Last Update: July 2025
The key difference between direct and indirect procurement is the function they address. Direct procurement focuses on securing the core supplies that are processed and delivered to your customers, while indirect procurement involves the purchasing of goods and services required to maintain effective operations.
Both of these functions ultimately follow a procure-to-pay cycle, but there are a handful of key differences between direct and indirect procurement processes that affect how they are managed internally.
In this guide, we’ll explore what direct and indirect procurement are, their key differences, strategies for managing them, and how technology can streamline both.
Direct procurement involves the purchasing of goods, raw materials, and services directly associated with the production of products and services that a company is providing.
These purchases are generally made in large quantities, acquired from a pool of suppliers at the best possible cost, quality, and reliability. They’re critical to the production process and directly impact the cost of goods sold (COGS) and profitability. Some examples include:
If direct procurement stops functioning or encounters problems, companies are no longer able to manufacture and sell their products to generate revenue. The day-to-day role of direct procurement is crucial to industries such as manufacturing.
Indirect procurement refers to the acquisition of goods and services that support day-to-day operations but don’t appear in the final product. It’s often referred to as indirect spend, operating costs, SG&A (Selling, General and Administrative), or MRO (Maintenance, Repairs, and Operations) costs.
Indirect supplies are essential to effective operations, but they don’t exert any direct input into the finished products and services delivered to customers. Rather, they play a supporting role to ensure that the process of turning direct supplies into finished goods runs as planned.
Some examples of indirect supplies and services include:
Indirect supplies are more pronounced in digital or service-oriented fields where there are no tangible goods, but mostly services rendered to customers.
This table highlights that direct procurement is tightly linked to production and requires strategic oversight, while indirect procurement supports operations and can be harder to manage due to its decentralized nature.
| Aspect | Direct procurement | Indirect procurement |
| Definition | Acquiring materials/labor for core products. | Acquiring goods/services for operations. |
| Nature | Production-focused, tied to COGS. | Operational, tied to operating expenses. |
| Examples | Steel, components, raw materials. | Office supplies, IT services, training. |
| Budgeting | Larger budgets, centralized. | Smaller, often decentralized. |
| Strategic importance | Critical for production and revenue. | Supports efficiency and cost control. |
| Supplier relationships | Long-term, strategic partnerships. | Short-term or ad-hoc, less strategic. |
| Purchase volume | High volume, planned purchases. | Lower volume, often spontaneous. |
| Management approach | Centralized, strategic planning. | Often decentralized, less controlled. |
Direct procurement involves acquiring supplies that constitute the base of what your business offers. This means it's in your best interest to build long-term, sustainable relationships with your suppliers. At the same time, having contingencies in place are vital to plan for supply chain disruption and uncertainties around fulfillment.
Indirect procurement, on the other hand, often doesn’t receive the same focus as direct procurement. Many businesses make one-off purchases from unvetted suppliers as needed, which means they miss out on bulk discounts and favorable payment terms that come with approved, contracted vendors.
Inventory management is all about knowing what goods you have, where they are stocked, and how much you will require. With direct procurement, goods are typically held in stock to keep production running and avoid delays.
Indirect procurement is usually driven by demand. Purchases are made as needed, which means lower volumes and smaller associated costs. However, with better visibility and digital tools that allow you to consolidate purchase orders across teams or office locations, businesses can achieve meaningful savings in indirect spend as well.
In most organizations, direct procurement is handled by a centralized team. Category managers are typically assigned to specific spend areas, and processes are tightly controlled to ensure consistency and compliance.
Indirect procurement, however, is often decentralized. It’s spread across departments and managed by various stakeholders with their own budgets, tools, and purchasing habits. This lack of oversight leads to limited visibility and missed savings opportunities.
But with an indirect procurement solution in place, finance teams can oversee indirect spend more effectively. A centralized platform provides the structure and compliance framework needed to bring control, visibility, and accountability to everyday purchases.
Companies trust Fraxion to bring order to indirect procurement. Contact our team to see how it can work for you.
Direct procurement deals with the critical materials and components your business relies on to operate. Because these inputs are essential to production, they require careful planning, accurate forecasting, and tight budget alignment to avoid costly disruptions to your supply chain.
Indirect procurement, by contrast, tends to be more reactive. Without a digital system in place, it’s difficult to track usage or anticipate demand, making it harder to plan or budget accurately. As a result, indirect purchases are often made spontaneously, based on immediate needs rather than long-term forecasting.
Indirect procurement can be challenging due to its diverse categories and decentralized nature. Here are five strategies to optimize it:
Take a look at our latest blog to explore more indirect procurement strategies.
Fraxion is a leading procurement software built for proactive spend management.
With Fraxion, you can digitize your entire procure-to-pay process, giving employees a faster, easier way to request the goods and services they need without bypassing policies or overspending.
Real-time visibility and built-in controls allow your team to make smarter purchasing decisions while staying aligned with company guidelines. You gain control over spending and reduce unnecessary costs.
Book a demo today and see how Fraxion makes smarter procurement possible.
Direct procurement involves purchasing materials and services used in the production of goods sold to customers, while indirect procurement supports day-to-day operations but doesn’t impact the final product.
Indirect procurement is often decentralized, with different departments managing their own purchases. This makes it harder to track, plan, or enforce policies compared to the centralized structure of direct procurement.
Direct procurement is usually tied to production forecasts and managed with fixed budgets. Indirect procurement tends to be reactive and less structured, often relying on ad-hoc purchases and departmental budgets.
The most effective way to manage indirect procurement is by using a centralized procurement platform that gives you full visibility into spend across all departments. With standardized policies, automated workflows, and supplier consolidation, you can reduce rogue purchasing, stay compliant, and make better, data-driven decisions.
Yes, indirect procurement software like Fraxion digitizes the entire process, giving teams real-time budget control, automated approvals, and full visibility into operational spend. The platform tracks purchases against budgets in real time. It provides a centralized system for managing purchase orders and enforcing policy, which makes it easier to control costs and reduce inefficiencies.