Procurement is it time to question Direct vs. Indirect model? 🫣

Procurement is it time to question Direct vs. Indirect model? 🫣

I know this might sound crazy, but I’m starting to question whether the traditional Direct vs. Indirect categorization for procurement is still relevant today?

This simple division, where Direct spend typically refers to goods used in production & Indirect is for everything else, often oversimplifies the reality, right?

Why the old model can & will fall short? 🫣

Simple, yet, can hinder strategic thinking & limit the potential impact of procurement.

Here’s why:

1. We miss opportunities! We often overlook the strategic value of Indirect, if only focusing on Direct. (optimizing spend on marketing & sales can directly impact market share & profitability, & it generates sales!)

2. We become rigid? the old model is less flexible to a world that has completely changed since the introduction of this concept mainly manufacturing based. We have much more to consider now than in the past!

3. We narrow our strategic focus: Indirect vs Indirect model prioritizes cost savings over value creation & building strong supplier relationships -> short term vs long term!

4. We fail to adapt to the human element! do we fully consider the needs & perspectives of the internal customers who rely on procurement to support their work? Strategic partner starts here?

SO, How about a new concept ?

A more customer-focused procurement? To address our limitations, We need a more nuanced model that prioritizes the internal customer.

Instead of focusing mostly on the nature of goods/ services?

Should we or not categorize procurement based on the specific needs & priorities of different business units, regions, or projects?

Here’ a different model instead:

1. Headquarters (HQ): To focus on strategic sourcing, enterprise-wide contracts, category & vendor management, compliance, process, e-tools & standardization.

2. Operations: To excel in operational efficiency, agility, & responsiveness to different needs and external customers.

3. Manufacturing (to be customized to the industry): To concentrate on production inputs, innovation, quality control, & supply chain optimization.

4. Projects: To tailor procurement to the specific requirements & timelines of individual projects. They’re having hard time juggling, customization, innovation, timeline, quality…:) How about adding?

5. Facility Management? it is so strategic & yet left as a stand alone?

The Future of Procurement cannot be built on old concept, agree?
It lies in a combination of customer-centricity, data-driven decision-making, technological innovation, & a strategic focus on value creation.

But not only!

We need to consider & check how AI will be able to focus only on Direct & Indirect (can seem blurry & limited for a robot). & We need to prepare the floor to take advantage of the coming transformation?
Let me know what you think? I am intrigued to learning from your input in questioning this status quo! 🙏