Episode 1 - Unpacking Indirect Procurement

Most people outside the field don’t even realize Indirect Procurement exists — yet it quietly drives the majority of a company’s operating spend. In this first full episode of The Procurement Brief, I’m breaking down what Indirect Procurement really is, why it’s so often misunderstood, and why it deserves far more recognition across every organization.
 
 With over three decades leading procurement transformation, I’ve seen how the indirect side powers marketing, HR, IT, facilities, and countless categories that keep a business running. Still, it’s often undervalued because the results are less visible — savings hidden in processes, efficiency, and supplier performance.
 
 In this episode, we’ll explore how Indirect Procurement creates measurable business value, what makes it different from Direct Procurement, and how leaders can elevate their teams to a true strategic role. 

Transcript

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If I told you that somewhere between 15 and 40% of your company's total spend is sitting in a bucket that's fragmented, poorly governed, and often invisible to executives, would you believe me? Because that's exactly what most research says about indirect procurement. And yet, when you ask many leaders where their strategic focus is, they'll still point to direct materials, big capex, or the next shiny digital transformation project. Not the behind-the-scenes spend that quietly powers everything else. Well, today, we're gonna change that. The show where we go behind buzzwords and slideware and talk about what actually works in modern procurement. I'm your host, Patrick Bliss, longtime indirect procurement leader, advisor, and someone who has spent a few decades fighting for a seat at the table for this function. Today's episode is episode one. What is indirect procurement and why it's undervalued? Over the next 15 to 20 minutes, we're going to define indirect procurement clearly, in plain language, with tangible examples. We'll unpack why it's historically been ignored or dismissed, including how it's been framed as not contributing to profit. We'll show with data how big indirect really is and why it's no longer just office supplies and coffee. And we'll walk through the evidence that world-class companies treat indirect as a strategic lever, not as a cost center. And we'll give you practical next steps you can take in your own organization to move indirect from shadow spend to strategic engine. By the end, you'll have language, stats, and stories you can take straight into conversations with your CFO, business leaders, and your own team. Let's start by getting very clear on definitions. Most sources describe direct procurement as the materials and services that go into the product or service that you sell. The battery cells in an EV, the active ingredients in a medication, the steel in a bridge. Indirect procurement is everything you buy to run the business that doesn't end up in the final product. That includes IT, hardware and software, cloud and SaaS, marketing and agency spend, travel, meetings, events, facilities, uh utilities, cleaning, security, professional services, HR, training, legal, consulting. Think of it this way direct spend is the cost of being in your industry. Indirect spend is the cost of being a functioning company in the first place. Industry bodies like CIPS frame indirect as the expense of day-to-day operations. Not something that traditionally shows up in profit calculations, but is absolutely critical to efficiency. Recent guides from platforms like Netsuite and others echo this. Indirect procurement is the full life cycle of sourcing and managing the goods and services that support operations. From office space and laptops to maintenance contracts and consulting. So if you're listening to this and you're thinking, wow, in my company, that's IT, marketing, facilities, HR, finance, and shared services, you're exactly right. Indirect is horizontal. It touches every function. Now here's where the story gets interesting. Several analyses put common indirect categories at 15 to 30% of overall expenses, things like technology, travel, office supplies, professional services. Other research from organizations like CAPS and specialist firms note that in many companies, indirect can reach 35 to 60% of all business expenses depending on sector. And it's not static. McKinsey has pointed out that indirect spend has grown roughly 7% per year globally since 2011, even as many companies still fail to give those categories the attention they deserve. So you have this combination: a huge spend base growing every year, spread across dozens of categories, often managed by non-procurement stakeholders. That's exactly the recipe for fragmentation, leakage, and missed opportunity. One analysis of indirect spend warns that when left unmanaged, companies can overpay on 10 to 20% of indirect spend through fragmented buying, duplicate suppliers, and unmanaged subscriptions. Sound familiar? When you apply that to even a mid-sized organization with a few hundred million in revenue, you're talking about real money. This is not a rounding error. So if indirect is this big, why has it been treated like the forgotten cousin of procurement? There are a few recurring themes in the research, and honestly, they line up with lived experience. Number one, the doesn't hit gross margin mindset. Historically, many organizations have viewed indirect as something that doesn't contribute to profit. It's not, it's overhead, it's not cost of goods sold. Some professional bodies even described it this way explicitly. Well, that's necessary to run the business, but it's not tied to the bottom line. Huh? When leadership frames something as not impacting profit, it naturally gets less attention, fewer resources, and obviously less executive sponsorship. Number two is fragmented ownership and poor visibility. Indirect categories are scattered across the organization. Marketing, technology, legal, HR, facilities, regional offices, and so on. A 2024 view of indirect spend challenges notes that indirect spend is often poorly tracked, with limited visibility, and cites a survey where 82% of procurement leaders admitted their companies weren't managing spend efficiently. 82%. Another study on indirect spend found that two-thirds of businesses do not manage up to 40% of their indirect purchases in any systematic way. So we're not just undervaluing it conceptually. In many organizations, we literally don't know what's going on. Number three is it's transactional, it's not strategic. In a lot of companies, indirect procurement grew up as a transactional service, processing POs, running three bids in a buy, and chasing down invoices. Indirect procurement has long been traditionally viewed as less strategic than direct procurement, as one 2025 indirect procurement guide put it. Even though those same guides now argue it has become a key priority for controlling spend and strengthening supplier relationships. So you have this legacy brand problem. Indirect equals small stuff, tactical, back office. The fourth theme is data and taxonomy challenges. Look, indirect is messy. Different departments use different suppliers, descriptions, GL codes, and PCAR channels. A 2025 article on indirect data describes how decentralized, P card-heavy indirect spend leads to chronic data quality issues that can undermine credibility at the executive table. Look, if the C-suite doesn't trust the numbers, it won't trust the business case. Now, let's flip the script. When organizations do get serious about indirect procurement, the numbers are honestly staggering. Hackett benchmark data on digital world-class procurement shows that top performers operate at 21 to 25% lower cost than typical procurement organizations. 25%! They influence more spend. When they do, including indirect, they deliver about two and a half times higher procurement ROI than their peers. That's measurable data. One benchmarking breakdown notes that for indirect spend specifically, world-class companies have around 95% of indirect spend under management, compared to about 66.5% for everybody, for everyone else. That's not just maturity, that's control, insight, and leverage. So what's the ROI and PL impact to this? Well, a classic McKinsey analysis on retail found that by treating not-for-resale indirect sourcing as a true strategic function, retailers shaved 10 to 15% off their annual indirect spend, translating into roughly 1 to 2% of return on sales, and achieved more than a 15-fold return on the cost of their indirect sourcing team. Let me stop and say that again. Achieved more than a 15-fold return on the cost of their indirect sourcing team. If that's not high performance, I don't know what is. Other research summarizing multiple case studies suggests that tackling indirect can reduce overall cost by 10 to 25%, while cutting manual supplier management effort by 30 to 50% efficiency. Think about that from a CEO or private equity investor lens, a relatively small specialized team generating double-digit savings on a spend base that can be 20, 30%, or 40% of total expenses. That's not overhead, that's a profit engine. On the process side, McKinsey and others have documented that companies deploying automated procure-to-pay in indirect have achieved 15 to 25% savings in many transactions, in reduced processing times from days to hours and minutes, and cut value leakage by about 3% over 12 months by enforcing compliance. This is where AI and analytics are now piling on. And we'll talk about AI in a future episode. Modern platforms give you near real-time visibility into spend, compliance, and supplier performance across hundreds of categories. Zooming out, multiple surveys, including Deloitte's Global CPO survey, Hackett's 2024 and 2025 key issues, show that procurement's mandate has shifted well beyond just cost cutting to driving operational efficiency, enhancing ESG and reducing scope 3 emissions in certain industries, and digital transformation and resilience. They've all risen to the top of CPO priorities over the last few years. You simply cannot deliver on those priorities if you ignore indirect categories. Scope 3 emissions sit heavily in services, travel, facilities, logistics, technology, marketing, and outsourced operations. Operational efficiency lives in how you buy and use the tools and services that run your business. Digital transformation is, in large part, about the software, platforms, and services you source and govern. Indirect procurement is exactly where a lot of that transformation happens. Let's move on and talk about what modern indirect procurement looks like. So, if indirect procurement isn't just buying pens cheaper, what does good look like in 2026 and beyond? Well, let me paint a picture on that. For category-driven and business integrated activities, rather than a reactive help desk, your indirect team runs true category strategies for technology and SaaS, for marketing and agency spend, for professional services, for facilities and workplace, travel and meetings, HR, training, benefits and everything involved there, and so on. You get the picture. They're not just negotiating unit price though, they're challenging demand. Do we need all these tools? Do we need all these licenses? Do we need all these events? They're rationalizing suppliers, they're helping standardize specs, and they're aligning contracts with how the business actually creates value. The next element is data driven with real spend visibility. You have a single version of truth for indirect spend, regardless of whether it flows through POs, P cards, accounts payable, or expense reports. Dashboards can show what you spend, with whom, and on what. Can present contract versus non-contract spend, fine maverick and rogue spend. It can present savings captured and leakage avoided, and even performance versus ESG or risk criteria. This is the opposite of that we can't even see it problem we talked about earlier. What about process and experience that stakeholders want to use? Well, best in class indirect teams design intake, buying, and P2P experiences that don't feel like punishment. Think about simple intake workflows for requests, guided buying with preferred suppliers, automated approvals where risk is low, sell-service for low-value, high-frequency items. The result is higher compliance, better data, and happier stakeholders, which feeds back into more influence and more value creation. So, what is the measured and communicated impact? Well, world-class teams don't just say, eh, we save some money. They track and they communicate. Hard savings, cost avoidance. They present process efficiency, fewer touches, faster cycle times, risk reduction, contract coverage, and supplier consolidation. Presented as ESG Impact, Emissions, Diversity, Human Rights in Services and Supplains. Hackett's digital world-class research shows that these teams are 1.7 times more likely to be seen as valued business partners and they manage significantly more spend at lower cost with higher ROI. This is indirect procurement as a strategy function, not a ticket queue. Let's talk about why this matters for the future of your business. Let's connect the dots to the bigger picture. Indirect procurement is now at the intersection of margin protection in an environment of sticky inflation and rate pressure. There's resilience in complex service-heavy supply chains, ESG and Scope 3 accountability, and the AI-driven digital operating model most companies say they're building. If indirect represents 20, 30, or 40% of your spend and grows 7% per year, and this is where a lot of your operational and sustainability risk sits, then not treating it as strategic is almost irresponsible. When you build a mature indirect procurement capability, you're not just cutting costs. You're shaping how your organization operates. You're influencing which technologies you adopt. You're determining which partners carry your brand into the world. And you're freeing up capital for growth, innovation, and transformation. Indirect procurement is how you steer the backstage. And the backstage absolutely shows up in performance. So what can you do next with this information? Let's land this with some practical steps you can take after you finish this episode. Number one, you can reframe the narrative internally. Stop talking about indirect as everything that's not direct. Start describing it as the portfolio of spend that powers our operations, the tech stack, the brand, and our people, and represents X percent of our total costs. Use the numbers we've discussed today. That in most organizations, indirect is 15 to 40% of total spend, sometimes higher. Talk about world-class teams that are getting two and a half times ROI and managing 95% of indirect spend under governance. Those aren't opinions, they're benchmarks. Number two, do a quick health check. Ask a few uncomfortable questions. How much of our indirect spend can we actually see by category, by supplier, and business unit? What percent of that is under contract versus ad hoc? Which categories have no owner or strategy? And where are we still firefighting invoices instead of steering demand? Even a rough cut will expose will expose where you're bleeding value. Number three, pick two to three high impact categories to prove the case. Look, don't try to boil the ocean. Choose a small set where spend is material, where stakeholders are open to change, and there's obvious fragmentation. For example, SAS, marketing agencies, or travel. Build many business cases showing baseline spend, quick win levers, whether it's consolidation, spec alignment, demand management, expected value, the savings, the risk reduction, the better service. Then, track and communicate the impact. That's how you'll earn the right to scale. Number four, connect to enterprise priorities. Finally, you want to get to where you're framing indirect projects in terms the C-suite cares about. We can free up X million dollars to reinvest in product or growth. We can reduce supplier-related scope 3 emissions by Y percent in these categories, and we can de-risk critical services and reduce our exposure to single-threaded vendors. When you tie indirect procurement to margin, risk, ESG, and digital, you move out of the back office box and into the strategy conversation. Let's wrap this up. Indirect procurement is not the small stuff. It's a large, growing, and historically undermanaged part of your cost base that directly affects efficiency, resilience, ESG, and profitability. The data is clear. Organizations that treat indirect as a strategic discipline with real visibility, governance, and partnership are seeing outsized ROI and business impact. In future episodes of the Procurement Brief, we're going to go deeper into how AI and advanced analytics are reshaping category strategies, how to structure your indirect procurement team, and how to push back on supplier price increases in 2026. If today's discussion gave you a new way to talk about indirect procurement or in your organization, I'd love it if you'd follow the podcast, leave a rating, and share this episode with a colleague who still thinks indirect is just stationary in travel. I'm Patrick Bliss, and this has been the Procurement Brief. Thanks for listening, and remember how you buy is how you run your business.