What is direct and indirect procurement?Comments Off on What is direct and indirect procurement?
The importance of purchasing as an important business process has increased enormously in recent times. Normally, procurement had started as a means of integrating procurement into supply chain management at a time when most large companies were struggling to control their operational costs. Today, the purchasing department has two overlapping disciplines, namely indirect purchasing and direct purchasing.
What is direct procurement?
You can see direct purchasing as the acquisition of raw materials (and goods) for production. These purchases are often purchased in large quantities. Obtained from many suppliers at the best prices, quality and reliability. These purchases are often made and, as expected, are necessary for important matters in the field. Think of a baker who has to buy flour to make bread. When a discipline such as direct purchasing does not function properly and therefore encounters problems, companies are no longer able to make their product and thus generate income. Normally, the direct purchasing comes from the production of the company.
What is indirect procurement?
Indirect purchasing, on the other hand, is the purchase of, for example, services (but also supplies) that are necessary to maintain the daily course of business. One way to coordinate the indirect procurement discipline is that it does not contribute to the company’s results. Think, for example, of repairing equipment, machines, buying office supplies and acquiring services. Without indirect procurement functions, companies would not be able to survive effectively. Normally, direct purchasing comprises about 15 to 30% of a company’s total turnover.
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