What Is Indirect Procurement?
Understanding & defining the difference between direct and indirect procurement is essential.
Typically, direct procurement is seen in industries such as retail, food and beverage, and manufacturing. In essence it is any industry where there is a physical product produced & traded and those physical goods make up the direct procurement requirement.
Any other goods or services that a business needs to operate falls under the indirect procurement umbrella. When we examine all of the other goods and services a company needs just to do business — marketing, technology, facilities, professional services, distribution and logistics, to name a few — it becomes clear just how integral indirect procurement is to the overall operations of the business.
Why focus on Indirect Procurement?
An indirect procurement function focussed on service and spend management will drive profit improvement. This can deliver an immediate positive impact an organisation’s bottom line. These positive gains in your supplier quality and service offerings can be implemented with no additional cost to consumers.
Investing time and resources in indirect procurement can also benefit your company from a risk management, and social responsibility standpoint. The opportunities this investment represents can yield a significant bottom-line value & savings. This can, in turn, be used to fund other high-priority initiatives or offset rising costs elsewhere .
The broad scope of Indirect Procurement means that the practice requires its own expertise. Larger global companies are more likely to have the capability to fund a dedicated Indirect Procurement team. For smaller and medium-sized businesses, our virtual procurement service offers the support of Indirect Procurement expertise.
It’s crucial that businesses review and refine their sourcing strategies. This will ultimately reduce spending on goods not for resale. By managing Indirect Procurement more carefully companies move beyond viewing procurement as a pure cost-saving strategy, whilst never losing sight of that aim. This element is vital in a world of high inflation where limiting financial pressure is essential.
Beyond Cost Savings
With the rising pressure on companies to contribute to sustainable supply chains by reducing their carbon footprint and environmental damage, this plan to ‘act sustainably’ must include Indirect Procurement. Having a more streamlined and organised approach to Indirect Procurement means there will be less need for as many suppliers. This has positive sustainability outcomes, as it means less transport, storage and waste overall.
Optimising the sourcing and purchasing of Indirect goods has many benefits for businesses. With recent well-documented supply chain disruptions, financial pressures and sustainability initiatives, Indirect Procurement has gained prominence. Our specialists have an important part to play in helping companies build a more resilient and cost-effective supply chain.
The Challenges of Decentralised Spending
We often find individual departments managing their indirect spend themselves. Each business unit ends up partnering with its own preferred network of suppliers, fragmenting spending across the organisation.
This decentralised spending can often result in a lack of overall visibility. Each department tracks data to varying degrees of precision using disparate systems. Without a unifying indirect spending strategy, understanding and reporting on the costs for an organisation can be near impossible.
Instead, companies face an incomplete view of indirect expenditure. This then adds to the idea that this is a time-consuming problem to address & resolve.
Indirect Procurement as a Service
By centralising indirect spending, procurement teams can build structured and best-fit relationships with preferred suppliers. They can then develop processes to manage different spend types across your business.
For many organisations, unsurprisingly, their core businesses consumes most of their time and resources. Given this reality, outsourcing Indirect Procurement to a third-party can be the smart choice.
As a third-party procurement partner we can look at indirect expenditures with an outsider’s eyes and unbiased point of view. We can add further value with industry insights, technologies and market benchmark data.
As an independent third-party we can also provide an unemotional, grounded view on what can be delivered. When it’s time to source, we are able to use our insight and supplier ecosystem to get best-in-market pricing.
