Look at your office desk.
The papers, pens, computers, and even the cleaner who dusted it this morning technically fall under indirect procurement.
Indirect Procurement is essential for the daily functioning and maintenance of a business as well as ensuring employees are provided with adequate equipment and training.
Speaking metaphorically, If your business was alive, Indirect Procurement would cover the food it eats, the clothes it wears, and even the knowledge it seeks. In a nutshell, everything paid for by the business that’s not directly connected to the goods they manufacture or services they provide is classified as Indirect Procurement.
Why Businesses Need to Pay Attention
Do you notice yourself breathing?
It’s something we take for granted, but we won’t last long if it suddenly stopped. That’s what Indirect Procurement is like for a business, you don’t really think about it but without this process, your finances will start going downhill fast.
The scope of Indirect Procurement is vast and includes things such as your business’s IT needs, Marketing, Human Resources, Outsourcing contracts, Marketing, Utilities, Consumables, Temporary Labour, and Travel to name a few.
Keep An Eye On The Little Things
A mistake that many businesses make is that they only track Indirect Procurement for the costlier Procurements such as new IT equipment or conducting employee training. However, the real culprit for indirect spending going out of hand is the little purchases like stationery and consumables that are not properly tracked.
Not keeping track of things like paper, pens, and pantry items can cause costs to add up over time and businesses may end up with a surplus or a deficit of certain goods, furthermore many companies buy these goods at consumer prices from B2C vendors, which have considerable markups compared to their B2B counterparts.
Work Smarter, not Harder
Moving on to how Indirect Procurements are processed, manually filling out procurement forms every time an employee needs something is not a good solution as it takes time to review and it has to be checked against other orders before it can be approved.
This drives efficiency into the ground as employees have to wait on approvals whilst supervisors overseeing the purchase orders have to deal with a huge backlog if they go case by case.
These problems compound as a business gets larger, manual procurement is feasible for a small business but once your employee numbers start rising, keeping track of indirect procurement manually becomes very time-consuming.
The Solution to all your Indirect Procurement Problems…
… is switching to an eProcurement platform.
That’s right, this is the simplest solution for most problems that arise from manual procurement processes. Right now, one of the biggest issues faced with managing Indirect Procurement is sourcing and creating a whole new procurement order each time something is needed for the office.
End-to-End eProcurement Solutions like ADAM can make this a non-issue by automating and streamlining all but the initial creation and final approval of a procurement order. That’s not all, Sourcing is also simplified by offering a B2B marketplace for businesses to easily sort through and choose vendors for the goods they need.
This level of convenience was previously reserved for B2C marketplaces but advancements in eProcurement software have allowed the business to merge the convenience of B2C Marketplaces and the accounting functionality needed to generate purchase orders into one system.
Advantages of eProcurement
- Better Tracking
Employees no longer have to keep manual track of their procurements as it is actively monitored by the software once a purchase order is made, this allows for easy sorting of purchase orders and the software will even send out alerts about potential issues like duplicates or incorrect pricing if it detects something.
- Better Vendor Management
eProcurement software allows for better sorting and price comparison between vendors, this, in turn, leads to more negotiating power for the business and it also motivates vendors to offer better deals and perks to businesses to drive sales.
Negotiating good contractual rates and terms is especially important when it comes to Indirect procurement as these can often be long-term standing orders and making a bad deal can cause problems for the business in the future.
- Increased Efficiency
The need for human intervention in the procurement process is greatly reduced due to the automation of various steps in the procurement flow, this greatly speeds up the process due to the software being able to do these functions much faster than a human worker. In addition to this, workers are now able to redirect their time to other efforts. This more than doubles the efficiency of a manual procurement process
Direct Procurement VS Indirect Procurement…
…is the first mistake people make when it comes to comparing these two functions. It should not be VS, rather it’s Direct procurement working together with Indirect procurement.
These two processes might be fulfilling two different functions but ultimately, they work symbiotically, and balancing both is the best way to maximize efficiency.
Direct Procurement is often given the limelight due to its direct link to the business’s services or goods manufactured, but it can be argued that Indirect Procurement is just as (if not more) important. This because this process is what keeps the engine running, it holds the responsibility for the day-to-day functionality of a business.
Ultimately, Indirect Procurement provides the environment needed for Direct procurement to take place, and conversely, Direct Procurement can affect the revenues generated by the company that is used for indirect procurement.
Better Indirect Procurement for Direct Benefits
Indirect Procurement is something we take for granted sometimes, but that does not mean it’s not important, take the first step towards a better way of handling your indirect procurement by identifying the areas of your spending you are not paying attention to and adopting an e-procurement process to further streamline your business Indirect Procurement flow.
Don’t wait for spending to get out of hand, check out ADAM to find a solution that suits your Indirect Procurement needs!
FAQ
Procurement involves finding and agreeing to terms and acquiring goods, services, or works from an external source via a tendering or competitive bidding process
Everything paid for by the business that’s not directly connected to the goods they manufacture or services they provide is classified as Indirect Procurement
Indirect Procurement is essential for the daily functioning and maintenance of a business as well as ensuring employees are provided with adequate equipment and training
Direct Procurement deals with the procurement of goods connected to a business’s own goods and services. Indirect Procurement deals with all the goods and services that don’t fall under Direct Procurement
Indirect procurement holds the responsibility for enabling the day-to-day functionality of a business
