A Guide to Indirect Procurement

Procurement is vital to every organisation’s operation. However, acquiring supplies can become an overwhelming task for some organisations depending on the scale, knowledge and timeframe they have to work with.

eXceeding is a procurement consultancy founded on the principle of providing impartial, best practice procurement advice to organisations of all shapes and sizes. Working with both the public and private sector, eXceeding has years of experience in delivering procurement solutions to the marketplace.

Many organisations adopt a direct approach to procurement,  but this method often neglects vital components of the procurement process. In this guide, we’ll explain what indirect procurement is, how it differs from direct procurement, and examples of useful strategies.

What is Indirect Procurement

Indirect procurement covers products and services an organisation needs to support its operation. It benefits an organisation but does not directly impact the goods or services delivered to their customers.

A few examples of indirect supplies include:

• Employee development resources (training, books, courses etc.)
• Essential office equipment (computers, phones etc.)
• Marketing services (paid advertising, editorials, SEO etc.)
• SaaS subscriptions (Microsoft Teams, Oracle and SAP etc.)

An organisation’s procurement requirements may differ depending on the industry or public sector type. For example, indirect supplies are more prominent in the digital market, or for organisations that deliver services to customers, but have no tangible goods, but all public sector organisations also have indirect procurement.

Key Differences Between Direct and Indirect Procurement

Direct procurement is how an organisation acquires the products, supplies, and services that  are delivered to their end customers.

Indirect procurement covers goods, supplies, and services that support the process of delivering a  product and services to the customer.

The key differences can be broken down by how they operate within the main functions of procurement.

Supplier relationships

Indirect procurement allows for more flexibility  when procuring your goods and services. Therefore, you are not under the same time constraints and can look at a variety of vendors.

However, direct procurement relies on a long-term relationship with suppliers that will guarantee a steady supply of the goods over time. If an organisation is unable to procure these essential goods, the organisation quickly becomes inoperative.

Indirect procurement allows you to choose a vendor based on your organisational needs at the time. . A long-term relationship is therefore not necessary, as many vendors possess the same qualities.  An indirect strategy grows with your business  and prevents you from relying solely on entrenched supplier  relationships.

Cost Management

Indirect procurement is less cost-based. This approach requires a lesser need for budgeting because purchases are made based on your organisation’s demands.

Direct procurement, on the other hand, requires budgeting and planning to be completed ahead of time for an organisation to operate efficiently and effectively.

Inventory Management

Inventory management does not play a prominent role in indirect procurement, which can make maintaining quality and inventory increasingly difficult . However for direct procurement, inventory management forms the basis of the strategy. It takes into consideration how and when an organisation will acquire goods, how they’ll be stored, and  if there are any risks or rewards associated with their current strategy .

Examples of Direct and Indirect Procurement

With the understanding  of the differences between direct and indirect procurement, here are a few clear examples that cover a large range of what an organisation needs:

Indirect Procurement

Indirect purchasing and procurement covers all products and services that support your organisation’s operations. This can include any of the following:

• Facilities
• Building Utilities
• Technology
• Office Supplies
• Marketing
• Construction

Direct Procurement

Direct purchasing and procurement covers everything to do with the end product your organisation is providing the customer with. It can cover all the following:

• Products for resale
• Raw materials
• Mechanical parts for manufactured goods
• Ingredients for food products
• Subcontracted services for construction or production

In Summary

Indirect supplies can cover both essential and non-essential items. In comparison to direct procurement, indirect procurement requires  less of a strategy. Nevertheless, they still need to  adhere to your organisation’s values. The added flexibility of indirect procurement just gives your team more options.

eXceeding offers fair and impartial advice to improve any organisation’s procurement strategy. Get in touch to learn about how your organisation can improve its indirect procurement through cost optimisation and supplier management.