Learn the essential procurement and inventory terms that every business should know
ERP systems come with their own terminology, and if you’re new to them, it can sometimes feel like you’re learning a whole new language.
If you work in procurement or deal with inventory, understanding these key concepts will make conversations easier, improve decision-making and help you use your ERP system more effectively.
In this guide, we explain the core ERP procurement and inventory terms you need to know.
Purchase Order (PO)
A purchase order, often abbreviated to PO, is a formal document requesting goods or services from a supplier.
Purchase order’s typically include the purchase order number, buyer and seller details, order and delivery details, and payment terms.
Creating a PO helps you keep your buying process organised and helps you stay in control of your finances.
Purchase Requisition (PR)
A purchase requisition, or PR, is an internal request for purchasing approval, before a purchase order (PO) is placed.
An employee will submit a purchase requisition form detailing what they need to the appropriate person, such as the department manager.
The manager reviews the inventory, budget, and other factors to decide whether to approve or deny the request, and once they approve it, they create a purchase order.
Bill of Materials (BOM)
The bill of materials, often shortened to BOM, is a list of all the materials and components required to build a product.
A Bill of Materials ensures an efficient assembly process by detailing every required part for a single unit of a product.
Having an accurate BOM helps to reduce waste, streamline production, and ensures parts are available.
Goods Received Note (GRN)
A goods received note (GRN) is confirmation that goods have been received from a supplier. It is an internal document that is used to verify that the items, quantities and condition match the original purchase order (PO).
The GRN is a key part of the accounts payable (AP) process, as finance teams compare the PO, GRN and supplier invoice to ensure a company only pays for the exact goods that were delivered safely.
Stock Keeping Unit (SKU)
The stock keeping unit, or SKU, is a unique identifier for inventory items. It is assigned by a business in order to track the item and is an alphanumeric code, typically including meaningful data such as brand, product type, colour or size.
Using SKU’s helps to reduce counting errors, prevents overselling, and automates tracking, so you have better insights into which products are performing well and which are not.
FIFO and LIFO
FIFO and LIFO are inventory valuation methods used to determine which inventory items are sold and how the cost of those goods is calculated.
FIFO = ‘First In, First Out’
LIFO = ‘Last In, First Out’
FIFO assumes the oldest inventory is sold or used first. This approach uses older products first to prevent them from expiring or becoming obsolete, matching the natural flow of inventory.
LIFO works in the opposite way of FIFO by selling the newest inventory first. This method can impact your business’s financial statements, especially during inflation.
Lead Time
Lead time is the total time from ordering to receiving the goods. It is measured from the moment an order is initiated to the time the final product is delivered, for example 6 – 8 weeks.
Lead times usually consist of customer, material, production and cumulative lead times, and each impact overall efficiency. Having a short lead time helps to increase productivity, improve customer satisfaction and boost revenue.
If you’re working with an ERP system like Sage 200 or Sage Intacct, strengthening your knowledge of these core finance and accounting terms will help you get more value from your system and make smarter decisions for your business.
If you feel we might be able to help you with your ERP system, please get in touch.
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