Indirect procurement is the sourcing of

goods and services not related to manufacturing In economics, goods are items that satisfy human wants and provide utility, for example, to a consumer making a purchase of a satisfying product. A common distinction is made between goods which are transferable, and services, which are not tran ...

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 (business units or functions) rather than the external customer or client. Indirect procurement categories include, but are not limited to: *

Marketing Marketing is the process of exploring, creating, and delivering value to meet the needs of a target market in terms of goods and services; potentially including selection of a target audience; selection of certain attributes or themes to empha ...

-related services ( media buying, agencies) *Professional Services (consultants, advisers) *

Travel management Corporate travel management is the function of managing a company’s strategic approach to travel (travel policy), the negotiations with all vendors, day-to-day operation of the corporate travel program, traveler safety and security, credit-car ...

services *IT related services (hardware, software) * HR related services ( recruitment agencies, training) *Facilities management and office services (telecoms, furniture, cleaning, catering, printers) *

Utilities A public utility company (usually just utility) is an organization that maintains the infrastructure for a public service (often also providing a service using that infrastructure). Public utilities are subject to forms of public control and ...

(gas, electricity, water) *Consumables (grease, oil etc.) *MRO ( Maintenance repair and operations) *

Capital Goods The economic concept of a capital good (also called complex product systems (CoPS),H. Rush, "Managing innovation in complex product systems (CoPS)," IEE Colloquium on EPSRC Technology Management Initiative (Engineering & Physical Sciences Researc ...

(Plant and machinery) * Fleet management FireExtinguisherABC

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 (as classic debate of what is

Capex Capital expenditure or capital expense (capex or CAPEX) is the money an organization or corporate entity spends to buy, maintain, or improve its fixed assets, such as buildings, vehicles, equipment, or land. It is considered a capital expenditure ...

and Opex) 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.

Overview

Organizations with a clear definition of 'Direct' Procurement (otherwise referred to as Goods for Resale, primary procurement, common goods procurement or core procurement) have spent decades engineering their primary supply chain – ensuring: *Goods for resale (GFR) margin is at or above industry standard *Risk is kept to a minimum *Long term supply has been assured with preferred suppliers *Relationships have been built and developed over time *Processes have been engrained into the core business *Senior executives and Board members acknowledge the value of the

supply chain In commerce, a supply chain is a network of facilities that procure raw materials, transform them into intermediate goods and then final products to customers through a distribution system. It refers to the network of organizations, people, activ ...

in the light of business objectives. 'Indirect’ procurement (otherwise referred to as Goods Not for Resale (GNFR), non-core procurement, non-common procurement or enabling spend), 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 The Financial Times Stock Exchange 100 Index, also called the FTSE 100 Index, FTSE 100, FTSE, or, informally, the "Footsie" , is a share index of the 100 companies listed on the London Stock Exchange with (in principle) the highest market ...

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, more maverick spend and a more complex stakeholder environment than directs. The UK

House of Commons The House of Commons is the name for the elected lower house of the bicameral parliaments of the United Kingdom and Canada. In both of these countries, the Commons holds much more legislative power than the nominally upper house of parliament. ...

Public Accounts Committee defined 'maverick spend' as the purchase of "legitimate goods but

sing Singing is the act of creating musical sounds with the voice. A person who sings is called a singer, artist or vocalist (in jazz and/or popular music). Singers perform music ( arias, recitatives, songs, etc.) that can be sung with or ...

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.What is Procurement Management and What are the Benefits?
/ref> *There are thousands of stakeholders (internal and external), 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 Change management (sometimes abbreviated as CM) is a collective term for all approaches to prepare, support, and help individuals, teams, and organizations in making organizational change. It includes methods that redirect or redefine the use o ...

*Influencing, engaging and advising various stakeholders across the business (from senior executives down) *Facilitation,

negotiation Negotiation is a dialogue between two or more people or parties to reach the desired outcome regarding one or more issues of conflict. It is an interaction between entities who aspire to agree on matters of mutual interest. The agreement c ...

and supplier management *Data analysis (turning raw data into business insights and intelligence) *Technological know-how

References

{{reflist Procurement Business terms