Many times technical people are asked to help with IT supplier management–for example to “get a quote” for something. In the hopes it’s helpful, here are a few common purchasing terms and their definitions.
- Request For Information (RFI): a document that defines a broad or vague idea and solicits help from vendors to flesh out the idea. RFIs are used especially when an organization isn’t sure whether it wants to spend money. For example, an organization may issue an RFI around identity and access management to learn more about what tools might exist and what to consider. Vendors say what they’re capable of doing in response to a request for information.
- Request For Proposal (RFP): a document that defines requirements and asks vendors to submit how they would meet those requirements and what an engagement would look like. RFPs are used when the organization is ready to spend money, although the RFP doesn’t usually communicate the budget available. RFPs are used especially when there are many ways to address the issue: perhaps one vendor might have a hosted solution and another might build a custom solution on-site. For example, an RFP may issue an RFP around identity and access management when they are ready to purchase a federated identity management system that supports Internet2 standards.
- Request For Quote (RFQ): a document similar to an RFP except that there is much less room for variation. RFPs are used when an organization is ready to purchase something and the thing they want to purchase is well-defined: physical equipment such as chairs, for example.
- Purchase order (PO): when an organization is ready to pay a specific vendor, it issues a purchase order. The purchase order says to the vendor, “we have reserved this amount of money for this engagement and here are the terms.” A PO is usually issued right after a contract is signed that clarifies the engagement. Although a PO may be issued, the vendor does not necessarily get the money right way. The PO might say, “we will pay you $10/hr for up to 80 hours” or it might say “we will pay you $10,000; 50% up front and 50% at the end.”
- Invoice: when a vendor wants money, they send an invoice. The invoice is usually for services rendered, e.g. “we have now worked 40 hours at $10/hr so please send us $400.” Sometimes a vendor will invoice to a purchase order, which means they now want some of the money from the purchase order. Sometimes a vendor will send an invoice without a purchase order–perhaps for authorized work that was under the threshold for which PO’s should be issued.
- Net-30/Net-7/Net-10/Net-15: These all refer to how long from when an invoice is sent until the check/money is in the hands of the vendor. A Net-7 invoice should be paid within 7 days of receipt. If a paper check is sent, it should be received by the end of these terms. Net-30 is common in higher education: 30 days after a vendor sends an invoice, they should have payment.
Those are a few of the more common terms in purchasing; for more information consult your local procurement/purchasing office. It can be helpful to have your purchasing department and your project management office meet, in fact, to clarify their processes and ensure project managers understand the entire procurement process.