What is Indirect Procurement? Indirect procurement is buying goods and services that are not directly the company to re-sell, for example, buying IT for Tesco Group is indirect procurement but buying Apples to make apple pies for thier consumers is classified as direct. Direct procurement can be described as the act of acquiring raw materials and goods for production. These purchases are generally done in large quantities, acquired from a pool of suppliers at the best possible cost, quality and reliability.
“Procurement is the business management function that ensures identification, sourcing, access and management of the external resources that an organisation needs or may need to fulfil its strategic objectives”.
It’s important to distinguish between purchasing and procurement because the term can be used interchangeably by people outside of the profession.
What is Indirect Procurement? Is it different to Purchasing? Purchasing tends to be more basic and involves a non-strategic team or member of staff to buy goods and services for an organisation. A basic purchasing organisation may even work from paper PO’s to raise an order and the team is more likely to be involved in buying straightforward commodities with some minor negotiation to get the best prices. Indirect procurement is purchasing goods or services, not for resale.
Procurement, on the other hand, is a more developed method of buying goods and services for the organisation by selecting vendors using a formal selection process such as an RFX.
The procurement function will acquire all source the goods and services on an organisation cross-functional level. Some procurement functions can still be tactical i.e. they use tendering for their procurement but they may not go beyond tactics and be a strategic partner to the organisation.
If done well procurement’s position can be elevated in an organisation and form the fabric or core of their commercial activity.
A good procurement person needs to understand the business objectives and listen to their stakeholders and really understand what the company stands for. Other departments want to save money and use their budget wisely but this is not the number one driving force. Therefore the procurement manager must embrace the business model and place realising the goals of the organisation as their number one objective.
Being a true business partner means that you need to add value, and you can do this by being commercial. It is your role to know about the market not just on the supply side but who are our customers, why do they support us and what part of our story do they identify with. On the flip side who are suppliers, what do they want and why do they believe that working with us is a win-win situation.
As a function do you know what your strengths and weaknesses are? The perception of the function can make or break strategic alliances, therefore you need to work on elevating the profile of the function as being big picture rather than purely focused on cost-cutting.
The procurement function can add value to the bottom line, the function is designed to bring commercial acumen to the business, to balance governance with flexibility and to ensure that the organisation can achieve optimum value for money.
Read the blog to gain a better understanding and find out what is Procurement?