Direct vs. Indirect Procurement: A Complete Guide

When I first joined procurement, I thought the job was simple: buy what the business needs at the best price. But it didn’t take long to realize that not all purchases are created equal. One of the biggest mental shifts I had to make was understanding the difference between direct and indirect procurement. They sound similar but behave very differently in practice.

Let me walk you through what I’ve learned.

What is Direct Procurement?

Direct procurement is what most people think of when they hear “supply chain.” It’s the stuff that goes into the product your company sells. If you're in manufacturing, that means raw materials like steel, plastic, or electronics. In food services, it's the ingredients. For a construction firm, it's cement, glass, and equipment.

In other words,

No direct procurement = no product to sell.

What Stands Out in Direct Procurement:

• It’s critical to revenue. The things we buy here directly impact what we deliver to customers.
• Supplier relationships matter. You don’t switch suppliers on a whim. You invest in relationships, quality checks, and long-term contracts.
• Forecasting is tied to sales. If sales expect to ship 10,000 units next quarter, we have to make sure materials are lined up well in advance.

What is Indirect Procurement?

Indirect procurement covers everything that helps the business run but doesn’t show up in the final product. Think laptops, marketing services, SaaS tools, office furniture, or even cleaning services.

When I first got involved in indirect spend, I underestimated how messy it could get. You’re buying a lot of small things, often for a lot of different departments, and it’s not always centralized.

The Reality of Indirect Procurement:

• It touches every team. HR, finance, marketing, IT—they all make purchases.
• It’s decentralized by nature. And that can lead to rogue purchases (aka “maverick spend”) if you’re not careful.
• Budgets are fragmented. Instead of being tied to production forecasts, indirect spend is often spread across department budgets.

Differences Between Direct and Indirect Procurement

Indirect Procurement Challenges

• Maverick Spend: People love to DIY their purchases—especially when it’s “just a $200 subscription.” But that adds up fast.
• Lack of Visibility: When everyone’s buying through different tools or spreadsheets, it's impossible to know how much we’re actually spending.
• Too Many Vendors: We once had 17 different stationery suppliers. No joke. Consolidation helped us negotiate better rates and simplify invoicing.
• Overlapping Software Licenses: Multiple teams had signed up for the same tool separately, each paying different rates.
• Weak Policy Enforcement: Even when we had policies, they weren’t enforced. Procurement wasn’t looped in early enough.

Direct Procurement Challenges

• Supplier Risk: One missed shipment of a critical part = halted production line. You need backup plans.
• Lead Times: Some raw materials take months to arrive. You can't just order when you run out.
• Price Volatility: Steel prices can swing wildly. That affects margins if you’re not locked into pricing agreements.
• Inventory Management: Overstock and you tie up cash. Understock and you lose sales. It’s a constant balance.
• Compliance and Regulations: Import/export rules, environmental guidelines—it gets complex, especially with cross-border sourcing.

How Direct and Indirect Procurement Affect Spend Management

When I first joined procurement, I thought spend control just meant “buy cheaper.” Turns out, it's way more nuanced depending on what you're buying.

Direct Procurement: Big Impact, High Visibility

Because direct procurement is tied to production, it's easier to track. You’re making fewer but larger purchases, and they usually go through centralized teams. If your forecasting and supplier contracts are dialed in, you can drive real savings at scale.

• High visibility means better budget planning.

• You can negotiate volume discounts.

• But if a supplier fails? Production stops—and costs skyrocket.

Indirect Procurement: Harder to See, Easier to Miss

This is where things can go sideways without anyone noticing. A dozen small teams buying their own software or services can create a silent drain on cash.

• Spend is fragmented across departments.

• You risk redundant vendors and overlapping tools.

• Without central tracking, you lose cost control.

Lesson I learned: Direct spend is easier to control upfront. Indirect spend needs more systems, policies, and education to keep it clean.

Best Practices That Have Helped Me

Over time, I’ve learned that effective procurement isn’t just about getting the best price. It’s about building the right habits, using the right tools, and knowing when to adapt based on what you're buying.

Here are some practical practices that made a real difference in how I manage both direct and indirect spend.

For Direct Procurement

• Treat your suppliers like strategic partners. If they’re critical to your product, don’t manage them like they’re disposable. Strong relationships = faster responses when things go wrong.
• Use forecasting as a starting point and not a guarantee. Build your plans based on demand forecasts, but keep a buffer. Things change—sales will miss targets, demand will spike, and you need to adjust fast.
  
• Negotiate long-term contracts but add buffers. Fixed pricing helps, but only if you’ve locked in reliable volume. Always build in options for re-negotiation or backups.
• Track quality tightly. We once had a batch of faulty materials that passed the supplier’s checks—but not ours. Having your own quality gates saves downstream costs.

For Indirect Procurement

• Centralize where you can. We moved from team-level purchases to a shared procurement platform. Spend visibility jumped overnight.
• Pre-approve vendors and categories. Create a catalog or preferred supplier list. People are less likely to go rogue when it’s easier to go through the proper channel.
• Make approvals easy, not painful. If your process takes 3 days to approve a $100 tool, people will find workarounds. Automate what you can.
• Train teams on ‘why it matters’. Most maverick spend isn’t malicious—it’s ignorance. Explaining the cost and risk helps teams buy in.

Conclusion

Understanding the difference between direct and indirect procurement isn’t just theoretical. It shapes how you prioritize vendors, manage risk, and even design approval workflows. Direct impacts your ability to sell. Indirect keeps the lights on. Both matter, but in very different ways.

As someone new to the field, if there’s one thing I’d tell myself when I started, it’s this:

Don’t treat all spend the same.

Learn the context.

Tailor your approach.

And never underestimate how indirect spend can sneak up on you.