HomeBusinessThe difference between a company's direct procurement and indirect procurement

The difference between a company’s direct procurement and indirect procurement

The bigger a company gets, the more different departments there are. In small companies with less than 50 employees, the employees are most of the time responsible for multiple departments. In big companies you have multiple persons responsible for one department. For example, the procurement. Big multinational corporations have a whole department responsible for the procurement. The procurement department in a company is very important because this department is responsible for all the expenses of the company. The company goal is always try to minimize the company’s costs as much as possible. To understand how they do it, it’s important to know more about procurement. In this article we explain direct and indirect procurement and the difference between these two. 

Procurement

Procurement is the purchases of (raw) materials, goods and services which are necessary for a company. Procurement can be divided in two parts. Direct procurement and indirect procurement. 

Direct procurement

Direct procurement is important for the company. Direct procurement consists the procurement of goods, services and raw materials which contribute directly to the company’s core business. For example, a company as Ford, who produces cars, are depending on suppliers for tyres. Without the tyres, Ford can’t sell the cars. Because of that, Ford started a tendering process, made a selection with the best suppliers and already manage to get the best prices, terms and service from their suppliers. 

Indirect procurement

Next to direct procurement, you have indirect procurement. Indirect procurement is less important for a company and therefore most of the time not high on a company’s agenda. Indirect procurement is the procurement of goods, materials and services which are not directly influence the core business of the company. In case of Ford office supplies are a good example of indirect procurement. Office supplies won’t harm a company’s core business, but is necessary for the employees to be able to work. That’s why a company don’t often spent a lot of time on the indirect procurement.

Save money by outsourcing the indirect procurement

A company can save a lot of money by outsourcing the indirect procurement. That’s why a lot of big companies outsource the indirect procurement. Instead of seeking the suppliers for indirect procurement, which is very time consuming and expensive, a company let another company do the search and tendering for products and goods. The company can save a lot of time and money by outsourcing it. Instead of receiving all those single invoices from different suppliers with each their own payment terms, the company will receive only one total invoice every month. Another benefit of outsourcing the indirect procurement is that the supplier base will be reduced extremely. In some cases even up to 80%. This will unburden the different departments in the company and therefore it can save the company up to 21% on internal costs. The procurement process is separatable in different parts from tendering, till invoice management Even only outsourcing the invoice management will save the company a lot of time and money and will reduce the company’s supplier base extremely.

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