Importance of Direct and Indirect Spend In Procurement

What Is Direct and Indirect Spend In Procurement?

Direct and Indirect are the most commonly implemented spending categories in procurement. Direct spend involves spending on goods or services that are directly related to the production of goods or services that a company sells, this includes raw materials, equipments and components. Indirect spend refers to the procurement of goods and services that are not directly incorporated into the production process but are necessary for the organization's day-to-day operations.

Direct spend items are typically more closely tied to the core business operations of the company, and so require more rigorous oversight and management. Indirect spend items are typically less critical to the core business operations of the company, and so may be managed with less scrutiny. 

No business can operate without a clear policy regarding direct and indirect spend management, respectively. A balance between the two holds the key to success for the business.