What is the difference between direct procurement and indirect procurement?

A well-organised invoice management is important for your company. Many companies choose to outsource their indirect procurement because of time- and moneysaving issues. Outsourcing the indirect procurement can save up to more than 20% on indirect purchasing costs. There are two main types of procurement activities:

• Direct procurement
• Indirect procurement

In this article we explain the differences between those procurement activities and the benefits for your company.

Direct procurement

The meaning of direct procurement is the process of purchasing or obtaining raw materials, resources, goods and services that are indispensable for the core business of the company. After been processed, this goods or services will be sold to the end consumer. For example, if your company produce cycles and you get the tyres delivered by a supplier, this is direct procurement.

Indirect procurement

Unlike direct procurement, indirect procurement deals with the acquiring of products and services which don’t have an essential role in the core business process. It only supports business operations. For example office supplies.

The benefits of outsourcing the indirect procurement

Because the indirect procurement does not have any influence on the core business, but still is time- and money spending, companies choose to outsource them. Outsourcing the indirect procurement brings the following benefits:

• Reduce internal costs up to 21%
• Reduce supplier base
• One supplier, one invoice, one point of contact
• Reduce the workload
• More time for strategic procurement

With outsourcing your indirect procurement, you can reduce up to 80% of the supplier base. Instead of having a lot of different C suppliers for your indirect procurement, with different invoices and different payment terms you only have one invoice with one point of contact and payment terms. This can reduce your internal costs up to 21%. And that’s the big win for your company.