Major Differences between Direct and Indirect Procurement

One of the primary distinctions between direct and indirect procurement processes is supplier relationship management. Direct spend teams will procure materials of high quality and durability because they have a direct impact on the company's reputation.

Fremont, CA: When most large corporations were unable to keep up with rising operational costs, the concept of procurement arose to integrate purchasing into supply chain management and save money.

Procurement can be traced back to October 1983, when Peter Kraljic recognized that purchasing items in a company should be treated as an essential part of strategy development rather than as a complementary component in the supply chain.

Prior to this change, businesses considered procurement to be merely a support function for the supply chain process. However, two new disciplines emerged from the fundamental concept of procurement over time: direct and indirect procurement or spend.

Direct vs. indirect Procurement: Key Differences

Supplier Base

One of the primary distinctions between direct and indirect procurement processes is supplier relationship management. Direct spend teams will procure materials of high quality and durability because they have a direct impact on the company's reputation.

Direct procurement necessitates long-term relationships with suppliers as opposed to one-time transactions. Direct procurement investments in strategic relationships ensure collaborative value for stakeholders.

They spend a significant amount of time looking for the right suppliers who can deliver on time while focusing on innovation for this purpose. Developing a long-term relationship with such suppliers necessitates utilizing their R&D department. Supplier-enabled innovation yields more differentiated offerings at lower costs.

The teams in charge of indirect costs, on the other hand, are primarily concerned with spend management. These teams do not prioritize streamlined and innovative suppliers, resulting in fewer overall savings opportunities.

Spend Volume

Direct procurement concentrates money spent on limited materials and vendors controlled by a few departments, making tracking easier. They may be recorded in large quantities because the majority of important raw materials are purchased through this type of procurement.

Meanwhile, indirect spending is dispersed across all departments in a company, making it difficult to account for all expenditures if proper spend control measures are not implemented. This is because they are based on the specific needs of each department and are purchased on a case-by-case basis rather than on a continuum.