Indirect procurement is the sourcing of all goods and services for a business that enable its activity. It is a slow, technology intensive process requiring change management across the organization boundaries.

1. Ashwani Singh
25th Sep 2014
Indirect Procurement

2. What is Indirect Procurement
Indirect procurement is the sourcing of all goods and services for a business that enable its
activity
The indirect procurement is a slow, technology intensive process requiring change
management across the organization boundaries

3. Direct Vs Indirect procurement
Direct Indirect
Definition Cost of doing business Cost of being in Business
Consumer Customer/Client Internal stakeholder
Supply Disruption Business stops Business stops
# of supplier Low High
# of categories Low High
Value High Medium
Spend High Medium

4. Indirect Procurement
Globally common Indirect Procurement categories include
MRO
• Consumables
• Electrical
supplies
• Industrial
supplies
• Capital
Equipment
• Machine
Parts
• Uniforms
• Safety
equipment
TRAVEL
• Air Travel
• Hotels
• Rental Cars
• Travel card
• Meetings
• Car fleet
IT &
TELECOM
• Hardware
• Software
• Services
• Voice & Data
• Wireless
• Property
Management
• Facilities
Services
• Capital
Projects
• Utilities
• Office
Supplies
• Furniture
• Repair and
maintenance
PROPERTIES
PROFESSION
AL SERVICES
• Consultancy
• Financial
advisory
• Engineering
services
• Legal
services
• Advertising
• Promotions
• Trade shows
& events
• Marketing
•Ocean freight
• Rail /
Intermodal
• Airfreight /
Expedited
• Courier &
messenger
• Small
package
• Storage /
warehousing
TRANSPORTA
TION

5. Challenges – Indirect Procurement
 Require significantly more and varied suppliers.
 Have a medium average spend.
 Require larger numbers of smaller purchases, more frequently.
 Consist of more “maverick” (first time) spend.
 Be driven by more internal stakeholders.
 Require diverse experience.
 Be difficult to evaluate.
 Be considered less strategic.
 Struggle with delivering indirect procurement internally

6. Indirect Procurement - Opportunities
Perceived
Opportunity
Purchase
Cost
Quality Costs
Specifications
Inventory Practices
Warranty Terms
Disposal/Salvage Practices
Demand Drivers
Environmental Issues
Freight
Standardization
Procurement Practices
Warehousing Costs
Operational Practices
Actual
Opportunity
Maintenance Expenses
Total Cost Approach

7. Best Practices – Indirect Procurement
Total System Cost
Buyer Cost
Interaction Cost
Profit
Supplier Cost
Total System Cost Savings
Traditional Focus
(price only)
Buyer Cost
Interaction Cost
Profit
Supplier Cost
Strategic
Focus
StrategicTraditional

8. Initiative Process - Indirect Procurement
1. Define category
2. Initial data/ information gathering
3. Segment and prioritize
6. Develop Commodity profiles
Customer needs/expectations
• Current sales • Suppliers
7. Develop indirect sourcing approach
8. Supplier discussions and alternative
review
9. Agreement Execution
10. Implement and maintain
compliance
4a. “What is needed
and how buy?”
(key users)
4b. “How established
current agreement?”
(key buyer)
5a. “What data is
available?”
(auto/manual)
5b. “How is data
stored
and retrieved?”
(auto/manual)

9. Concept to reality - Indirect Procurement
Immediate plays/best deal leverage1
Price/cost restructuring
(Volume leveraging and supply pattern shifts - less
complex)
Short term buy plans
(Volume leveraging, innovation, and supply pattern
shifts - more complex)
Sourcing effectiveness teams (SETs)
(Supplier integration, productivity, standardization,
performance base improvements
2
3
4
Shareholder
equity
economic profit
User education
and training
Process/policy
Enforcement
Measurement
and budget
restrictions
$
Segmentandprioritize
Professional
services
Information
technology
Temporary
services
MRO
Facilities
Travel
Utilities

10. Key Strategies – Indirect procurement
 Choose Preferred Suppliers
 Focus on and influence key executives
 Manage with Automation and Measurement
 Set KPIs

11. Role of Indirect Procurement
 Stronger internal controls
 Better visibility into the entire process
 Better communication across stakeholders to optimize decisions and strategies
 Data analysis (turning raw data into business insights and intelligence)
 Reduce procurement process costs

12. Best Practices – Indirect Procurement
Indirect procurement Spend increasing in the categories of IT, marketing and advertising,
facilities management, MRO, Logistics and professional services.
Indirect spending accounts for
 60 percent - Third-party spend in non-manufacturing companies.
 90 percent - Financial services industry.
 50 percent of spend in manufacturing organizations.
COE - Center-led model of procurement, where a procurement center of
excellence (COE) focuses on corporate supply chain strategies and strategic
commodities, best practices, and knowledge sharing.
Central-led organization with collaboration across business units. Users of this
model achieved savings greater than 10 percent over the last two years in 47
percent of categories.

13. Indirect Procurement
Summary
 To expect different results, we may need updated roadmap.
 No two companies operate the same way – But all have guiding principles
for success.
 Best Practices are a benchmark and guide for Procurement Effectiveness
and Improvement.
 Company leadership expects Procurement Organizations to be more
Transformational vs. Tactically focused.
 Good News: Company leadership is expecting more from our Supply
Chain Management profession.

14. .
“A creative person is motivated by the desire to achieve, not by the desire to beat others”