Direct vs Indirect Procurement: Where Manufacturers Lose the Most Money
Procurement Strategy
By Elsa Souchet
Introduction
Most manufacturers have a clear view of procurement spend. Far fewer understand where money is actually being lost.
That gap rarely comes from pricing alone. It comes from how procurement is structured.
Direct and indirect procurement are often managed differently, with different processes, tools, and levels of visibility. Treating them as separate worlds creates inefficiencies that compound over time.
Fixing this gap is one of the most effective ways to improve performance and reduce procurement costs in manufacturing.
Understanding Direct and Indirect Procurement
Direct procurement includes raw materials and components that go into production. These purchases are closely tied to revenue and are usually well managed.
Indirect procurement includes everything else, such as MRO supplies, services, and operational purchases. It is often more decentralized, less structured, and harder to control.
This imbalance is where many inefficiencies begin.
Direct procurement tends to be optimized for cost and supply continuity. Indirect procurement often lacks visibility and consistency, leading to fragmented decision-making.
Where the Real Cost Leakage Happens
Cost leakage in procurement rarely appears as a single issue. It is the result of multiple inefficiencies across both direct and indirect categories.
In indirect procurement, lack of structure leads to inconsistent pricing and duplicated suppliers. Different teams may source similar items independently, reducing leverage and increasing costs.
In direct procurement, the issue is often speed and flexibility. Slow RFQ cycles limit supplier competition and reduce the ability to respond to demand changes.
At Airbus Canada, improving procurement workflows showed how much impact speed has. RFQ processing time was reduced by over 90%, enabling faster sourcing decisions and broader supplier comparison.
https://axya.co/case-studies/airbus-canada-axya-data-driven-procurement-optimization
These inefficiencies make it difficult to control costs consistently across procurement.
You can see how these issues accumulate in:
→ 7 Hidden Inefficiencies in Manufacturing Procurement
The Visibility Problem Across Procurement
One of the biggest challenges is lack of visibility.
Direct procurement data is often tied to ERP systems and production planning. Indirect procurement data is spread across spreadsheets, emails, and different departments.
This fragmentation makes it difficult to:
compare suppliers
track pricing trends
identify inefficiencies
At OSI Machinerie, centralizing procurement data addressed this issue. With more than 50 KPIs tracked, the team gained full visibility into sourcing activity and improved decision-making across suppliers.
https://axya.co/case-studies/osi-machinerie-case-study
Why a Unified Approach Matters
When direct and indirect procurement are managed separately, opportunities are missed.
A unified approach does not mean treating them identically. It means applying the same level of structure, visibility, and process consistency across both.
This allows procurement teams to:
consolidate suppliers where relevant
increase negotiation leverage
standardize sourcing workflows
improve overall efficiency
This approach aligns closely with how modern procurement teams operate, as described in:
→ Modern Procurement for Manufacturers: What Top Teams Do Differently
The Role of Structured Procurement Systems
Achieving this level of alignment is difficult with manual processes.
Fragmented workflows, inconsistent data, and decentralized communication create barriers.
Modern procurement platforms, such as Axya, help bridge this gap by:
centralizing RFQs across categories
standardizing supplier communication
providing real-time visibility into performance
This makes it possible to manage both direct and indirect procurement with the same level of control.
If you are evaluating how different approaches compare:
👉 https://axya.co/competitors/axya-vs-others
Moving Toward Better Procurement Control
Improving procurement control does not require separate systems for each category. It requires better coordination.
Key improvements include:
structured RFQ workflows
centralized supplier data
consistent performance tracking
automation of repetitive tasks
At Machinage Piché, improving procurement workflows had a major impact. Buyer productivity increased by 25x, allowing the team to manage more sourcing activity without increasing workload.
https://axya.co/case-studies/machinage-pich%C3%A9-buyers-25x-more-productive-thanks-to-axya-and-genius-erp
These types of improvements apply across both direct and indirect procurement.
Measuring the Cost of Fragmentation
Fragmentation creates hidden costs:
duplicated suppliers
inconsistent pricing
time lost on manual coordination
missed opportunities for consolidation
Understanding these costs is the first step toward improving procurement performance.
👉 Want to quantify how much this fragmentation is costing your organization?
https://axya.co/roi-calculator
Is Your Procurement Structure Optimized?
Not every organization needs the same level of integration.
However, certain signals indicate that improvement is needed:
inconsistent supplier pricing
lack of visibility across categories
slow sourcing processes
reliance on manual workflows
👉 Find out if your procurement setup is optimized:
https://axya.co/is-axya-right-for-my-team-quiz
Conclusion
Focusing on only one side of procurement limits your ability to improve performance.
A unified approach, supported by structured processes and better visibility, enables manufacturers to control costs more effectively and improve sourcing outcomes.
In today’s environment, procurement performance depends on how well direct and indirect activities are aligned.
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