The definitive guide to indirect procurement

Indirect procurement is the acquisition of goods and services that support general business operations rather than contributing directly to the production of final products or services. Unlike direct procurement, which involves purchasing materials that become part of the finished product, indirect procurement entails the supporting cast of resources that enable a company to function effectively. Organizations manage these two procurement streams using fundamentally different approaches.

The strategic importance of indirect procurement often remains underappreciated despite its considerable impact on organizational efficiency and financial performance. Effective management of indirect spending can significantly enhance profitability through several mechanisms. Well-negotiated service contracts not only reduce costs but can improve quality and reliability. A streamlined procurement process workflow allows employees to focus on core business activities rather than administrative tasks. Perhaps most importantly, sophisticated indirect procurement practices provide visibility into otherwise fragmented spending patterns across departments, enabling informed decisions that align purchasing with broader business objectives. In an environment where companies continuously seek competitive advantages, indirect procurement offers substantial but frequently overlooked opportunities to improve operational effectiveness and strengthen financial results.

Indirect procurement becomes clearer through specific examples that illustrate its scope across organizational spending. These categories represent key areas where resources are allocated without direct incorporation into finished products.

Professional services

Professional services include knowledge-based providers supporting organizational functions. Legal counsel, management consultants, and accounting firms represent significant indirect expenditures that benefit from structured procurement approaches and preferred provider arrangements.

Information technology

Information technology encompasses hardware investments, software licenses and subscriptions, and IT services that support operations. From workplace computers to specialized applications, these ongoing commitments require coordinated management to optimize both cost and operational impact.

Facilities management

Facilities management covers the physical workspace where business activities occur. Property leases, utilities, maintenance services, cleaning contracts, and security provisions create the essential environment for operations without directly contributing to products or services.

Marketing and advertising

Marketing and advertising services support revenue generation through agency relationships, media placements, event management, and promotional materials. Despite their substantial value and complexity, these expenditures often exist outside traditional procurement channels.

Office supplies and equipment

Office supplies and equipment, from everyday consumables to furniture purchases, support daily business operations. Their high transaction volume and universal use make them ideal candidates for standardization, preferred supplier arrangements, and automated procurement software.

Travel and entertainment

Travel and entertainment expenses include airline tickets, accommodations, transportation, and business meals supporting essential activities. This category combines high transaction volume with distributed purchasing authority, creating unique management challenges.

Telecommunications

Telecommunications services connect the organization internally and externally through mobile device programs, internet connectivity, and videoconferencing platforms like Zoom. Complex service agreements and rapidly evolving technology require specialized procurement approaches.

Human resources services

Human resources services include recruitment agencies, background screening, training programs, and benefits administration. These services typically reside within HR departments yet benefit significantly from procurement expertise in contract structuring.

Logistics and transportation

Logistics and transportation services move materials and people through courier services, freight carriers, fleet management, and warehousing. While supporting essential business operations, these indirect expenses require specialized management approaches.

Insurance and financial services

Insurance and financial services provide risk management and operational support through property insurance, liability coverage, banking relationships, and payment processing. These sophisticated services demand procurement approaches balancing financial terms with service quality and risk considerations.

The fundamental differences between direct and indirect procurement drive how organizations structure their purchasing strategies. Direct procurement concerns the acquisition of materials and components that become integral parts of a company's finished products. These purchases directly influence the Cost of Goods Sold, product quality, and market competitiveness. Indirect procurement, as outlined previously, involves obtaining goods and services that sustain internal operations without becoming part of the end product sold to customers.

Purchase patterns reveal distinct characteristics for each procurement type. Direct procurement generally follows structured, production-aligned planning cycles with larger, less frequent orders that match manufacturing schedules. Materials requirements planning tools often guide these purchases with considerable precision. Indirect procurement, meanwhile, tends toward smaller, more frequent transactions initiated by various departments across the organization. This distributed purchasing activity creates inherent tracking challenges that require specialized management.

Supplier relationships also follow divergent paths between these procurement categories. Direct procurement typically involves a select group of suppliers with whom companies develop strategic partnerships. These relationships often include joint planning activities, quality management programs, and formal performance metrics. Indirect procurement encompasses a broader supplier base with more transactional relationships, though certain categories like information technology services may develop into deeper partnerships when managed effectively.

Impact on business: Direct spend influences product quality, availability, and ultimately revenue generation. Indirect spend affects operational efficiency, employee productivity, and overhead costs.

Procurement focus: Direct procurement concentrates on supply continuity, quality assurance, and cost reduction. Indirect procurement balances cost control with service levels and internal stakeholder satisfaction.

Supplier count: Direct procurement manages a focused group of suppliers with intensive relationship management. Indirect procurement navigates a diverse supplier pool across multiple spending categories.

Visibility and control: Direct spending receives high visibility with structured monitoring systems. Indirect spending often remains fragmented across departments with limited centralized oversight.

Organizations applying the same strategies to both areas often find their indirect spending management insufficient. The following sections will explore tailored approaches that address the unique characteristics of indirect procurement, helping organizations transform this spending into a source of significant value and competitive advantage.

Few areas offer as much untapped financial potential as indirect procurement. Executives across industries are increasingly recognizing that these non-production expenses typically consume between 15% and 40% of their organization's total spend. Service-oriented businesses often find themselves at the higher end of this spectrum, with technology services, professional expertise, and specialized support functions claiming an ever-growing share of their budgets.

This spending category remains dangerously overlooked in many organizations. While finance teams tend to scrutinize direct costs with precision, indirect spending often flies under that radar due to its fragmented nature across departments and cost centers. The consequences are predictable yet surprisingly persistent: departments purchase identical services at vastly different price points, volume discount opportunities vanish into organizational silos, and redundant supplier relationships multiply unchecked. These inefficiencies are just the beginning — lax procurement processes create compliance gaps, expose businesses to avoidable contractual risks, and leave critical services vulnerable to disruption.

The financial case for addressing these challenges is compelling. Companies that implement structured indirect procurement programs typically uncover savings of 10-20% across major indirect categories — improvements that flow directly to the bottom line without requiring new customers or expanded production capacity. For midsize and larger organizations, these savings can represent millions in recovered profit. The operational benefits complement cost reduction, with standardized processes enhancing both efficiency and visibility. What makes indirect procurement particularly attractive as an improvement target is its accessibility — meaningful results can be achieved with relatively modest investments compared to other profit initiatives.

The management of indirect procurement presents distinctive obstacles that even well-resourced organizations frequently struggle to overcome. These challenges stem from indirect spending's distributed nature and its position outside most businesses' core production focus. Addressing these issues requires acknowledging their existence and understanding their impact on organizational performance.

Decentralized spending

Indirect purchases typically occur across numerous departments without centralized oversight or coordination. Marketing teams procure agency services independently of IT purchasing similar consulting work, while regional offices acquire comparable supplies through different channels. This fragmentation leads to inconsistent processes, redundant purchases, and missed opportunities for volume pricing. A multinational corporation might unknowingly maintain dozens of separate contracts with the same software provider, each negotiated with different terms, pricing structures, and renewal dates, preventing the company from leveraging its total spending power.

Lack of visibility

The distributed nature of indirect procurement creates significant information gaps regarding what is being purchased, by whom, and at what price. Finance departments often struggle to track payments that occur across cost centers, especially when purchases use varied general ledger codes or inconsistent supplier naming conventions. This inability to track payments comprehensively makes it nearly impossible to maintain accurate cash flow forecasts or validate vendor compliance with agreed terms. Without clear visibility, organizations cannot identify opportunities for consolidation or determine whether contracted pricing terms are being honored. A healthcare system might be unable to determine its total annual office supply expenditure, much less whether individual facilities are paying consistent prices for identical items.

Maverick spending

Maverick spending refers to purchases made outside approved procurement channels or established supplier contracts. This occurs with particular frequency in indirect categories, where employees often prioritize immediate need fulfillment over process adherence. When a department manager needs immediate IT support and circumvents the approved vendor selection process to hire a consultant, the organization not only pays premium rates but also assumes unvetted contractual risks and sets a precedent for additional policy exceptions.

High volume of small transactions

Indirect procurement frequently involves numerous small-value purchases that collectively represent substantial expenditures. The administrative cost of processing a $100 office supply order often exceeds the value of the purchase itself when accounting for requisition, approval, ordering, receiving, and payment processing steps. A retail chain with hundreds of locations might process thousands of low-value maintenance service calls annually, with each transaction requiring multiple touch points and manual interventions, creating administrative costs that far outweigh potential savings from negotiating individual service rates.

Supplier proliferation

Without structured management, indirect procurement categories tend to accumulate excessive numbers of suppliers providing similar or identical goods and services. The marketing department selects one digital agency while corporate communications contracts with another, and individual business units engage yet others. This proliferation dilutes negotiating leverage, increases vendor management overhead, and creates inconsistent service delivery standards. A financial services firm might maintain relationships with dozens of temporary staffing agencies, each requiring separate contracts, billing arrangements, and performance management, all while receiving widely varying quality levels and rates.

Lack of strategy or policy

Many organizations operate without defined strategies or policies governing indirect purchases, leaving individual managers to establish their own approaches. This policy vacuum leads to inconsistent decision-making, misaligned priorities, and suboptimal outcomes. Without clear guidance on when competitive bidding is required or how suppliers should be evaluated, departments make selections based on convenience, personal relationships, or immediate price considerations rather than total value. A manufacturing company without clear travel policies might see some departments booking premium air travel and accommodations while others adhere to strict budget limitations, creating internal equity issues and unnecessary expenses.

These challenges permeate organizations of all sizes and sophistication levels, including Fortune 500 companies with otherwise mature procurement functions. Their persistence underscores the need for targeted approaches specifically designed for indirect procurement rather than repurposing direct procurement methodologies. The following sections will outline practical strategies for addressing these common obstacles and establishing effective indirect procurement management.

Addressing the challenges of indirect procurement requires a strategic and disciplined approach to bring structure to these often unmanaged expenditures. The following strategies represent proven approaches that leading companies employ to transform indirect procurement from a necessary expense into a source of competitive advantage.

Implement a centralized procurement process and policy

Centralizing indirect procurement provides the foundation for effective management by establishing a single, consistent process for requesting, approving, and purchasing indirect goods and services across all departments. A well-structured procurement plan defines the strategic roadmap, including implementation phases, resource allocation, and specific savings targets, while a detailed procurement policy documents the rules governing purchasing decisions. This approach enables organizations to aggregate spending, increasing leverage with suppliers and unlocking volume discounts previously unavailable when purchases were fragmented. A major financial institution implemented this strategy by establishing a procurement center of excellence that maintained oversight while allowing business units flexibility within established parameters, improving supplier terms and ensuring proper controls through structured approval workflows that prevented unauthorized spending.

Educate and empower employees

Even the most elegantly designed procurement system fails without proper employee engagement. Organizations that outpace the competition invest in making procurement policies accessible and understandable, recognizing that compliance improves when people grasp both the how and why of established procedures. A technology company dramatically improved voluntary compliance by creating a simple visual decision tree helping employees determine when to engage with procurement resources. This helped transform procurement from a top-down mandate into a collaborative function built on partnership. The practice of identifying procurement champions within departments creates local experts who serve as advocates, providing peer guidance while helping procurement understand unique departmental needs.

Leverage new technology

Modern procurement technology transforms indirect spending management through efficiency, compliance, and visibility enhancements that manual processes cannot match. Electronic procurement platforms streamline the purchasing process end-to-end, from requisitioning through payment, typically featuring curated catalogs of approved suppliers and items that make compliant purchasing easier than non-compliant alternatives. Invoice automation software further eliminates manual data entry, speeds up approval workflows, and reduces payment errors while providing real-time visibility into outstanding obligations. A healthcare system implementing such technology substantially reduced its processing costs while improving compliance with negotiated contracts, while purchase cards with integrated expense management software provide convenience for smaller purchases while maintaining control. The benefits extend even further when these solutions are integrated into a unified technology ecosystem capturing all spending data.

Consolidate suppliers

Breaking up indirect spending into fewer suppliers offers clear benefits. Companies can get better prices, simpler management, and improved service quality. The best approach sorts spending categories by value and complexity. For high-value items, use competitive bidding and evaluate suppliers on total cost, not just the price tag. One manufacturing company cut its office supply vendors from many to just a few preferred partners. This simple change significantly reduced their overall spending in that category. Joining group purchasing organizations is another simple way to get better pricing without adding administrative work.

Monitor spending

The adage “you can't manage what you can't measure” applies particularly well to indirect procurement, with leading organizations establishing regular reporting mechanisms tracking spending by category, department, and supplier to reveal patterns and anomalies that would otherwise remain hidden. The procurement team leverages this data to drive strategic decision-making, conducting regular spend analysis to identify opportunities for contract renegotiation, volume consolidation, and process improvement. A professional services firm's procurement team identified increasing telecommunications costs that, upon investigation, revealed numerous unused services and opportunities for plan optimization, ultimately resulting in significant annual savings, while organizations that share these insights with stakeholders foster a culture of cost consciousness that reinforces the value of effective indirect procurement management.

The implementation of these best practices transforms indirect procurement from an administrative function into a strategic capability that contributes meaningfully to organizational performance. While specific approaches will vary based on company size and structure, these fundamental principles provide a framework for excellence in managing these essential expenditures.

Many organizations undermine their indirect procurement initiatives through several predictable missteps that can be readily avoided with proper awareness. Chief among these is the excessive focus on cost reduction at the expense of total value. While price matters, fixating solely on the lowest bid often leads to supplier selections that compromise quality, reliability, or service levels. This typically generates short-term savings that evaporate when factoring in the costs of poor performance, additional administrative burdens, or operational disruptions. The most successful organizations evaluate indirect suppliers on multidimensional criteria that align with actual business requirements. They recognize that the cheapest supplier can become expensive when factoring in maintenance issues, replacement frequency, and productivity impacts.

Equally damaging is the tendency to implement procurement changes without securing stakeholder buy-in across the organization. New procurement processes, policies, or preferred supplier programs frequently fail not due to their intrinsic merit but because end users resist adoption. This resistance stems from perceived inconvenience, insufficient training, or simply the natural human inclination to maintain familiar routines. When combined with weak enforcement mechanisms, this dynamic creates a cycle where maverick spending persists despite formal procurement structures. Organizations that excel in indirect procurement invest substantially in change management, positioning procurement as a service function that makes life easier for internal clients rather than an enforcement body imposing additional bureaucracy. They also avoid negotiation mistakes such as revealing budget ceilings or urgent timelines to suppliers, which inevitably weakens bargaining position and leads to suboptimal pricing or terms.

Perhaps the most insidious mistake is the “set and forget” approach that treats indirect procurement as a one-time initiative rather than an ongoing discipline. Organizations often invest considerable resources in establishing policies, implementing processes, and negotiating contracts, only to let these efforts gradually deteriorate through neglect. Preferred supplier lists become outdated, negotiated terms go unenforced, and procurement workstreams revert to ad hoc practices. This degradation happens subtly, eventually undoing the benefits of initial procurement improvements without triggering obvious alarms. Forward-thinking organizations counter this tendency by establishing regular review cycles for indirect procurement programs, soliciting user feedback, refreshing supplier arrangements, and continuously improving processes based on performance data. They recognize that procurement excellence requires cultivation beyond mere implementation.

What gets measured gets managed, especially in indirect procurement. Clear metrics are essential for consistent and sustainable improvement. Without defined procurement KPIs, procurement efforts become guesswork rather than disciplined practices. The following metrics will help your organization evaluate its indirect procurement performance and track progress toward strategic goals.

Spend under management

This fundamental metric measures the percentage of total indirect expenditures flowing through established procurement channels and contracts. It represents procurement’s sphere of influence within the organization and serves as a leading indicator of potential value creation. Low percentages typically signal significant maverick spending and missed savings opportunities. Higher figures reflect stronger governance and greater potential for strategic sourcing benefits. Organizations should aim to progressively increase this percentage through improved processes, enhanced stakeholder engagement, and broader contract coverage across indirect categories.

Cost savings achieved

Perhaps the most visible procurement metric, cost savings measures the financial impact of indirect procurement initiatives relative to established baselines. This metric requires careful definition and tracking methodology to maintain credibility with finance and executive stakeholders. The most effective organizations distinguish between different savings types, such as negotiated savings (price reductions on new contracts), implemented savings (actual realized benefits), and cost avoidance (preventing price increases). The most mature procurement functions integrate their savings tracking with financial software, enabling validation of projected benefits against actual budget impacts. Improving this metric requires disciplined sourcing processes, skilled negotiation, effective demand management, and close collaboration between procurement and budget owners.

Procurement cost per transaction

This efficiency metric calculates the administrative cost associated with processing indirect purchases, typically by dividing total procurement operating expenses by the number of transactions managed. It provides insight into the procurement function's operational effectiveness and helps identify opportunities for process simplification or automation. High costs per transaction often indicate excessive manual processing, redundant approval steps, or inadequate technology support. Organizations can improve this metric by implementing appropriate technology solutions, standardizing common purchases through catalogs, and establishing differentiated processes based on transaction value and risk.

Purchase order cycle time

This responsiveness metric measures the average time elapsed between requisition submission and purchase order placement. Extended cycle times frustrate internal stakeholders and may drive maverick spending as departments seek faster alternatives to meet pressing business needs. This metric highlights process bottlenecks and opportunities for streamlining approval workflows. Improvement strategies include simplifying approval hierarchies for low-risk purchases, implementing service-level agreements for procurement processing steps, and deploying technology that facilitates mobile approvals and automated routing. Organizations should balance cycle time goals against appropriate controls based on purchase value and risk profile.

Maverick spend level

This compliance indicator measures the percentage of indirect expenditures occurring outside established procurement processes and approved supplier contracts. High maverick spending undermines negotiated agreements, increases administrative costs, and exposes the organization to unnecessary risks. This metric often reveals departmental hotspots requiring targeted intervention or policy simplification. Reducing maverick spending requires a combination of improved procurement accessibility, stakeholder education, appropriate technology, and consistent policy enforcement. Organizations should monitor this metric at aggregate and departmental levels to identify specific improvement opportunities and track the effectiveness of compliance initiatives.

Compliance rate to budget and policy

This governance metric evaluates adherence to established indirect procurement policies and budget constraints. It may encompass various submeasures such as the percentage of purchases with proper pre-approval, compliance with competitive bidding requirements, and adherence to category-specific spending limits. This metric reveals the effectiveness of procurement controls and highlights areas requiring additional training or process modification. Improvement strategies include simplified policy documentation, technology-enforced workflows, and regular compliance reporting to management. Organizations should develop a balanced scorecard approach that ties compliance expectations to overall business objectives rather than treating policy adherence as an end in itself.

Establishing a regular cadence for reviewing these metrics ensures that your indirect procurement can continuously improve over time. The most effective organizations create dashboards that track these indicators monthly or quarterly, with formal review sessions that include both procurement leadership and key stakeholders. These reviews should emphasize trend analysis rather than point-in-time performance, and explicitly connect metric improvements to business outcomes such as cost reduction, risk mitigation, and service enhancement. By maintaining discipline on measurement, organizations transform indirect procurement from an administrative necessity into a source of ongoing value creation.

When managed well, indirect procurement can unlock significant savings, improve operational continuity, and provide organizations with a meaningful competitive advantage. The resources allocated to supporting business functions often represent substantial expenditures that directly impact efficiency and bottom-line results. By applying strategic approaches to these often overlooked spending categories, companies transform what many view as necessary overhead into ongoing value creation.

This article has walked you through the essentials of effective indirect procurement management. We started by exploring what makes indirect spend different from direct materials purchasing, then identified the common challenges that frustrate procurement teams. The best practices we've covered offer practical solutions that any organization can implement, while our discussion of performance metrics gives you the tools to measure progress and demonstrate value. Along with the pitfalls to avoid and examples of key spending categories, you now have a roadmap for transforming your approach to indirect procurement.

At Brex, we've built our spend management software specifically with these indirect procurement challenges in mind. Our solution gives finance teams complete visibility into company spending while making purchasing easier for employees. The Brex corporate purchasing card sits at the heart of our approach, giving your team a powerful tool to control indirect spend without slowing down the business. Employees appreciate the seamless purchasing experience, while finance leaders value the built-in controls that prevent rogue spending. We've integrated these cards with intuitive spend management features, seamless accounting automation, and automated bill pay to eliminate the manual work that typically burdens procurement teams.

Mike Kim, VP of Finance at DoorDash, said the ability to control all types of spending, including indirect procurement, makes a big difference for the popular delivery app: “We wanted to empower our employees to make decisions on their own to spend on behalf of DoorDash — with the right level of compliance and control. With Brex, we are able to solve for that.”

Ready to transform how your company handles indirect procurement? Sign up for Brex today and put these best practices into action with technology designed to make it easy.