What to look forward to-
• Importance of procurement as a business process
• Direct and Indirect Procurement with examples
• Is indirect procurement as valuable as direct procurement?
• The business impact of procurement on businesses
• Challenges in Indirect Procurement
• How to manage indirect procurement
Purchasing must be a strategic implementation in an organization, rather than a simple tactic in their supply chain management process. We’ll explain the difference between direct and indirect procurement. But first, let’s get clear on the roles that direct procurement and indirect procurement play within an organization.
Direct procurement is the act of acquiring raw materials and goods for production. These purchases are generally made in large quantities, acquired from a pool of suppliers at the best possible cost, quality and reliability. These purchases are made frequently and are necessary for key business practices, such as a baker acquiring flour to produce bread.
If direct procurement stops functioning or encounters problems, companies are no longer able to manufacture their product and create revenue.
Indirect Procurement
Indirect procurement is the act of purchasing services or supplies required to keep the day-to-day business alive. One way of classifying indirect procurement is that it does not add to a business’s bottom line. This includes things such as repairing equipment, buying office supplies or acquiring services.
Without indirect procurement functions, businesses wouldn’t be able to operate in an effective fashion. Typically, indirect procurement includes somewhere from 15-27% of a company’s total revenue.
