What is the difference between Direct and Indirect Procurement ?

Indirect procurement, is the sourcing of all goods and services for a business that enable its activity. Or looking at it another way, the goods and services classified under the umbrella of indirect procurement are commonly bought for consumption by internal stakeholders (business units or functions) rather than the external customer or client. Indirect Procurement categories include, but are not limited to:

• Marketing related services (media buying, agencies)
• Professional Services (consultants, advisers)
• Travel Management
• IT related services (hardware, software)
• HR related services (recruitment agencies, training)
• Facilities Management and office services (Telecoms, furniture, cleaning, catering, printers)
• Utilities (gas, electricity, water)
• Consumable (Grease, Oil etc.)
• MRO (Maintenance repair operation)
• Capital Goods (Plant & machinery)
• Fleet Management

The overarching classification of ‘Indirect’ can vary from business to business and increasingly the distinction between what is a ‘Direct’ cost and an ‘Indirect’ cost can become blurred when looking at such expenditure items as Fleet and Transportation.

Organizations with a clear definition of ‘Direct’ Procurement (often called Goods for Resale, primary procurement, common goods procurement or core procurement) have spent decades engineering their primary supply chain – ensuring:

• Goods for resale (GFR) margin is at or above industry standard
• Risk is kept to a minimum
• Long term supply has been assured with preferred suppliers
• Relationships have been built and developed over time
• Processes have been engrained into the core business
• Senior executives and Board members acknowledge the value of the supply chain in light of business objectives.

Direct procurement are those items and goods that form integral part of your production or product that your organisation sells to the public or other organisations. Examples of items and goods classified under direct procurement are: Power (Electricity), Petroleum Products (LPG, LNG, AGO, Lubricants etc.), Raw materials, production machines spares etc.

While indirect procurement are those purchases of goods and services that do not form part of the input to your production or items that your organisation sells to its external customers. Examples of such items are; your computers, stationery and office consumables. 

The difference is excellently described in the link I attach:

https://blog.procurify.com/2013/09/25/whats-the-difference-between-indirect-and-direct-procurement/

Thanx for asking!

thanks for the invitation my point  of view  the answers as follows :-

1-  direct procurement main activity is acquiring materials , goods for purchasing from the right supplier at lowest cost etc.

2- indirect procurement is to follow up the stock , pricing , etc and report to direct procurement people in able  to  procure raw materials , goods .

thanks .

Thank you for the invitation. You have already received the ‘generic’ answers to this question from other invitees.

Let me increment and add value to this important question.

As we all agree that there are ‘costs’ to Procurement whether direct or indirect.   The cost of direct procurement are considered major costs and you are more likely to concentrate on these costs because these are costs directly related to producing goods and generating value. 

The important point here is that indirect costs can significantly hurt your bottom line as these costs can run in multiple categories and will drain your procurement resources.   Therefore, as a part of strategic management, you must  have visibility and control on indirect costs, identify potential areas of savings and look for new opportunities to reduce indirect costs. My point is make indirect costs just as valuable as direct costs.

We all have a goal. Make procurement a profit center.

All the best

Pls.see the answer from prev.question

((This is an important question which most Procurement Departments do not recognize as a challenge. Indirect Procurement is defined as( the purchasing of goods and services that enable your day-to-day business activities. Indirect spend can include office supplies, travel, IT services, packaging materials, equipment, janitorial services, fixtures, office furniture, and so on. These are the goods and services that are necessary for you to run your business) and not directly used in the manufacturing of your product such as Raw Material, Manufacturing Equipments, etc. or those material purchased for re-sale.

Taking in consideration the rule of 80/20 and the total value of purchases between Direct Procurement and indirect procurement, we can see great impact of savings on profit margin if Procurement can optimize its indirect procurement process.))

https://www.hcmworks.com/blog/what-is-indirect-procurement-and-how-is-it-affecting-your-business

Direct is to buy from a source that you know and you have contracted with and the indirect is to buy through another company therefore usually you do not know the source of goods you are procuring.