For indirect spend teams, zero-based budgeting is a best practice. In direct procurement, should-cost analysis - analysis conducted by a client of the expenses incurred by the supplier in delivering a product or service, to guide negotiations - is a much-used cost management practice. Also, streamlining suppliers and pooling volumes, as direct procurement does, can create better savings opportunities for indirect spend. Investing in strategic rather than tactical relationships and building strong supplier relationships is something indirect spend teams can learn from their counterparts. The relationship with suppliers is transactional, with competitive costs being the key focus. In indirect procurement, the focus is on spend management, not supplier collaboration benefits. Here, relationships with suppliers are usually long-term and collaborative. Supply schedules and continuity directly affect production the quality of raw materials impacts the quality of the end product, and thus the company’s reputation and credibility. Direct procurement teams invest a lot of time, effort and energy into building and maintaining relationships with suppliers. One of the key differences in approach has to do with supplier relationship management. Here are five core areas of procurement where the distinctions between direct and indirect spend are highlighted: Supplier relationship management

But while both teams essentially procure, their approaches and responses are dramatically different.

Both are equally essential to the running of a company, and one cannot exist without the other. Indirect spend refers to expenses incurred for materials, services and maintenance required to operate the business. What is direct procurement?ĭirect procurement - or direct spend, or direct cost - involves the procurement of goods, materials and services directly related to the production of goods and/or services that a business is offering. Understanding the similarities and differences between direct and indirect spend will ultimately help you plan the roadmap for successful supply chain and spend management strategies. However, they are very different functions that require very different approaches and tools. Direct and indirect procurement are both critical to businesses.

Coupa indirect procurement