This is the difference between direct procurement and indirect procurement

For CFOs of big companies, the procurement is always very important department. Because the procurement is responsible for the expenses. Every possibility to cut on the expenses, can save the company a lot of money. That’s why a lot of big companies choose to outsource the indirect procurement and do the direct procurement themselves. To understand the advantages of outsourcing the indirect procurement, you have to know the differences. In this article we will explain those differences and the advantages of outsourcing.

Direct procurement

Direct procurement is the purchasing process of goods, raw materials, resources and services that are necessary for the core business of the company. For example, in case of a car manufacturer, batteries are direct goods for the production of cars. The purchase of direct goods is very important for the ongoing of the company’s core business. Purchasing those goods happens periodically. That is the reason why companies always keep the purchase of those goods for themselves.     

Indirect procurement

In opposite of direct procurement, indirect procurement consists the purchases of indirect goods who are not important for the company’s core business. Those goods only support the business operations. For example, office supplies. Missing office supplies won’t harm the production of your core product, but are still necessary. 

The advantages of outsourcing the indirect procurement

Outsourcing indirect procurement brings a lot of advantages. The first and most important advantage is the money saved. Companies can save up to 21% on their internal costs by outsource the tendering process. The second advantage is the reduction of the supplier base. Normally companies have a lot of one-time suppliers. After one order, you never place an order again by those suppliers. These suppliers sometimes are 80% of your supplier base. Reduction of the supplier base is a time saving. Instead of invoices from each supplier with their own conditions and payment terms, you’ll receive one total invoice with one payment term and one point of contact. Last but not least, with outsourcing you will unburden different departments and you get control over the company’s invoice management and have more time for strategic procurement.