When managing an entire business’ procurement process, it’s likely most people would focus on the direct procurement practices that outline the major revenue-generating aspects of the business. But anyone who has experienced shopping at major retailers worked at mature organizations or even held their own self-started businesses know how important indirect procurement is to the overall health of any particular business.

The evolution of the business landscape only further adds complexity to the processes within the procurement aspect of any operation. More and more brands have increased their focus on the total customer experience in regard to their products and/or services. That’s why having a more in-depth overview of all purchase aspects of your business is key to remaining competitive in any market.

How Indirect Purchases Affect Your Business

Those only just stepping into procurement processes can be excused for just realizing that there are two distinct perspectives to procurement: direct and indirect. Georgia Wilson, in an article for Procurement Magazine, succinctly identifies direct purchases as the “procurement of materials parts or components to make a product”. Whereas indirect procurement focuses on purchases necessary to keep a company operating on a day-to-day basis, such as office supplies, event materials, and more.

While indirect procurement often gets sidelined as a simple “necessity” for any business, it’s become clear that its impact on businesses has a dramatic effect on their competitiveness in any given market. In a world where environmental, social, and governance (ESG) aspects of your business become strong indicators for long-term sustainability, it’s highly advisable that even indirect purchases adhere to proper guidelines and strategic initiatives that shape the company's direction forward.

How Digitization Takes a Step Forward

In an article for Mckinsey, Pierre de la Boulaye has observed the increased need for digitization of indirect procurement processes not just for the sake of modernization but for more effective spending in the current business landscape as well. Not only will the introduction of smarter procurement software systems allow for better spend management and analytics, but these have the potential of crafting a more robust procurement process overall.

Ordering with long-standing vendors and suppliers can be made much more seamless, especially with the proliferation of e-procurement spaces like Alibaba, Amazon, and more. Routinization and automation come into play here as well, with best practices and prescriptive analytics allowing for quicker reactions to market changes and price dynamics.

All in all, a clear indirect procurement strategy supported by the appropriate software tools can lead to better control over cross-functional purchasing, lessening the chance of “maverick” purchase behaviours and a better holistic overview of both internal cost generation and external sale P&L metrics.