Indirect Procurement - The Underdog

Indirect procurement is underloved in the sourcing world. Direct is big spend, highly-strategic, and ... sexy -- if you can call it that. By contrast, 70-80% of an average organization doesn't even know what Indirect Procurement means. LightSource is building the "operating system for all procurement teams" (not just direct alone), and as such we feel it's important to write about indirect procurement and share our thoughts with the rest of the professional world.

In layman’s language, "Indirect procurement" refers to goods and services which companies buy that are not related to the end product/service of the company. That means indirect procurement provides for the support system that is required to operate a company to produce a product. Unlike direct procurement, which is focused on procuring raw materials and other production inputs, indirect procurement covers a wide range of expenses that support a company's operations, such as office supplies, marketing materials, and maintenance services.

One important distinction worth making: some Indirect spend is actually highly strategic in nature. Yes, some of the deepest tail-spend is best done through punch-out catalogs, but within some companies, Indirect is actually a larger spend bucket than Direct. For one of our customers that comes to mind, their spend with Fedex and Google Cloud were there two single largest contracts.

For most organizations, the categories in indirect procurement are similar but the distribution/proportion of spend across categories varies widely based on the industry. For instance, marketing is one of the largest spend in retail/consumer goods company whereas marketing spend is very small in companies in a chemicals company.

There are several hurdles that indirect procurement organizations face daily. We can write a book on the challenges but here are a few heavy hitters:

• High stakeholder management: Expenses are often spread out across many different departments and business units, making it extremely challenging to manage so many stakeholders. In addition, stakeholders typically feel that they are losing control of their function’s budget. Hence, it often results in a tug-of-war between stakeholders and indirect procurement teams to run sourcing. Furthermore, several stakeholders believe that they can run sourcing better than the indirect procurement team.
• Low investment in Indirect Procurement: Companies always prioritize developing their direct procurement team over indirect procurement team esp. in small-mid cap companies. Hence, indirect procurement teams are super stretched or are not empowered to perform their jobs. Large cap companies are a bit better and choose to centralize their indirect procurement processes, allowing them to negotiate better deals with suppliers, streamline processes, and reduce costs.
• Fragmented SKUs: The number of SKUs/ services in indirect procurement is far larger than direct procurement. It’s because indirect procurement buys everything from print paper, restroom cleaning company, paralegal team, marketing agency and the list goes on. The scope of the indirect procurement is huge. Managing such a huge scope and number of services/ items is commendable and the indirect procurement team makes it happen!

In conclusion, Indirect Procurement is a crucial aspect of any company's operations, as it covers a wide range of expenses that support the company's daily operations. By centralizing the procurement process, companies can negotiate better deals with suppliers, streamline processes, and reduce costs, helping to drive long-term success and competitiveness. By working closely with suppliers and continuously improving the procurement process, companies can ensure that their indirect procurement activities are aligned with their overall goals and objectives, allowing them to achieve their desired outcomes.

When small-mid cap companies use LightSource to manage indirect procurement they realize double digit savings with increased cost transparency.

In a world where Indirect Procurement teams are the underdogs, procurement operating systems like LightSource empowers Indirect Procurement professionals to be superstars. Procurement teams can use LightSource to be more strategic, while conserving their time. LightSource solution comes with an excellent ‘white glove procurement concierge service’ that is the best combination of software and services in the market.

Reach out! We’d love to hear from you. Time that Indirect Procurement professionals feel that e-sourcing software are technologies and services that can transform their day-to-day work life.

Check us out at https://lightsource.ai/!