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Indirect procurement refers to the process of acquiring goods and services that are not directly related to a company’s core business operations. This can include items such as office supplies, travel expenses, marketing services, human resources, professional services, outsourced services, software licenses, capital expenditure, rent, utilities, maintenance, and repairs. In this article, we will provide a comprehensive guide to indirect procurement, including its benefits, software and tools, and common challenges.

1. What is Indirect Procurement?

Indirect procurement is the process of acquiring goods and services that are not directly related to a company’s core business operations. These purchases are typically made to maintain day-to-day operations, rather than to produce the company’s goods or services. Indirect procurement can be handled in-house or outsourced to third-party providers, depending on the size and complexity of the purchases.

Indirect Procurement
Indirect Procurement

2. Types of Indirect Procurement and Their Examples

There are several types of indirect procurement, and each has its unique characteristics. Here are the most common types of indirect procurement and some examples:

  1. Facilities Management: This includes services like cleaning, maintenance, and security.

 

  1. Marketing: This includes services like advertising, market research, and public relations.

 

  1. IT: This includes services like software, hardware, and telecommunications.

 

  1. Professional Services: This includes services like legal, consulting, and accounting.

 

  1. Travel and Entertainment: This includes services like transportation, lodging, and dining.
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3. Indirect Procurement Process

The indirect procurement process involves several steps, including identifying the need for goods or services, sourcing suppliers, negotiating contracts, and managing supplier relationships. Here is a more detailed breakdown of the process:

  1. Identify the need: The first step is to identify the need for goods or services. This can be done through an internal request or by analyzing historical data.

 

  1. Sourcing: Once the need has been identified, the next step is to find potential suppliers. This can be done through online research, referrals, or reaching out to industry associations.

 

  1. Negotiate Contracts: After identifying potential suppliers, the next step is to negotiate contracts that cover everything from price to delivery schedules and quality control.

 

  1. Manage Supplier Relationships: Once a contract has been signed, the focus shifts to managing supplier relationships. This includes monitoring supplier performance, resolving disputes, and ensuring that all parties are meeting their obligations.

4. Best Practices for Indirect Procurement

Best Practices for Indirect Procurement
Best Practices for Indirect Procurement

To ensure that the indirect procurement process runs smoothly, it is essential to follow best practices. Here are some of the most important ones:

  1. Develop a Procurement Strategy: A procurement strategy should be in place that aligns with the overall business strategy. This should include goals, policies, and procedures that guide the procurement process.

 

  1. Centralize Procurement: Centralizing procurement can help to streamline the process, reduce costs, and improve supplier relationships.

 

  1. Leverage Technology: Technology can help to automate many aspects of the procurement process, such as supplier discovery, contract management, and spend analysis.

 

  1. Monitor Supplier Performance: Regularly monitoring supplier performance can help to identify issues early and ensure that suppliers are meeting their obligations.
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5. Benefits of Indirect Procurement

Optimizing indirect procurement can have a significant impact on a company’s spend management and total revenue. By streamlining the procurement process, companies can reduce costs, increase efficiency, and improve supplier relationships. Some of the benefits of indirect procurement include:

  1. Cost Savings: By centralizing indirect procurement and negotiating with suppliers, companies can achieve cost savings and reduce maverick spending.

 

  1. Increased Efficiency: By automating the procurement process and implementing approval workflows, companies can reduce manual errors and increase efficiency.

 

  1. Improved Supplier Relationships: By working closely with suppliers and consolidating purchases, companies can build stronger supplier relationships and negotiate better contract terms.

6. Indirect Procurement Software and Tools

There are several software and tools available to streamline the indirect procurement process, including:

 

  1. ProcureDesk: A cloud-based procurement software that helps companies automate their procurement process, manage suppliers, and track spend.

 

  1. Fraxion: An all-in-one procurement solution that helps companies manage their indirect procurement process, from purchase requests to invoice management.

 

  1. Approve.com: A purchasing platform that streamlines the procurement process, from purchase requests to approvals and payments.

7. Indirect Procurement vs. Direct Procurement

Direct procurement refers to the process of acquiring goods and services that are directly related to a company’s core business operations. The key difference between indirect and direct procurement is that direct procurement is focused on acquiring goods and services that are used to produce a company’s goods or services, while indirect procurement is focused on acquiring goods and services that are used to support a company’s day-to-day operations.

8. Common Challenges in Indirect Procurement

Despite the benefits of indirect procurement, there are several common challenges that companies may face, including:

  1. Fragmentation: Indirect procurement can often be fragmented, with purchases made across different departments and locations, leading to inefficiencies and increased costs.
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  1. Lack of Visibility: Without proper tracking and reporting, companies may not have visibility into their indirect procurement spend, making it difficult to identify cost-saving opportunities.

 

  1. Maverick Spending: Maverick spending refers to purchases made outside of an organization’s procurement process, which can lead to increased costs and reduced supplier relationships.

9. Indirect Procurement in the Digital Age

In recent years, the use of professional services and digital software tools has risen, making the practice of optimizing indirect procurement methods more critical than ever. The advent of the service economy has resulted in direct and indirect procurement merging together, making many “indirect” purchases produce rather direct results. Process automation has matured as a field in modern business, and those same companies statistically do not invest in eProcurement solutions as often as they should.

Indirect Procurement in the Digital Age
Indirect Procurement in the Digital Age

10. Indirect Procurement Service Providers

APPMVN – Asia Pacific Projects is a reliable indirect procurement company for construction works. They offer a comprehensive range of procurement services, including procurement planning, tendering and contracting, supplier performance management, and contract management. 

11. Conclusion

In conclusion, indirect procurement is a critical component of procurement strategy that optimizes the purchasing of goods and services used to maintain day-to-day operations. In today’s digital age, optimizing indirect procurement methods is of utmost importance, and companies should invest in eProcurement solutions to achieve a high return on investment. With the right preparation and understanding of your supplier base, supply chain, and overall business goals, any company can realize the benefits of indirect procurement, build better contracts with suppliers, and empower better purchasing environments.

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