The difference between direct procurement and indirect procurement
In small businesses there is one person, most of the time the owner, responsible for the procurement. In big multinational companies like Heineken and Shell, there is a whole department for the procurement. Procurement is an important department because they are responsible for the spendings of the company. A company can split the procurement in two parts: Direct procurement and indirect procurement. We will explain the differences between those two.
Direct procurement
Direct procurement consists the procurement of goods, services and raw materials which contribute directly to the company’s core business. In case of Heineken, for the production of beer products like hop are necessary. Too less hop can temporally stop the production of beer. The suppliers of hop are therefore very important for Heineken. Before contracts are signed, Heineken starts a tendering process and choose the best products, for the best price. The contracts with these suppliers are most of the time lifelong contracts with the best conditions and terms possible for both parties.
Indirect procurement
In opposite of direct procurement, indirect procurement is less important. Indirect procurement is the procurement of goods, materials and services which are not directly influence the core business of the company. In case of Heineken office supplies are a good example. Without office supplies the production of beer can still continue, but you still need to buy these supplies for the employee to do their work. Because these supplies are less important, it’s not that high on the agenda of the procurement employee. Most of the time there won’t be a tendering process and after one order, the companies does not do any business again.
Outsource the indirect procurement
Therefore, a lot of multinational companies choose to outsource the indirect procurement. Instead of all those single invoices from different suppliers with each their own payment terms, companies like Heineken choose to outsource the invoice management. They will receive only one total invoice. The supplier base will be reduced extremely. Sometimes up to 80%. This will unburden the finance and procurement departments. This can save the company up to 21% on internal costs.
