What is Indirect Procurement? What is its Purpose?


Indirect procurement involves acquiring goods and services necessary for the daily operations of a business. While essential for routine practices, procurement teams tend to prioritize direct procurement, relegating indirect procurement to a secondary role. This procurement process optimizes the acquisition of all necessary elements and generally encompasses goods and services that are not directly related to the production output of a business.

Indirect procurement constitutes a part of the overall procurement function, but its significance has been increasing in recent years. With many companies venturing into virtual product sales, costs are rising, leading management teams to focus more on indirect procurement.

What is the Purpose of Indirect Procurement?

Indirect procurement is the process of acquiring goods and services outside of the core activities of businesses. It generally covers materials related to indirect and supportive activities that are not directly associated with production. Items such as computer equipment, office supplies, cleaning services, and similar elements fall under this category. These procurement practices provide significant benefits for businesses, including the continuation of daily operations, cost management, the ability to focus on core competencies, efficient resource utilization, and risk minimization. Moreover, businesses can increase their profits by sourcing services from suppliers specialized in indirect sales.

What is the Importance of Indirect Procurement?

Indirect procurement is crucial for the daily operations of a business. This procurement model involves the acquisition of goods and services related to essential business processes and is carried out separately from direct procurement.

Indirect procurement;

  • Manages the costs associated with the business and enhances operational efficiency,
  • Manages the procurement function, develops relationships between the company and suppliers, ensures budgets are met, and fosters close collaboration with stakeholders,
  • Plays a critical role in sourcing and leveraging direct procurement techniques to maintain the business's high-quality standards.

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What Benefits Does Indirect Procurement Consulting Provide to Businesses?

The benefits of indirect procurement consulting can be outlined as follows:

  • Effective implementation of procurement management depending on the size and structure of the business,
  • Achieving the goals of the business, expanding operations, and enhancing collaborations with the supplier base,
  • Optimizing sustainability objectives and costs,
  • Facilitating the business to make more efficient and comprehensive agreements,
  • Gaining a competitive advantage for the business,
  • Contributing to the business in various aspects such as developing and implementing procurement strategies.

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How is Indirect Procurement Managed?

Indirect procurement management consists of the following stages:

  1. It's essential to align with the overall strategies of the business for the process to be successful. Strategic objectives should be defined, and procurement systems should be structured accordingly.
  2. The identification of the services and goods needed in the business should be determined. Additionally, the current status of suppliers should be taken into account at this stage.
  3. Working with cost-effective, reliable, and qualified suppliers is crucial for creating a successful indirect procurement strategy. Careful selection of suppliers is necessary.
  4. It's important to document agreements made and regularly monitor contracts to strengthen collaboration and prevent disputes.
  5. The performance of suppliers should be regularly tracked and evaluated, providing opportunities for improvement for the business.
  6. Cost control is paramount in indirect procurement processes. Regular cost analysis and budget monitoring should be emphasized.
  7. Personnel assigned to the procurement department should undergo regular training to ensure they understand the processes well and can manage them effectively.

Difference Between Direct and Indirect Procurement

The difference between direct and indirect procurement can be explained as follows:

Direct Procurement

Indirect Procurement

Direct procurement is necessary for the operation of the business.

Indirect procurement is often in the background for businesses.

Direct procurement is a fundamental expenditure in a company and has high priority.

Indirect procurement is often overlooked due to many procurement professionals giving it low priority.

Large quantities are purchased.

Small quantities are purchased.

Directly impacts the products of businesses.

Critical for the continuation of daily operations in the business.

Considered as part of finished products.

Important not for finished products but for auxiliary elements required to finish products.

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What are the benefits of Indirect Procurement?

The benefits of indirect procurement are as follows:

  • It can contribute to achieving savings goals by using procurement software available in the company.
  • Identifying savings opportunities allows for better negotiation with suppliers for better cost and price.
  • It streamlines procurement processes and significantly reduces administrative costs.
  • Optimizing indirect purchases can provide a competitive advantage against competitors in the market.
  • Indirect procurement provides space for the business to focus on its expertise and achieve its goals. By dedicating more time to its expertise, a business can increase customer satisfaction and loyalty.
  • Compared to direct procurement, these procurement processes are more efficient and faster. Developing partnerships with specialist suppliers reduces the time from order to delivery, allowing businesses to meet urgent needs more quickly.

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