Indirect procurement—those purchasing activities that don’t directly contribute to the production of a company’s final product—often doesn’t get much attention. 

As a result, many businesses miss out on some significant perks they could reap if they invested more effort into managing it. 

However, this article aims to help change that. 

In it, we highlight five major advantages of effectively managing indirect procurement, all supported by industry research and expert insights. 

So read on. 

You might be surprised at just how much value can be unlocked when indirect procurement is done right. 

Higher Profitability

Efficient indirect procurement management is all about stopping unnecessary or unauthorized spend while also taking full advantage of opportunities for cost savings. 

And that, naturally, reflects in more profit left for the company. 

As Fabrizio Cortese, Indirect Procurement Manager at the Italian luxury jewelry company Pomellato, points out, indirect spend represents a notable portion of total revenue. 

Illustration: Veridion / Quote: LinkedIn

This means that, contrary to popular belief, improving indirect procurement can be a huge game-changer for the budget. 

Sure, these purchases may not seem like much on a case-by-case basis, but don’t be fooled—the expenses do add up fast. 

Just take a look at how many different spending categories fall under indirect spend. 

Source: Veridion

Some of these incur considerable costs. 

Take travel, for instance. 

From flights and accommodation to meals and local transportation, businesses pour a lot of money into just this one category. 

In fact, a survey from Booking.com shows that companies can spend anywhere from $26,000 to $155,000 annually on travel alone. 

Illustration: Veridion / Data: Booking.com

Those are some serious numbers, no doubt about it. 

But, by being a bit smarter and consolidating your travel service providers, you can generate savings through bulk deals or loyalty rewards. 

Organizations with well-managed indirect procurement know this very well. 

They set up a preferred supplier list and establish clear procurement policies so that employees only book with trusted suppliers at pre-negotiated rates. 

No more going rogue, no more overspending. 

And the same can be applied to any indirect spend category. 

Therefore, don’t make the mistake of viewing this area of spending as a waste of time when it’s actually a really smart investment with a significant ROI. 

Ignoring it is just leaving money on the table.

More Efficient Operations

Companies that have their indirect procurement under control benefit from efficient processes at every phase—from purchase requests to payments. 

With well-defined roles and workflows they’ve built, their teams operate smoothly and without delays, avoiding bottlenecks such as chasing receipts or dealing with long lead times. 

To demonstrate how exactly improving indirect procurement management boosts operational efficiency, let’s zero in on one particular process: supplier sourcing. 

Organizations that don’t prioritize indirect procurement management often rely on Google searches or personal networks to find suppliers of products or services they need. 

This leads to several problems:

• The process becomes time-consuming, especially when you want to compare multiple vendor options.
• You get access only to a limited supplier pool, which may result in lower product quality and missed opportunities for innovation.
• Sourcing becomes reactive instead of strategic, with new suppliers only being discovered when an urgent need arises.

All these issues inevitably lead to poor procurement performance and wasted resources. 

In contrast, companies that understand the power of indirect procurement, invest in the improvement of this key activity, usually through automation. 

Back in 2021, McKinsey research showed that the right sourcing tools can reduce the time spent on this task by more than 90%.

Illustration: Veridion / Data: McKinsey & Company

One powerful tool that indirect procurement pros love is AI-powered supplier discovery platforms, such as our Veridion. 

Below, you’ll find a comparison of two different approaches to sourcing: manual and with our service. 

Source: Veridion

As you can see, Veridion is a prime example of how technology not only saves time but also delivers superior results. 

With access to a global database of millions of suppliers and unparalleled search capabilities, our Search Service dramatically cuts down the time it takes to find the perfect supplier—from months to hours. 

And you’re always getting the freshest, most comprehensive results. 

Source: Veridion

That’s because we refresh our database weekly and scan the entire Internet to ensure nothing slips through the cracks. 

In short, with Veridion, the entire vendor discovery journey simply becomes much faster, smarter, and more productive.

Now imagine what your operations would look like if you streamlined every part of indirect procurement in this way. 

There would be no stopping you, that much is certain.

Reduced Risk

Effective indirect procurement management usually leads to increased visibility across all suppliers, purchasing habits, transactions, contracts, and more. 

This level of transparency is absolutely necessary for protecting companies from all sorts of risks, whether they’re operational, reputational, or financial. 

One of the key areas of risk management that well-managed indirect procurement always gets right is contract compliance. 

Buying experts understand that failure to comply with contract terms can have serious consequences that impact operations, budgets, and overall success. 

Take, for instance, a supplier failing to deliver the agreed-upon quality or quantity of a product. 

Those who work in retail might be familiar with situations where, say, the wrong or insufficient paper for printing shipping labels is delivered. 

They also might be familiar with the shipment delays, frustrated customers, and damaged reputation that follow. 

A 2023 survey by Körber has already proven that shipment delays often result in customers not returning, leaving negative reviews, and discouraging others from buying from the business.

Illustration: Veridion / Data: Körber

The fallout of a supplier not fulfilling their obligations can be quite devastating, right?

However, it’s not just vendors who need to uphold their end of the bargain. 

Buyers must also ensure compliance, or they risk facing fines, penalties, and strained supplier relationships. 

Just take it from Walmart.

This retail giant was fined $101 million for failing to purchase the full quantity of products it had committed to back in 2021.

Source: Yahoo Finance

This is why contract compliance is so important, even in indirect procurement. 

Many organizations that have mastered this area of spending use contract management software to centralize all relevant documents, making it easier to monitor obligations, renewals, and deadlines. 

That way, they can immediately spot unexpected cost increases and other instances of non-compliance with contracts, on either side.

The bottom line? 

Effective management of indirect procurement creates more transparency and control across the entire process, ensuring that every stakeholder adheres to all the terms and internal policies.

So don’t think that, just because it doesn’t directly affect your end product, indirect procurement doesn’t have the power to help keep the company compliant and efficient.

Potential for Innovation

Indirect procurement management isn’t just about proactively solving problems—although that’s certainly important—but also about fostering growth and continuous improvement. 

Effective vendor relationship management, for instance, can lead to strategic partnerships that unlock innovations over time. 

As Bernhard Raschke, Operating Partner at a senior leadership development firm Merryck, puts it, investing in these partnerships is a smart move with benefits that extend to both sides.

“I think supplier goodwill is a really tangible asset to invest in. And by the way, let’s look at the opportunity to do joint process improvement. Both companies can improve by looking at forecasting, changing batch sizes, whatever it might be.”

That’s right, even your indirect suppliers can fuel innovation in a multitude of ways, driving profitability, efficiency, and customer satisfaction. 

Whether it’s offering a simple suggestion to improve product displays or introducing you to new technologies and better product alternatives, supplier input is a highly valuable asset. 

You can tap into this potential through your indirect procurement efforts by strengthening relationships with suppliers and staying in the loop with what’s happening on their end. 

Yedra Lopez Gragera, Head of Business Operations at a Software development company OpenStore, says that’s precisely what they do. 

Illustration: Veridion / Quote: Shopify

When a vendor has access to a new product or solution, OpenStore are often the first to know. 

This early access makes it easier for them to achieve cost savings and stay ahead of the competition. 

And as Joachim Post, a member of the Board of Management of BMW, emphasizes, innovation is becoming more and more crucial for business success. 

Illustration: Veridion / Quote: BMW Group

And indirect procurement offers a powerful avenue for innovation, one that many of your competitors might overlook, assuming it’s not a space where significant breakthroughs occur. 

But those who have seen the power of effective indirect procurement know better.

Sustainability Gains 

Another way indirect procurement can bring more value to the company is by driving sustainability gains. 

As Helen Alder, Head of Knowledge & Learning Development at CIPS highlights, ESG factors are becoming increasingly important to businesses:

“ESG is more of a focus now because corporates need to measure how effective their sustainability policies are. ESG funds are being monitored more closely by the markets and investors, so it’s becoming a business imperative. Investors are looking for organizations that are going to be there for the long term.”

And indirect procurement is perfectly positioned to make a real impact in this context. 

Why? 

Because it touches on so many categories that have a strong environmental footprint. 

Let’s take travel as an example once again. 

Air travel is a major contributor to carbon emissions, while hotels and other types of accommodation consume substantial amounts of energy and water. 

On top of that, ground transportation such as taxis, car rentals, and even public transport also have a negative effect on the environment.

As a result, companies are now demanding more transparency from airlines when it comes to ESG data.

Nora Lovell Marchant, Head of Sustainability at the B2B travel platform American Express GBT, notes:

Illustration: Veridion / Quote: Reuters

Armed with this information, they can make smarter, eco-conscious decisions—like choosing airlines with lower carbon footprints. 

One company that has recognized the potential of indirect purchasing to boost sustainability is Royal DSM, a Dutch chemical company. 

In 2021, DSM launched its buy.SMART program, which aims to automate indirect procurement processes in order to align them with the company’s sustainability and supplier diversity policies. 

They use a combination of source-to-pay and procure-to-pay solutions, which allows them to collect and analyze vendors’ ESG data and track their performance.

That’s how they ensure they work only with the suppliers that are the right fit for them.

Andries Feikema, their former Global Director of Procurement Digitalization and Transformation, says suppliers play a major role in meeting DSM’s ambitious sustainability targets:

“Sustainability is in DSM’s DNA. It therefore plays a major role in our procurement organization. It is an important element in the selection of our suppliers, and we test that directly in [our procurement technology]. It is important that we select the right suppliers to do business with. This is directly embedded in our process design.”

And with over 20,000 suppliers of indirect goods and services all over the world, DSM’s buy.SMART system is the key to holding all of them accountable. 

This is a very powerful example of how indirect procurement doesn’t have to be just a simple, cost-saving function.

Instead, it can be a strategic one that promotes sustainability across the organization. 

It isn’t just about small, immediate wins anymore, but about helping companies achieve their broader business goals.

Conclusion

After learning about all these benefits, aren’t you just itching to dive in and improve your entire indirect procurement process? 

Sure, unlocking these perks can’t happen overnight, but now that you’re aware of them, you’re already on the right track. 

You can start by taking a close look at your current processes, identifying inefficiencies, and working to streamline wherever possible. 

As we saw with supplier sourcing, technology can be of huge help in this context.

From there, monitor your spend data and run spend analyses to identify trends and opportunities for further optimization.

Use those insights to create clear, easy-to-follow policies and SOPs that standardize and simplify purchasing across the entire organization. 

And one last thing: don’t just chase short-term cost savings. Think bigger and focus on creating more value for the company. 

As we’ve already demonstrated, indirect procurement has a lot of potential to fuel growth and innovation. 

But it’s up to you to unlock it.