Written by Marijn Overvest | Reviewed by Sjoerd Goedhart | Fact Checked by Ruud Emonds | Our editorial policy

Examples of Indirect Procurement

Examples of indirect procurement include getting help from professionals like lawyers, marketing experts, or IT advisors. It also covers things like taking care of buildings, organizing travel, and other costs that aren’t directly connected to making products.

Unlike buying actual things, like materials for products, it is about getting services or intangible resources. This needs extra thought to make sure it’s worth the money.

Here’s what happens: People look at what the company spends money on and talk to the people who sell those services. They try to get the best deal, like paying less for good legal advice or finding a good deal on travel.

Also, they need to maintain good relationships with the people who provide these services and talk to other employees in the company to find ways to save money. And it’s smart for companies to have a clear plan for how they spend money this way so that everyone will follow the rules strictly.

The Importance of Indirect Procurement

Indirect procurement is important because it helps a company run smoothly. It’s about buying things that aren’t directly used to make products, like office supplies, computers, or services. Even though it’s not the main spending, it still matters a lot.

When a company gets more efficient in how it buys these indirect materials or services, it can save money and work better. For example, if a company gets good deals on office supplies or hires experts at a good price, it can use its money wisely.

Thus, it might not be the biggest part of spending, but making it better can help a company do well by saving money and making things run nicely.

Metrics You Can ApplyFor Your Indirect Procurement Strategy

Because indirect procurement is crucial for a company’s stability, it requires a well-thought-out plan. This plan ensures that the things bought are good quality, reasonably priced, and meet the company’s set standards.

The job of creating, carrying out, and sticking to this indirect procurement plan falls on the procurement manager. A strong plan typically includes the following metrics or standards:

1. Automation

Again, e-procurement is key to achieving good procurement results. Process automation through e-procurement solutions is becoming more and more popular nowadays because it simplifies the entire procurement process.

From gathering data to comparing vendors, a procurement strategy has never been easier. Of course, the said strategy should still have its human touch and it’s the job of the procurement manager to do that part.

2. Innovation

Suppliers should also be involved in the procurement strategy as they are well-versed with innovation. Suppliers must work together with the internal procurement team to come up with innovations that will help the strategy as a whole.

3. Value Creation

For the procurement manager, creating value for the stakeholders is still the top priority. This means finding ways to get the best deals and use the company’s money wisely when purchasing things that aren’t directly used in making products.

4. Cost Control

For a great strategy to work, there should be cost control. It will remain as main goal of the procurement team. This is probably the only area where both indirect and direct procurement meet in the middle.

The methods used for achieving this are supplier negotiations, pooling of purchases, specification of adjustments, and even the change of suppliers.

5. Responsible procurement

Finally, companies that deal with procurement must make it mandatory to practice Corporate Social Responsibility or CSR.

What this means is that the procurement team makes it a point to check their supplies and whether services or products are acquired through ethical and responsible means. While it is not yet popular among huge companies, the idea is catching on rather quickly.

Challengesof Indirect Procurement

Here are some of the possible challenges that you can face in indirect procurement:

1. Handling a Lot

In the world of procurement, there’s usually a lot going on at the same time. This includes working on big deals with many suppliers while keeping an eye on different things we spend money on. Handling all of this can be quite complicated and needs good planning to use time and money well.

2. Not Always Clear

Sometimes, the people who need to say “yes” to purchases don’t know about them right from the start, or they’re not kept in the loop as things progress. This can slow things down. Thus, it can also lead to missing important information.

3. Control

Imagine you’re the captain of a ship, but you can’t see the whole sea. When different people ask for things and different people approve them, it’s hard to see where the money is going. It’s like not being able to see all the spots on a map. Having smoother processes is like having a clearer map – it helps you see what’s happening and keeps things in order.

The Differences Between Direct Procurement and Indirect Procurement

The following are the main differences between direct and indirect procurement:

Conclusion

In conclusion, indirect procurement plays a vital role in the overall functioning of a company. While it may not always be the main focus, its significance lies in efficiently acquiring services, resources, and support that enable the smooth operation of business activities.

It ensures that essential needs are met, such as legal assistance, office supplies, and facility management, contributing to the company’s effectiveness and productivity.

By carefully managing indirect procurement, companies can optimize spending, maintain quality standards, and enhance operational efficiency.