Indirect Spend
Summary Definition: The goods and services a business purchases to support day-to-day operations that do not directly contribute to the production of its core products or services.
What is indirect spending?
Indirect spend refers to a company’s spending on goods and services that indirectly support the production or delivery of its core offerings. These purchases help employees, systems, and facilities function efficiently across the organization, which in turn supports its production processes.
Indirect spending is often decentralized, with buying decisions spread across departments, which can limit visibility and oversight. It also typically involves a high volume of suppliers and smaller, recurring transactions that accumulate over time.
For these reasons, indirect spending can become unpredictable and murky, making proactive management essential for controlling costs and improving efficiency.
Key takeaways
- Indirect spend is the purchasing of goods and services for administrative and business activities that support an organization’s primary production.
- Effective indirect spend management improves spend visibility, which drives cost savings and enables more accurate budgeting and forecasting.
- Indirect spend management best practices include centralizing purchasing policies, leveraging spend data and analytics, and aligning finance and procurement teams.
Common indirect spend categories
Indirect spending typically falls into one of several possible categories:
| Categories | Examples |
| Office Supplies and Equipment | Computers, furniture, and break room amenities |
| Technology and Software | Software subscriptions, cloud services, IT support |
| Professional Services | Legal counsel, PR consulting, advertising agencies |
| Facilities and Utilities | Rent, cleaning services, building security |
| Human Resource Services | Recruiting tools, training programs, payroll-related services |
Indirect vs. direct spend
Indirect spending includes goods and services that support internal business operations, but do not directly contribute to the creation or delivery of an organization’s core offerings. Instead, these purchases enable day-to-day functionality across departments and are, therefore, often spread across multiple teams and suppliers.
Direct spend, on the other hand, includes purchases that are essential to the production process and have a direct impact on finished goods.
Both types affect an organization’s bottom-line revenue, but in different ways, requiring distinct management strategies and oversight.
Indirect spend management strategies
Indirect spend management strategies focus on creating structure and accountability without slowing down day-to-day business operations.
- Standardized purchasing policies: Clear guidelines for how indirect goods and services are requested, approved, and purchased.
- Spend data analysis: Continuous review of spend information to identify trends, gaps, and improvement opportunities.
- Strategic sourcing: Consolidated list of suppliers that offer better pricing and services.
- Cross-team coordination: Aligned finance and procurement teams that support budget goals and compliance requirements.
- Spend management technology: Automated tracking, approvals, and reporting that enable large-scale indirect spend management.
Indirect spending management benefits
Instead of reacting to fragmented or untracked spending, proactive indirect spending management provides organizations with a range of financial and operational benefits, such as:
- Budget visibility: A centralized view of indirect purchases makes it easier to understand spending patterns and uncover inefficiencies.
- Spend efficiency: Improved oversight helps limit maverick spending, prevent duplicate purchases, and identify savings opportunities.
- Supplier performance: Greater awareness enables more strategic vendor selection, leading to improved pricing consistency and accountability.
- Financial planning: Clearer insights support more accurate budgeting and forecasting.
