Dictionary of Procurement Terms

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  • Value Added Tax (VAT)

    A tax based on the value added during each stage of a product’s production or distribution. Common throughout the European Union.

  • Value Analysis

    An organized effort directed at analyzing the functions of a product or service including specifications, standards, practices, and procedures with the intent to satisfy the required function at the lowest possible cost without impacting functional need and suitability. (Nash, Schooner, O’Brien, 1998)

    See Also: Value Engineering (VE)

  • Value Based Pricing

    A business strategy that sets a product or service price based on the benefit it provides the customer, rather than on the cost of the product, market price, competitor, or historical price. Value based pricing includes advertising or surveying to determine or measure the anticipated benefit the customer will receive and align the value delivered. Pricing is based upon the perceived or actual value that the end user will receive.

  • Value Engineering (VE)

    A technique by which contractors may 1. voluntarily suggest methods for performing more economically and may share in any resulting savings or 2. be required to establish a program or identify and submit methods for performing more economically. (Nash, Schooner, & O’Brien, 1998)

    See Also: Value Analysis

  • Value Incentive Contract

    A fixed-price contract with a provision for rewarding the supplier for faster delivery or superior performance.

  • Value Proposition

    A statement by an organization expressing the way in which it can provide value for a prospective customer. A marketing tool that explains why customers can benefit from a company’s products or services. (Martin & Miller, 2006)

  • Valued Policy

    An insurance policy in which the sum to be paid in case of loss is fixed by the terms of the policy; especially relating to fire insurance.

  • Variable Cost

    Costs of an organization that vary with the amount of work performed. Variable costs are usually contrasted with fixed costs in analyzing a contractor’s indirect costs. If variable costs are a large percentage of a contractor’s indirect costs, then the contractor’s overhead rates can be expected to decrease more sharply with a decrease in volume of work than would be the case if fixed costs were a large percentage of the contractor’s indirect costs. (Nash, Schooner, & O’Brien, 1998)

  • Variable-Margin Pricing

    A pricing policy that permits maximum competition on individual products. Most firms price their products to generate a satisfactory return on the whole line, not on each product in the line. The profits from the most efficiently produced items are often used to offset losses or the lower profit margins of inefficiently produced items. Often is seen in a line item Bid of MRO (maintenance, repair, operating) products. (Business, 2002)

  • Variety Reduction

    The process of controlling and minimizing the range of new parts, equipment, materials, methods, and procedures that are used to produce goods or services. Its goal is to minimize the variety of all elements in the production or service delivery process. The main techniques of variety reduction are simplification, standardization, and specialization. A methodology used in value analysis. (Business, 2002)

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