Procurement Glossary & Terminologies

Glossary / Letter I / Indirect Spend

Indirect Spend

What is Indirect Spend ?

Purchasing goods and services that, albeit in a non-essential capacity, aid a company’s operations is known as indirect spending in procurement. These indirect spend items include décor, office supplies, and stationery.

Supplies for indirect spending are nonetheless vital to your business in unique ways. However, they have no direct influence over the end goods and services you offer your clients. Instead, they assist in making sure the conversion of raw materials into final commodities is successful.

Benefits of Indirect Spend

  1. Employee-Driven Spending

Most employee-driven spending is overseen by procurement specialists who concentrate on indirect spending. In other words, expenditure management is greatly influenced by where it comes from. An employee can ask for a replacement headset if theirs breaks. A team member must make travel arrangements for a customer visit, including lodging. These indirect costs could spiral out of control if a business doesn’t have tight guidelines to prevent overspending.

  1. Management of Supplier Relationships

Teams in charge of indirect procurement typically manage internal stakeholders while they may develop deeper ties to specific vendors. Prominent procurement staff members may search for cost-saving options through strategic sourcing alliances. For instance, if all computer displays were purchased from the same business, they might qualify for a discount and be able to make some savings.

  1. Spend control

Because indirect spending can be a source of waste inside a business, it is extensively focused on spend management. Generally speaking, the only way they can affect the bottom line is to keep expenditures under control.

  1. Measuring Performance

The most used metric for indirect procurement is cost savings. Indirect spending is notorious for operating outside procurement’s oversight and being dispersed throughout the company. Large contracts for business catering, employee travel, or IT services are frequently included.

Procurement must have complete visibility of their organization’s expenditures to assess performance. To do this, all indirect spending must be combined into categories and suppliers.

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