Indirect procurement is the sourcing of goods and services not related to manufacturing 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 act of acquiring, satisfying and retaining customers. It is one of the primary components of Business administration, business management and commerce. Marketing is usually conducted by the seller, typically a retailer or ma ...

-related services ( media buying, agencies) *Professional Services (consultants, advisers) *Travel and travel management 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 r ...

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

Capital Goods In economics, capital goods or capital are "those durable produced goods that are in turn used as productive inputs for further production" of goods and services. A typical example is the machinery used in a factory. At the macroeconomic level, ...

(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 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 that: *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 A supply chain is a complex logistics system that consists of facilities that convert raw materials into finished products and distribute them to end consumers or end customers, while supply chain management deals with the flow of goods in distri ...

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 less strategic, relatively immature, 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 the United Kingdom's best-known stock market index of the 100 most market capitalisation, highly capitalised ...

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 Bicameralism, 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 ...

Public Accounts Committee defined 'maverick spend' as the purchase of "legitimate goods but singunauthorised 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 regarding 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 (CM) is a discipline that focuses on managing changes within an organization. Change management involves implementing approaches to prepare and support individuals, teams, and leaders in making organizational change. Change mana ...

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

negotiation Negotiation is a dialogue between two or more parties to resolve points of difference, gain an advantage for an individual or Collective bargaining, collective, or craft outcomes to satisfy various interests. The parties aspire to agree on m ...

and supplier management *

Data analysis Data analysis is the process of inspecting, Data cleansing, cleansing, Data transformation, transforming, and Data modeling, modeling data with the goal of discovering useful information, informing conclusions, and supporting decision-making. Da ...

(turning raw data into business insights and intelligence) *Technological know-how.

References

{{reflist Procurement Business terms