What is Indirect Procurement?
Indirect procurement refers to the purchasing of goods and services that do not directly go into the final product or service a company sells (unlike direct procurement, which covers raw materials and components). Indirect spend supports the day-to-day operations of the business itself.
Typical Categories of Indirect Procurement:
| Category | Examples |
|---|---|
| IT & Telecom | Software licenses, cloud services (AWS, Azure), laptops, printers, mobile phones |
| Facilities & Real Estate | Office rent, utilities, cleaning services, security, maintenance |
| Professional Services | Legal, consulting, audit, temporary staffing, recruitment |
| Marketing & Advertising | Agency fees, media buying, promotional items, events |
| Travel & Expenses | Flights, hotels, car rental, corporate credit cards, T&E policy management |
| HR & Training | Training programs, benefits administration, wellness programs |
| Office Supplies & Services | Stationery, furniture, catering, coffee/tea, courier services |
| MRO (Maintenance, Repair & Operations) | Spare parts for facilities, tools, safety equipment |
| Capital Expenditures (CapEx) – sometimes included | Office fit-outs, machinery not used in production |
Key Characteristics of Indirect Procurement:
- High volume of low-value transactions (“long tail” of spend)
- Large and fragmented supplier base
- Many stakeholders across the organization
- Often managed via P-cards, expense reports, or ad-hoc requisitions
- Historically less controlled → higher maverick/off-contract spending
Why Indirect Procurement Matters More Than Ever:
- Represents 15–30% of total revenue (in service industries often >50%)
- Average savings potential: 8–15% (sometimes 20–25% in poorly managed programs)
- Heavy impact on ESG goals (travel emissions, supplier diversity, sustainable supplies)
- Increasing regulatory pressure (CSRD, SEC climate rules, German Supply Chain Act, etc.)
- Rapid digitalization → new spend areas (SaaS sprawl, AI tools, cybersecurity)
Common Challenges:
| Challenge | Typical Root Cause | Impact |
|---|---|---|
| Maverick buying | Lack of visibility & policy enforcement | Leakage, risk, lost savings |
| SaaS sprawl | Shadow IT, no centralized renewals | Duplicate tools, overspending |
| Supplier fragmentation | No preferred supplier programs | Higher prices, admin overhead |
| Poor data quality | Multiple ERPs, no spend analytics | Inability to leverage volume |
| Stakeholder resistance | “I need this specific brand/tool” | Slow adoption of catalogs |
Best-Practice Indirect Procurement Operating Model
- Spend Analysis & Category Management – Cleanse and classify 100% of indirect spend; focus on the strategic 20% categories.
- Source-to-Pay (S2P) Digital Platform – Intake → catalog → guided buying → PO → invoice → payment (SAP Ariba, Coupa, Ivalua, etc.).
- Tail-Spend Management – Punch-out catalogs, Amazon Business integration, AI-powered spot-buy solutions.
- Supplier Relationship Management – Preferred supplier programs with rebates and sustainability scorecards.
- Governance & Policies – Clear delegation of authority, no-PO/no-pay policy, quarterly reviews.
Quick-Win Roadmap (6–18 months):
| Timeline | Action | Expected Benefit |
|---|---|---|
| 0–3 months | Full spend visibility project | Baseline + quick wins 5–8% |
| 3–9 months | Implement guided buying & catalogs | 40–60% transactions on-contract |
| 6–12 months | Consolidate top 20 indirect categories | 10–18% savings |
| 12–18 months | Automate T&E, SaaS management, tail spend | Ongoing leakage reduction |
Indirect procurement has evolved from a back-office function into a strategic lever that directly impacts EBITDA, working capital, ESG compliance, and employee experience. Companies that apply the same rigor as direct procurement consistently outperform on cost and risk.