Supply is a huge part of the economy. Making sure that materials are getting where they need to so that businesses can continue to operate is a vital aspect of a thriving economy. The last year demonstrated this first-hand for society. With the onset of the COVID-19 pandemic, supply chains all across the globe began to fail in a variety of industries and market places. While we’ve since rebuilt many of these fallen supply chains, the event brought the weaknesses in our systems into the limelight, showcasing just how important resilience indirect procurement is.
Having majorly rebounded from the supply chains that sank during the chaos of the COVID-19 pandemic, procurement professionals, business leaders, and organizational managers learned some very important lessons regarding the fragility of our supply chains. From these lessons, however, came insight into how to better build resilience into direct procurement execution and strategy.
Understanding Direct Procurement
Procurement is a general term for a comprehensive group of business activities revolving around the practice of attaining and contracting the various goods and services that an organization relies on for operation. This refers to a whole spectrum of categories that ranges from raw materials for production, parts and completed pieces that play into larger component builds, building maintenance, operational services, office supplies, and everything in between, making strategic spend management a must.
Since procurement by itself is such a large aspect of an organization’s efforts, to protect your supply chains through procurement efforts, it then becomes important to learn the various aspects and elements that are involved in procurement. Direct procurement is one of the main components of procurement, however, it’s still a rather broad term. Direct procurement refers to the attainment of any good or service that directly impacts the bottom line of the organization. In other words, this is any good or service that directly contributes to the production or manufacturing processes, sales efforts, and other goods or services that drive profits, performance, or productivity. Since so many procurement activities fall under direct procurement, it’s helpful, in certain instances, for businesses to break these groups down even further.
Category Management As a Resilience Tactic
In the case that an organization wants stronger oversight over the various procurement activities in which it engages; category management is a widely popular option as a procurement strategy.
Category management is a concept that approaches the bundling of goods and services by identifying similar traits and creating product groups out of those traits. Then, the organization treats all financing, marketing, and procurement efforts on these groups uniformly and simultaneously.
In turn, this creates a more efficient procurement lifecycle that also offers organizational leaders stronger insight into their processes, informing decisions and leading to a more protected procurement department.
Direct Procurement vs Indirect Procurement
On the other side of the coin from direct procurement is indirect procurement. These are the goods and services acquired by the procurement department that drive day-to-day operations rather than profits, productivity, or the bottom line. Indirect procurement also plays an important part in keeping a strong staff and developing positive relationships with personnel.
Since indirect procurement relates to everything from office supplies, to building maintenance services, and any other goods or services that relate to the day-to-day operations of the organization; it goes to reason that indirect procurement efforts are integral to creating a workspace and environment that is welcoming and inviting to your staff, freelancers, and any visiting clients.
No matter your industry or organization, developing sturdy and resilient supply chains in direct and indirect procurement is vital to ensuring the longevity of your organization’s success and sustainability. It’s also worth noting, that in both cases, maintaining a strong vendor-supplier relationship will be extremely valuable in the long term.
This last year was potent with change and served as a reminder of how fragile some of our society’s infrastructures truly are. As a procurement professional, the risk is simply part of the business, but mitigating that risk is part of the job.
Developing strong procurement practices that adhere to industry best practices and standards will insulate you and your organization from supply chain failure, and build resilience into your direct procurement execution and strategy.
For more information on direct or indirect procurement execution, or anything else related to procurement, keep browsing the ProcurePort library. ProcurePort is the internet’s premier place for everything procurement from software and technology, to information and knowledge, and everything in between.