Indirect procurement is the source of all goods and services for businesses to enable their activities. Or see it in other ways, goods and services classified under the umbrella of indirect procurement are generally purchased for consumption by internal stakeholders (business units or functions) rather than external customers or clients. Indirect procurement categories include, but are not limited to:
- Marketing-related services (media purchases, agencies)
- Professional Services (consultants, advisers)
- Travel Management (Office of the Travel Desk)
- IT related services (hardware, software)
- HR related services (recruitment agencies, training)
- Facilities Management and office services (Telecoms, furniture, cleaning, catering, printers)
- Utilities (gas, electricity, water)
- Consumption (Grease, Oil, etc.)
- MRO (Maintenance of repair operations)
- Capital Goods (Factory & machinery)
- Fleet Management
A thorough 'Indirect' classification can vary from business to business. Increasingly, the difference between what is 'direct' and 'indirect' costs can be blurred (like classic debates about what is Capex and Opex) when looking at expenditure items such as Fleet and Transport. The company's senior executives are often responsible for approving and defining this classification because it has only their own financial, accounting, and reporting structures.
Video Indirect procurement
Overview
Organizations with a clear definition of 'Direct' Procurement (often called Resale Goods, primary procurement, public procurement or core procurement) have spent decades designing their key supply chains - ensuring:
- Margin of goods for resale (GFR) is at or above the industry standard
- The risk is kept to a minimum
- Long-term supplies are assured with preferred suppliers
- Relationships have been built and developed over time
- The process has been incorporated into the core business
- Senior executives and Board members recognize the value of the supply chain by considering business objectives.
'Indirect' procurement (often called Non-Resale Goods, non-core procurement, unconventional procurement or possible expenditure), compared to adjacent to direct procurement often seen as less strategic and less valuable research - conducted by NelsonHall, works together with Proxima found that 53% of senior executives from the FTSE 100 business expressed low satisfaction in the procurement of indirect value brought to their organization.
Maps Indirect procurement
Indirect vs direct procurement
Research conducted in conjunction with Supply Management found that all businesses have indirect procurement. The study also found that indirect procurement is very different from direct procurement because smaller average supplier spending, more suppliers, maverick expenditure and a more complex stakeholder environment than directing.
Indirect procurement requires a different balance of disciplined processes and technologies, stakeholder engagement and diverse expertise across multiple suppliers. Overall:
- In the indirect supply market there are hundreds of categories, all of which require deep knowledge for procurement effectively. Also, there are tens of thousands of suppliers, all of which invest in sales to buyers - for large contracts it is common for the supplier account management team to become larger than all the procurement functions it sells.
- With relatively high turnover of indirec, it is also common to see a large number of low value monetary transactions being performed, often
- There are thousands of stakeholders (internal and external), all with knowledge of their area but need Procurement support. This in turn means that Procurement should act as an internal advisor, affecting functional decision makers and budget holders about their spending
- Indirect procurement professionals do not actually have a mandate over internal stakeholder budgets.
Managing indirect spending effectively requires a large amount of expertise - which can change from one week to the next. Expertise like:
- Various category skills
- Change management
- Influence, engage, and advise various stakeholders across businesses (from senior executives down)
- Facilitation, negotiation, and supplier management
- Data analysis (converting raw data into business insight and intelligence)
- Technology knowledge
References
Source of the article : Wikipedia
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