Workforce & Finance Glossary

Indirect Procurement

Summary Definition: The process of acquiring a product or service that supports a company’s daily operations but isn’t directly tied to the production of its core offerings.

What is Indirect Procurement?

Indirect procurement refers to purchasing goods and services that support an organization’s day-to-day operations, rather than creating its own offerings for customers.

Purchases often vary by industry and occur across multiple departments. A healthcare firm, for instance, might invest in premium cybersecurity tools to protect sensitive patient data, while a tech company could focus on cloud subscriptions to support its distributed teams. Other examples include:

Office supplies: Pens, paper, printer toner, etc.
IT products: Software support, cloud subscriptions, or cybersecurity tools
Facilities management: Janitorial services, utilities, security staff, etc.
Professional services: Legal representation, PR consulting, and freelance work
Travel and hospitality: Airfare, lodging, catering, etc.

Such purchases are crucial not only for maintaining daily operations but also for contributing to strategic business outcomes as they maintain functional continuity, employee productivity, and operational efficiency.

Key Takeaways

Indirect procurement involves purchasing goods and services that support daily business operations, but are not directly related to the production of core offerings.
Effective indirect spend management, achieved through centralized processes, strategic sourcing, and performance tracking, can drive cost savings, mitigate risk, and enhance organizational efficiency.
Poor indirect purchasing oversight, however, can lead to maverick spending, budget overruns, and operational inefficiencies.

Indirect vs. Direct Procurement

Direct and indirect procurement are equally essential to organizational success, but they address distinct operational needs and involve different stakeholders.

	Indirect Procurement	Direct Procurement
Purpose	Supports daily operations and internal business functions	Supports the production of goods and/or delivery of services
Stakeholders	Used by internal departments (e.g., HR, IT, marketing, etc.)	Used by manufacturing, operations, or product teams
Process	More flexible and unique to each department’s needs or processes	Highly structured and uniform across the organization to align with production schedules
Focus	Cost control, supplier diversity, and timely availability	Supply chain optimization, quality control, and on-time delivery
Challenges	Fragmented spend, lack of visibility, and inconsistent supplier terms	Price volatility, supplier risk, and production delays

How to Manage Indirect Sourcing

Indirect purchasing often lacks centralized oversight, making it difficult to track and control across the organization. As a result, businesses may risk limited visibility or awareness of overall spend due to independent team processes.

Therefore, an efficient indirect procurement process flow requires structured, repeatable practices that balance control with flexibility:

Identify spend categories: Group all indirect purchases into categories, such as IT, facilities, marketing, and professional services.
Establish procurement processes: Establish clear policies and approval workflows for each group to ensure consistency and accountability.
Standardize supplier selection: Develop a list of preferred vendors based on consistent criteria (e.g., pricing, service levels, and contract terms). Where appropriate, run competitive bids or issue Requests for Proposals (RFPs) to ensure vendor transparency and competitive rates.
Use procurement software: Implement digital tools to automate purchase orders, requests, approvals, and reporting. This enhances visibility, enforces compliance, simplifies audit readiness, and frees employees from repetitive, manual tasks.
Collaborate with internal counterparts: Work closely with department leaders to understand specific needs and avoid redundant or unnecessary purchases.
Analyze indirect procurement spend data: Perform ongoing spend analysis to identify cost-saving opportunities, track purchasing behavior, and ensure operational alignment.
Review and optimize performance: Routinely assess supplier performance and procurement efficiency. Make updates to sourcing strategies, contracts, and tools based on what the data reveals and how business needs evolve.

Indirect Sourcing Performance Indicators

Similar to direct procurement, indirect sourcing teams should track specific performance indicators to determine if their current indirect procurement strategy is working, whether it provides value beyond cost savings, and if inefficiencies exist.

Indirect Purchasing Indicator	What It Measures
Cost Savings Achieved	Total financial benefit gained through negotiation, consolidation, or alternative sourcing strategies.
Supplier Compliance Rate	Percentage of purchases made through approved vendors, showing adherence to procurement policies.
Maverick Spend Ratio	Volume of purchases made outside established procurement processes or contracts.
Contract Utilization Rate	Frequency with which existing vendor agreements are used for relevant purchases.
Purchase Order Cycle Time	Time taken to complete a purchase, from request to fulfillment.
Procurement ROI	Value delivered (e.g., savings and risk reduction) compared to the cost of running procurement.
Stakeholder Satisfaction	Internal feedback on procurement’s responsiveness, tools, and overall value to the organization.