Indirect procurement is the sourcing of all goods and services for a business to enable it to maintain and develop its operations. The goods and services classified under the umbrella of indirect procurement are commonly bought for consumption by internal stakeholders rather than the external customer or client. Indirect Procurement categories include, but are not limited to:
The overarching classification of ‘Indirect’ can vary from business to business. Increasingly, the distinction between a ‘direct’ cost and an ‘indirect’ cost can become blurred when looking at such expenditure items, for e.g. Fleet and Transportation. Companies' senior executives are often responsible for agreeing and defining this classification for simplifying their own financial, accounting and reporting structures. s are an example of goods not for resale
Overview
Organizations with a clear definition of ‘Direct’ Procurement have spent decades engineering their primary supply chain – ensuring:
'Indirect’ procurement, compared side-by-side with direct procurement is often seen as strategic and less valuable: research conducted by NelsonHall, in association with Proxima, found that 53% of Senior Executives from FTSE 100 businesses expressed low satisfaction in the value indirect procurement brought to their organization.
Indirect vs direct procurement
Research conducted in association with Supply Management found that all businesses have indirect procurement. The research also found that indirect procurement is unambiguously different from direct procurement in that it has smaller average supplier spends, more suppliers, maverick spend and a more complex stakeholder environment than directs. The UKHouse of Commons Public Accounts Committee defined 'maverick spend' as the purchase of "legitimate goods but unauthorised buying arrangements or unapproved suppliers". Indirect procurement requires a different balance of disciplined processes and technology from those required for direct procurement, wider engagement with stakeholders and more diverse expertise across a range of suppliers. Overall:
Within the indirect supply market there are hundreds of categories, all of which require deep knowledge to procure effectively. Also, there are tens of thousands of suppliers, all who invest heavily in selling to a buyer – for large contracts it is common for a supplier’s account management team to be larger than the entire Procurement function it is selling to.
Given the relatively high turnover of indirects, it is also common to see large numbers of low monetary value transactions frequently being carried out.
There are thousands of stakeholders, all with knowledge about their area but need Procurement’s support. This in turn means that Procurement must act as an internal advisor, influencing functional decision makers and budget holders about their spend
Indirect procurement professionals do not actually have any mandate over internal stakeholders' budgets.
Managing indirect expenditure effectively requires a huge variety of skillsets such as:
A broad range of category expertise
Change management
Influencing, engaging and advising various stakeholders across the business
