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Types of procurement

Take a look at the two types of procurement along with the key challenges’ procurement professionals are facing today

What are the different types of procurement?

Procurement can be split into two different types, direct and indirect procurement.

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Direct procurement

Direct procurement is procuring the raw materials and goods that are needed for production. These are often ordered in large quantities and come from many suppliers at the best possible cost, quality and reliability that will satisfy the customer. Direct procurement consists of any components that go directly into the finished product such as:

  • Raw materials
  • Mechanical parts
  • Ingredients for food products
  • Products for resale
  • Packaging that forms part of the finished product

Indirect procurement

Indirect procurement involves the procuring of services that are not used in the manufacturing element of the products or services but are required to support the production process and are still fundamental for the day-to-day operations.

Indirect procurement doesn’t contribute to an organisations bottom line, but without it, organisations will not be able to run efficiently. If problems arise within indirect procurement, this affects the whole operation of the business. Indirect procurement examples are below:

  • Facilities management such as rent or lease on a property
  • Utilities such as gas, electric and water
  • Maintenance of machinery
  • Furniture
  • Travel expenses
  • Computers and other hardware
  • Workplace facilities such as cleaning supplies
  • Human resources
  • Advertising and marketing expenses
 

What challenges are procurement facing today?

Procurement professionals are facing ever-increasing challenges to keep up with market changes. Procurement professionals need to be resilient to change and be able to adapt to new technologies that aim to drive efficiency within procurement. Take a look at some key challenges that procurement face today.

  • Risk management:
    These challenges consist of financial stability of critical and high-spend suppliers, reputational damage, data protection, supply chain certainty, bribery, and corruption.
  • Sustainability:
    These concerns are of global interest and include ethical and sustainable sourcing, prevention of bribery and corruption, modern day slavery, reduction of energy and C02 emissions.
  • Diversity:
    Procurement need to establish a level playing field for diverse suppliers as this encourages innovation. However, it’s a challenge to identify those suppliers that meet the diversity criteria, particularly if there is no mandatory policy.
  • Stakeholder management:
    Procurement professionals need to be equipped with the right skills to communicate with stakeholders, as it’s critical to the success of procurement projects. Soft skills are increasingly becoming more important to help build up trust and rapport to establish long-term supplier relationships and buy in within the procurement process.
  • Digitalisation:
    As technology evolves, there’s an ever-increasing number of systems to improve efficiency. These can be cloud-based applications, robotic process, and data visualisation tools. As we gradually step away from traditional manual processes, procurement professionals need to have the right skills to embrace digital and adapt to their ways of working.
 

What is procurement?

Procurement involves the buying of goods and services that enables an organisation to operate their supply chains, in a profitable and ethical manner. Explore deeper into how procurement is defined, the role it plays and a how a career in procurement can benefit you.

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