.

Guide: How to reduce machine downtime caused by waiting for spare parts →Related: Preventive maintenance, Critical spares, Lead time, Indent

A cost centre is a unit in your accounts, such as a department, line or machine, to which the cost of a purchase or a stock issue is charged.

Tagging every indent with a cost centre shows finance what each line or plant spends on spares and consumables, and lets approvals be set against a cost-centre budget. In SAP, cost centres sit in the controlling (CO) module.

Related: Stock issue, Approval matrix, Indent, ERP (enterprise resource planning)

A credit note is a document a supplier issues to reduce the value or tax on an invoice already raised, for example after a return or a price cut.

Under GST it is issued by the supplier under section 34 of the CGST Act, refers to the original invoice, and the buyer must reduce the matching input tax credit. Raising returns against the original PO and invoice lets the credit note be matched without a hunt. Confirm current rules with your chartered accountant.

Module: After-sales →Related: Debit note, Return to vendor (RTV), Tax invoice, Input tax credit (ITC)

Critical spares are parts whose failure stops production and which can't be bought quickly, so the plant keeps them in store before they're needed.

Typical examples are the gearbox on a single-line conveyor, a spindle bearing, or the VFD on a machine with no standby. Identify them machine by machine, using VED analysis and supplier lead times, and set a minimum stock for each.

Guide: How to reduce machine downtime caused by waiting for spare parts →Related: Safety stock, Breakdown maintenance, Lead time, ABC analysis

A debit note raises the amount owed on an earlier invoice; under GST, the supplier issues it when the invoice understated the value or tax.

Indian plants also use the term for a buyer's own note to a vendor recording a shortage, rejection or rate difference to be deducted from payment. That buyer's note is a commercial document; the GST adjustment still has to come from the supplier, usually as a credit note. Confirm current rules with your chartered accountant.

Guide: GST tax invoice checklist →Related: Credit note, Tax invoice, Return to vendor (RTV)

Direct procurement is the buying of raw materials and components that go into the finished product, such as steel coil, polymer granules or castings.

It is planned from the production schedule and bill of materials, usually runs through a few suppliers on annual contracts, and its cost flows straight into product cost. Indirect procurement, by contrast, covers what keeps the plant running.

Guide: What is MRO procurement? →Related: Indirect procurement, MRO (maintenance, repair and operations), Procure-to-pay (P2P)

An e-invoice is a B2B GST invoice reported to the government's Invoice Registration Portal, which validates it and returns an IRN and a signed QR code.

It is mandatory for suppliers whose aggregate turnover has exceeded ₹5 crore in any financial year from 2017-18 onwards. A B2B invoice from such a supplier without an IRN isn't a valid tax invoice, and the buyer can't claim input tax credit on it. Confirm current thresholds with your chartered accountant.

Guide: GST tax invoice checklist →Related: Tax invoice, E-way bill, GSTIN, Input tax credit (ITC)

An e-way bill is an electronic document, generated on the GST e-way bill portal before goods move, that records the consignment, its invoice and the vehicle.

It is generally required when the consignment value exceeds ₹50,000, though some states set a different limit for movement within the state, and goods returned to a vendor need one too. Part A carries the invoice and HSN details; Part B carries the vehicle number. Confirm current limits with your chartered accountant.

Guide: GST tax invoice checklist →Related: Tax invoice, E-invoice, HSN code, Place of supply

An ERP is the software a company uses as its system of record for finance, inventory, purchasing and production, such as SAP, Oracle or Microsoft Dynamics.

Its purchasing module holds the item and vendor masters, POs, goods receipts and invoices, but it doesn't find vendors or collect quotes. Those steps often happen in email and spreadsheets, and the final PO is keyed in by hand.

Module: Buy Now & PO →Related: Item master, Vendor master, Purchase order (PO), Procure-to-pay (P2P)

A GRN is the record a store makes when goods arrive against a purchase order, stating what was received, accepted and rejected, and when.

It is the proof of receipt finance needs before paying, and the second document in a three-way match. In SAP it is posted as a goods receipt against the PO (MIGO, movement type 101). Record it only once the goods are physically in the store, never against a dispatch note.

Guide: What is a GRN (goods receipt note) and how does it work? →Related: Partial GRN, Three-way match, QC checkpoint, Purchase order (PO)

A GSTIN is the 15-character number that identifies a business registered under GST in a particular state.

The first two digits are the state code (09 for Uttar Pradesh, 06 for Haryana, 07 for Delhi), the next ten are the holder's PAN, and the last is a check digit. Verify a vendor's GSTIN on the GST portal before adding them to your vendor master. If your own GSTIN is wrong on a vendor's invoice, the credit won't appear in your GSTR-2B.

Guide: GST tax invoice checklist →Related: Tax invoice, Place of supply, Input tax credit (ITC), Vendor master

An HSN code is the number that classifies a product under GST, based on the international Harmonised System, and fixes which GST rate applies.

Ball and roller bearings, for example, fall under heading 8482. On B2B invoices, suppliers with previous-year aggregate turnover up to ₹5 crore must show at least 4 digits and those above ₹5 crore must show 6; services use SAC codes instead. Confirm current rules with your chartered accountant.

Guide: GST tax invoice checklist →Related: Tax invoice, Item master, E-way bill, GSTIN

An indent is an internal request from a department, such as maintenance or production, for material it needs, sent to the store or purchase team.

In most Indian plants the indent goes to the store first and becomes a purchase only if the item isn't in stock; some plants use 'indent' and 'purchase requisition' interchangeably. A good indent names the item code, quantity, machine and date needed.

Guide: Indent vs purchase requisition vs purchase order →Related: Purchase requisition (PR), Stock issue, Purchase order (PO), Approval matrix

Indirect procurement is the buying of goods and services a plant needs to run but that don't go into the product, such as spares, consumables, PPE and tools.

It covers MRO, services, utilities and office supplies, and is spread across many vendors and small, often urgent orders. That makes it costlier to manage than its share of spend suggests, and the natural place to start vendor consolidation.

Guide: What is MRO procurement? →Related: Direct procurement, MRO (maintenance, repair and operations), Tail spend, Vendor consolidation

Input tax credit is the GST a registered business pays on its business purchases, which it can set off against the GST it owes on its own sales.

To claim it, the buyer needs a valid tax invoice, must have received the goods, and the invoice must appear in its GSTR-2B; if the supplier isn't paid within 180 days of the invoice date, the credit must be reversed until payment is made. Some purchases are blocked under section 17(5) of the CGST Act. Confirm current rules with your chartered accountant.

Guide: GST tax invoice checklist →Related: Tax invoice, GSTIN, Three-way match, E-invoice

An item master is the list of every item a company buys or stocks, each with a unique code, description, unit of measure, HSN code and specification.

Duplicates are the usual problem: the same 6205-2RS bearing coded three times under three descriptions, so stock looks short and gets bought again. In SAP it is called the material master.

Module: Indent →Related: Vendor master, Indent, HSN code, ERP (enterprise resource planning)

L1, L2 and L3 rank the quotes received for an item by price: L1 is the lowest bidder, L2 the second lowest and L3 the third.

Compare like for like before awarding to L1: the same brand and specification, landed cost including freight, delivery time and payment terms. A cheaper quote with a three-week lead time can cost more than L2 when the machine is down.

Guide: How to compare vendor quotes →Related: Quotation, RFQ (request for quotation), Landed cost, Target price

Landed cost is the full cost of getting an item into your store: the price plus freight, packing, insurance, duties and handling.

GST you can claim back as input tax credit isn't part of it; GST you can't claim is. Compare quotes on landed cost rather than unit price, because one vendor may quote ex-works and another FOR destination, with freight included.

Guide: How to compare vendor quotes →Related: L1, L2, L3, Quotation, Input tax credit (ITC)

Lead time is the time between deciding you need an item and having it in your store, from indent through approval, sourcing, PO and delivery.

Suppliers usually quote only their part, from PO to dispatch or delivery; the internal part, from indent to PO, can be as long and is easier to cut. Lead time sets your reorder level and how many critical spares you hold. Ask every vendor to state it in days from PO, so quotes can be compared.

Guide: How to reduce machine downtime caused by waiting for spare parts →Related: Reorder level, Safety stock, Critical spares, Breakdown maintenance

MRO is the spares, consumables and tools a plant buys to keep machines and buildings running, as opposed to the materials that go into its product.

Typical MRO categories include bearings, belts, contactors, lubricants, cutting tools, PPE and fasteners. Each order is small, but the item and vendor counts are large, and one missing part can stop a line.

Guide: What is MRO procurement? →Related: Indirect procurement, Critical spares, Tail spend, Vendor consolidation

Udyam registration is the government's free online registration for micro, small and medium enterprises (MSMEs), giving each a Udyam registration number.

Enterprises are classed as micro, small or medium by investment in plant and machinery and by annual turnover; Udyam replaced Udyog Aadhaar in July 2020. Record each vendor's Udyam number and class in your vendor master, because micro and small suppliers must be paid within the agreed term, capped at 45 days, under the MSMED Act, 2006. Confirm current thresholds and rules with your chartered accountant.

Guide: The MSME 45-day payment rule →Related: Section 43B(h), Payment terms, Vendor master

A partial GRN records receipt of less than the full quantity on a purchase order, leaving the balance open for a later delivery.

It is common when a vendor ships what's in stock and sends the rest later, or when some units fail inspection. Finance should pay only for the quantity received and accepted.

Module: Delivery & GRN →Related: GRN (goods receipt note), Three-way match, QC checkpoint

Payment terms are the agreed conditions for when and how a buyer pays a vendor: in advance, on delivery, or within a credit period after invoice or receipt.

Write down which date the credit period runs from, since the invoice date and the GRN date can be weeks apart. For micro and small enterprises the agreed term can't exceed 45 days from acceptance under the MSMED Act, and paying late also costs the buyer its tax deduction under section 43B(h). Confirm current rules with your chartered accountant.

Guide: The MSME 45-day payment rule →Related: MSME and Udyam registration, Section 43B(h), Advance-payment PO, Three-way match

Place of supply is the location GST law treats as where a supply takes place; it decides whether IGST, or CGST plus SGST, is charged.

For goods that move, it is usually where the movement ends for delivery to the buyer. So a Noida plant buying from a Gurugram vendor is charged IGST (Haryana to Uttar Pradesh), while a Ghaziabad vendor charges CGST and SGST. Confirm bill-to-ship-to and other special cases with your chartered accountant.

Guide: GST tax invoice checklist →Related: GSTIN, Tax invoice, Input tax credit (ITC), E-way bill

A PO amendment is a formal change to a purchase order already issued, such as quantity, price, delivery date or a cancelled line, saved as a new revision.

Amendments that raise the value should go back through the approval matrix, and the vendor should acknowledge the revised PO. Keep a change log of who changed what, and when, on every revision.

Module: After-sales →Related: Purchase order (PO), Return to vendor (RTV), Approval matrix

Preventive maintenance is servicing done on a fixed schedule, by time or running hours, to stop a machine failing: lubrication, inspection and part changes.

Because the schedule is known, its spares and consumables can be indented weeks ahead at normal prices instead of bought in a breakdown rush. It differs from predictive maintenance, which acts on measured condition such as vibration or temperature.

Guide: How to reduce machine downtime caused by waiting for spare parts →Related: Breakdown maintenance, Critical spares, Reorder level

Procure-to-pay is the full purchasing cycle, from the indent or requisition through approval, PO, receipt and invoice matching to paying the vendor.

Source-to-pay adds the upstream work of finding vendors, collecting quotes and agreeing contracts. Order-to-cash is the same transaction seen from the seller's side. Gaps between steps, such as a GRN that never reaches accounts, are where late and duplicate payments usually start.

How it works: one order, end to end →Related: Indent, Purchase order (PO), Three-way match, ERP (enterprise resource planning)

A proforma invoice is a preliminary bill a vendor sends before supply, to confirm price and terms or to collect an advance; it isn't a GST tax invoice.

You can't claim input tax credit or book the purchase against it. Once goods are supplied the vendor must issue a tax invoice, and finance should match payment against that, not the proforma.

Guide: GST tax invoice checklist →Related: Tax invoice, Advance-payment PO, Quotation

A purchase order is the buyer's formal order to a vendor, stating items, quantities, prices, delivery and terms; once the vendor accepts it, it's binding.

It is the reference for everything after it: the GRN, the tax invoice and the payment all point back to the PO number. Changes after issue should go through a formal PO amendment, not a phone call.

Guide: Indent vs purchase requisition vs purchase order →Related: Purchase requisition (PR), PO amendment, Blanket PO, Three-way match

A purchase requisition is the internal document asking the purchase team to buy an item; once approved it authorises a PO, but it never goes to a vendor.

In SAP a PR is created in ME51N and converted into a PO in ME21N. In many Indian plants the indent plays this role; where both exist, the indent goes to the store and a PR is raised only for what the store can't issue.

Guide: Indent vs purchase requisition vs purchase order →Related: Indent, Purchase order (PO), Approval matrix

A QC checkpoint is a set step where goods are inspected against their specification before acceptance, at the vendor before dispatch or at your store.

Goods waiting at the checkpoint should be held apart from usable stock, and only the accepted quantity should be added to stock and paid for. Typical checks for MRO items are part number, make, dimensions, test certificates and visible damage.

Guide: What is a GRN (goods receipt note) and how does it work? →Related: GRN (goods receipt note), Partial GRN, Return to vendor (RTV), Three-way match

A quotation is a vendor's written offer to supply an item at a stated price and terms, usually in reply to an RFQ and valid for a set period.

A complete quote for an industrial item states brand and part number, quantity, unit price, GST rate, freight, delivery time, payment terms and validity. Keep each revision, so you can show what was offered when the PO was raised.

Guide: How to compare vendor quotes →Related: RFQ (request for quotation), L1, L2, L3, Landed cost, Proforma invoice

A rate contract fixes a vendor's prices for listed items over a set period, usually a year, without committing the buyer to any quantity.

Orders are then placed against it as needed, without fresh quotes each time. It suits repeat consumables such as gloves, grinding discs and lubricants; for items whose prices move with steel, copper or exchange rates, add a price-variation clause.

Guide: Vendor consolidation in manufacturing →Related: Blanket PO, Vendor consolidation, Volume discount

Reorder level is the stock quantity at which a new indent should be raised, set so the item arrives before the safety stock runs out.

The standard formula is average daily usage multiplied by lead time in days, plus safety stock. A store using 4 V-belts a day, with a 5-day lead time and 10 held as safety stock, reorders at 30.

Guide: How to reduce machine downtime caused by waiting for spare parts →Related: Safety stock, Lead time, ABC analysis, Item master

A return to vendor sends received goods back to the supplier because they're wrong, damaged, rejected at inspection, excess or failed under warranty.

Raise it against the original PO and invoice so the vendor can issue a credit note or a replacement without dispute; goods sent back may also need an e-way bill.

Module: After-sales →Related: Credit note, Debit note, QC checkpoint, PO amendment

An RFQ is a request sent to vendors asking them to quote a price and terms for a defined item, quantity and delivery date.

It differs from an RFP, which asks vendors to propose a solution, and an RFI, which only gathers information. Send every vendor the same specification, quantity and deadline, so the quotes can be compared like for like.

Module: Sourcing →Related: Quotation, L1, L2, L3, Indent, Target price

Safety stock is extra quantity held in store to cover unexpected demand or a late delivery, so the item doesn't run out while a new order is on its way.

One simple method: maximum daily usage times maximum lead time, minus average daily usage times average lead time. Hold more for critical spares with long or unreliable lead times, and little or none for items any local vendor stocks.

Guide: How to reduce machine downtime caused by waiting for spare parts →Related: Reorder level, Critical spares, Lead time, ABC analysis

Section 43B(h) of the Income-tax Act, 1961 allows a deduction for dues to micro and small enterprises only when paid, if not paid by the MSMED Act deadline.

That deadline is the date agreed in writing, capped at 45 days from acceptance of the goods, or 15 days where nothing is agreed; it covers suppliers registered as micro or small on Udyam, not medium ones. From FY 2023-24, an overdue amount still unpaid at year-end is disallowed that year and allowed in the year it's paid. The Income-tax Act, 2025 replaces the 1961 Act from April 2026, so confirm the current provision, and how it treats trader suppliers, with your chartered accountant.

Guide: The MSME 45-day payment rule →Related: MSME and Udyam registration, Payment terms, Vendor master

A spend limit is the maximum order value a user can raise or approve on their own; anything above it goes to the next approver in the matrix.

Limits are usually set per user and per site, and sometimes per category, so an engineer can buy routine consumables while a motor replacement waits for the plant head.

Module: Approvals →Related: Approval matrix, Cost centre, Indent

A stock issue is the store's release of an item to a department or machine, reducing store stock and charging the cost to the user's cost centre.

It is the right answer to an indent when the item is already on the shelf. In SAP it is a goods issue, typically movement type 201 for a cost centre.

Module: Indent →Related: Indent, Cost centre, Reorder level, GRN (goods receipt note)

A stockist is a trader who holds ready stock of a product range for quick local supply, and may or may not be authorised by the brands it sells.

Stockists win on speed and small quantities, which matters in a breakdown. For critical or counterfeit-prone parts, check whether the stockist buys from an authorised distributor.

Module: Sourcing →Related: Authorised distributor, Lead time, Vendor master

Tail spend is the many small, infrequent purchases spread across many vendors that make up a small share of spend but a large share of POs and invoices.

In a factory it is mostly MRO: a one-off coupling, a box of cable ties, a hand tool. Each purchase takes as much effort to process as a large one, so moving the tail to fewer vendors often saves as much in processing time as in price.

Guide: Vendor consolidation in manufacturing →Related: Vendor consolidation, MRO (maintenance, repair and operations), Indirect procurement

A target price is the price a buyer aims to pay for an item, set from past purchases, market benchmarks or a cost estimate, and used to judge quotes.

Base it on the last purchase price, adjusted for movements in metal prices or exchange rates since then. Sharing it with vendors can shorten negotiation, but only if it's realistic.

Module: Buy Now & PO →Related: L1, L2, L3, Quotation, Volume discount

A tax invoice is the GST invoice a registered supplier must issue for a taxable supply; it's the document a buyer needs to claim input tax credit.

Under rule 46 of the CGST Rules it must show, among other things, the supplier's and buyer's GSTIN, a unique serial number, date, HSN code, taxable value, tax rate and amount, and the place of supply for inter-state sales. For goods it is issued at or before removal for delivery. Confirm current requirements with your chartered accountant.

Guide: GST tax invoice checklist →Related: GSTIN, HSN code, Input tax credit (ITC), E-invoice

A three-way match checks a vendor's invoice against the purchase order and the GRN, line by line, before the invoice is approved for payment.

Item, quantity and price must agree: pay for what was ordered, at the PO price, and only for what the store received. A two-way match skips the GRN; a four-way match adds the QC inspection result.

Guide: What is three-way matching? →Related: GRN (goods receipt note), Purchase order (PO), Tax invoice, QC checkpoint

Vendor consolidation is cutting the number of vendors a plant buys from, so spend, invoices and follow-ups run through fewer, better-managed suppliers.

It means fewer POs, invoices and payment runs, more bargaining power on price and terms, and vendor performance you can actually measure. The risk is dependence, so keep an alternative source for critical spares.

Guide: Vendor consolidation in manufacturing →Related: Tail spend, Rate contract, Vendor master, Indirect procurement

A vendor master is the record of every supplier a company buys from: legal name, GSTIN, PAN, bank details, address, categories and payment terms.

Add each supplier's Udyam number and MSME class too, because it decides your payment deadline. Verify GSTIN and bank details before the first payment, and block vendors you no longer use.

Guide: Vendor consolidation in manufacturing →Related: Item master, GSTIN, MSME and Udyam registration, Vendor consolidation

A volume discount is a lower unit price a vendor offers when an order crosses a set quantity or value, often in slabs.

Check it against what you'll actually use: buying a year of a slow-moving spare to reach a slab ties up cash and shelf space. Ask vendors to state slab prices on the quote, so the saving from a larger order is clear.

Module: Buy Now & PO →Related: Target price, Rate contract, Blanket PO