The ultimate guide to indirect procurement in 2024

Indirect procurement is the sourcing of goods and services that support your business’s day-to-day operations but aren’t directly involved in manufacturing the finished products you sell to customers. Ultimately, indirect procurement often involves a broader range of suppliers and ad-hoc purchasing to meet varied needs across the organization.

Also known as indirect sourcing, indirect procurement is vital for businesses to run efficiently, safely, and profitably. It covers everything from the personal protective equipment (PPE) your team wears to keep them safe, to the laptops and software you use to run productive meetings, to the marketing consultants you engage to supercharge your growth.

Direct procurement and indirect procurement are both necessary parts of every business’s procurement strategy, but they have different roles to play.

Direct procurement is the sourcing of goods or services that are used to create your business’s products or services, such as the raw materials you need to manufacture the finished product.

This means that direct procurement is directly linked to your company’s output, tied to your company’s production output, costs of goods sold (COGS), and profit margins. Disruptions in direct procurement can significantly impact production. For example, if you can’t get the components needed to produce your top-selling item, these supply chain delays could lead to low inventory and reduced sales, negatively affecting your business’s bottom line.

Direct procurement and indirect procurement require different approaches. Direct sourcing usually involves long-term, strategic contracts and less frequent purchasing cycles, whereas indirect sourcing is often more ad-hoc, reactive, and involves a wider range of suppliers, making it harder to plan for.

Here’s an overview of some key differences between direct sourcing and indirect sourcing:

Direct sourcing

• Procures goods and services used to produce the final product you sell to customers
• Impacts production and revenue
• Involves long-term, strategic supplier contracts
• Less frequent purchases

Indirect sourcing

• Procures goods and services used to support the day-to-day running of your business
• Impacts business operations and efficiency
• Often involves short-term or ad-hoc supplier contracts
• More frequent purchases

Indirect procurement is important because it supports business continuity and has a significant impact on your business’s performance. While it’s not tied to production output in the same way as direct sourcing, indirect sourcing is necessary to acquire many of the goods, services, and activities needed to keep your business operating efficiently every day.

It also represents a significant opportunity for strategic, forward-thinking procurement teams. Indirect sourcing expenses account for over a third (~35–45%) of the average company’s overall spend. But in comparison to direct sourcing, it’s often overlooked. This happens for a few reasons:

• Indirect sourcing is decentralized across teams and suppliers, meaning it can be hard to accurately measure and control
• It frequently involves reactive or unplanned purchases, like spot buys
• It often involves low-value, high-frequency sourcing events that are hard to dedicate meaningful resources to. 

By bringing a strategic sourcing approach to your indirect procurement, you can bring more spend under governance, scale your team’s best practices, and save time and money with every sourcing event.

Learn how Keelvar’s all-in-one sourcing solution can help your business optimize indirect procurement→

To elevate your indirect procurement strategy, use these best practices to unlock cost and time savings.

1. Implement a centralized procurement process

If you’re still doing sourcing the old-fashioned way—siloed emails, manually updated spreadsheets, and impossible-to-scale phone calls—you’re missing out on huge efficiencies.

Implementing a centralized procurement process transforms your workflow, giving you complete control and visibility over all spend. Use a powerful all-in-one sourcing solution (like Keelvar) to enhance your direct and indirect sourcing, deliver optimal results in every event, and win back time for your team.

Keelvar’s eSourcing solution helps teams centralize their direct and indirect procurement processes for optimal results, every time

Keelvar’s centralized system improves your indirect sourcing process in multiple ways:

• Autonomous Sourcing removes up to 100% of manual work for your team while driving competitive bidding to reduce costs in categories you previously couldn’t spend time on
• Sourcing Optimizer brings the power of sourcing optimization to your indirect procurement, using AI to fuel analysis and decision-making for more informed, strategic supplier awards 
• Customizable workflows let you scale your best practices by turning them into repeatable automated workflows that anyone in the business can initiate. Let requestors kick off sourcing events themselves to save time for your team, all while adhering to your procurement team’s processes and compliance requirements.
• Bring all sourcing data into one central platform for more visibility, greater governance, and deeper insights that inform future procurement strategies. Integrate your eSourcing solution with the other tools in your sourcing and procurement tech stack to create connected, cohesive workflows from beginning to end.

Keelvar’s user-friendly UI empowers requestors to kick off automated sourcing events using natural language, helping you to bring more indirect spend under governance

2. Conduct regular spend analysis

Analyze the data in your procurement tool to get granular insights about your indirect sourcing. With everything consolidated, you can understand where and how money is spent across key categories and suppliers. Then, use the learnings from your spend analysis to identify optimization opportunities, more efficiently forecast spend, and improve budgeting.

Keelvar’s rich reporting helps you analyze your spend for direct and indirect sourcing at a glance

3. Set KPIs to measure performance

Establish metrics and KPIs to help you monitor and improve your indirect sourcing. Whether you want to reduce costs in specific categories, speed up procurement cycles, or provide better procurement services to internal stakeholders, having clear goals to work toward will help you track your progress—and share your successes.

Some metrics you could track include:

• Cycle length
• Cost savings and reductions
• Number of sourcing events
• % of events automated
• Hours saved for your procurement team
• Category spends
• Requestor satisfaction

4. Streamline supplier relationship management

As part of your indirect sourcing, you may have hundreds or even thousands of suppliers. Maintaining positive relationships with every one of them would be impossible—without the right systems in place.

Use your sourcing tool to manage all supplier relationships from one place. 

Centralize all supplier and sourcing event data to quickly check the status of bids, communicate with vendors efficiently, and deliver better experiences that build trust and drive growth.

Manage all supplier relationships from one central place and use bots to proactively keep bidders in the loop