What are the best practices in indirect procurement?

What are indirect procurement best practices?

Indirect procurement best practices are the rules and habits that keep everyday buying under control: one place to ask for anything, a buying channel chosen by value and risk, contracts and catalogues that employees actually use, a short list of checked suppliers, and monthly figures on compliance. Together they turn scattered purchases into managed spend.

Indirect procurement buys what keeps an organisation running, such as IT, facilities, professional services, marketing and travel, rather than what goes into the product it sells. CIPS defines it as the procurement of goods or services “that are not directly part of the final product or service”. The definition, the comparison with direct procurement and the main categories are explained in what is indirect procurement. This guide is about how to run it well, practice by practice.

Each practice below answers a concrete problem. An invoice arrives for €4,000 of marketing printing and nobody raised an order. A team signs a second cleaning contract because it did not know the first one existed. A buyer negotiates a 10% discount on laptops, then sees departments still buy them from a local shop. A best practice is worth adopting when it removes a problem like these, and when a figure shows that it did.

Where should you start?

Start with a short diagnosis, not with a tender. Three figures, taken from the accounts payable and purchasing data of the last 12 months, show where indirect spend escapes control.

• Indirect spend by category: how much goes to IT, facilities, professional services, marketing, travel and supplies. It tells you where a better contract would matter most.
• Active suppliers per category: a category with €300,000 of spend and 250 suppliers is not managed, whatever the policy says.
• Invoices with a purchase order raised before the invoice date: a low share means people buy first and tell procurement later, if at all.

The gap can be large, even in big organisations. In a 2012 report, the US Government Accountability Office (GAO) found that four large federal departments accounted for 80% of the $537 billion of federal procurement spending in fiscal year 2011, but reported managing about 5%, or $25.8 billion, through strategic sourcing. The leading companies it studied managed about 90% of their procurements this way. These are historical figures for all procurement, not only indirect spend, and the company side comes from case studies; they show the size of gap a diagnosis can reveal, not a benchmark or a target.

Collecting and classifying the data is the work of a spend analysis. It does not need to be perfect before you act. A rough split by category and supplier is enough to choose the first two or three categories to fix.

Which ten practices matter most, and how do you measure them?

The table lists the practices that come back in most indirect procurement programmes, in the order they usually need to be built. Each line names the problem it fixes and the measure that shows whether it works.

How do you get requests through one front door?

Most indirect purchases go wrong at the first step, when an employee contacts a supplier before anyone else knows about the need. The fix is one front door: a single request form, in the e-procurement tool or the service portal employees already use, for every kind of need, from a chair to a consulting assignment.

The front door works only if it is easy. Ask for the few facts needed to route the request (what, how much, by when, which budget), not for a full specification. A request for a standard laptop should end in a catalogue in two clicks; a request for a new marketing agency should reach the category owner with the right questions. Public e-procurement systems show the pattern. NC eProcurement, the system of the state of North Carolina, offers a “Guided Buying” view with catalogue items, punchout catalogue items and ad hoc items, and items on statewide term contracts appear in its catalogue.

Demand management starts at the same door. It means reducing or standardising what is bought before negotiating its price: three laptop models instead of twenty, a travel rule that sets the class of travel by flight length, approval by a director before any new consulting assignment. The US federal category management memo of 2019, OMB M-19-13, lists demand management among the five actions it asks agencies to take. In indirect spend, buying less of the wrong thing often saves more than a lower unit price.

How do you match the buying channel to value and risk?

A buying channel is the route a purchase follows, from request to order. Indirect procurement needs several channels, because the right effort for €80 of toner is not the right effort for a three-year IT services contract. Write the channels and their thresholds in the procurement policy, so employees and approvers apply the same rules.

Public buyers publish real channel rules. At UC Riverside, a public university, punchout orders are limited to $10,000 or less, non-catalogue requisitions above $10,000 go to a buyer in Procurement Services, and the PCard is the preferred method for unrestricted purchases under $10,000. US federal rules make the purchase card “the preferred method to purchase and to pay for micro-purchases” (FAR 13.201(b)). CIPS describes the purchasing card as a company card for low-value purchases without formal requisitions and purchase orders.

Thresholds invite one trick: splitting a purchase to stay below the limit. Federal rules forbid breaking down requirements into several smaller purchases merely to use simpler procedures (FAR 13.003(c)(2)); a private policy can say the same in one sentence, and card reviews should look for it. The quotes channel is explained in what is an RFQ, the tender channel in the RFP guide, and the card in what is a P-card.

How do you make contracts that people actually use?

A contract with a good price saves nothing if employees keep buying elsewhere. The practice is to place each contract where people buy. Contracted goods go into a catalogue or a punchout to the supplier’s site. Contracted services go into a framework with a simple call-off form. Travel goes through one booking tool connected to the travel contracts.

US federal travel shows the idea at scale. GSA describes its City Pair Program as “a mandated, governmentwide program” of discounted, flexible airfares on more than 17,000 routes, and tells travellers to book through their authorised travel management system. The contract, the booking channel and the rule to use it come together; without the channel, the contract would be a document few travellers would find.

The same memo, OMB M-19-13, measures this as spend under management, on a scale from Tier 0, unaligned spending bought in a decentralised way, to Tier 3, spending through government-wide “Best In Class” solutions. A company can use a simpler version: the share of indirect spend that went through a contract or a managed channel. How category plans decide which contracts to build is explained in category management.

How do you keep the supplier list short?

Indirect spend has a long tail. CIPS describes tail spend as the bottom 20% of an organisation’s spend, which usually accounts for 80% of its suppliers. Each of those suppliers needs onboarding, bank details, tax checks and invoice handling, often for a few hundred euros a year.

1. List the active suppliers of each category and their spend over 12 months.
2. Move recurring needs to two or three contracted suppliers, and put their items in the catalogue.
3. Send one-off small purchases to the purchasing card instead of creating a supplier.
4. Add a new supplier only when the request shows that no contracted supplier can meet the need, and record why.
5. Review the list each quarter and close suppliers with no orders in 12 months.

The method for the long tail, including spot buying and marketplaces, is in tail spend management. How new suppliers are checked and set up is in supplier onboarding.

When should you apply “no PO, no pay”?

“No PO, no pay” means accounts payable does not pay an invoice that has no valid purchase order number; the invoice goes back to the supplier or to the requester. It protects the budget, because the commitment is recorded before the cost arrives. CIPS calls unauthorised spend, often with non-approved suppliers, maverick spend; this rule makes it visible.

Apply it after the front door and the channels work, and announce it to suppliers in advance. Keep a short, written list of exceptions, such as utilities, rent, taxes and some regulated payments. Then watch retrospective orders. The City of York Council, reporting to its audit committee in November 2024, defines retrospective orders as those “where the purchase order date comes after the invoice date”, assesses exemptions case by case with procurement and monitors retrospective orders by department. A retrospective order satisfies the rule on paper but means the price and the supplier were not checked before the purchase.

The purchase order itself is explained in what is a purchase order, and the matching of order, receipt and invoice in three-way match.

What does a 12-month plan look like in practice?

The example is a fictional services company with €20 million of indirect spend a year, 900 active suppliers and 24,000 supplier invoices. At the start, €8 million goes through contracts or managed channels, and 13,200 invoices carry an order raised before the invoice date. The company applies the practices in three stages of four months.

1. Months 1 to 4: spend baseline, category owners for IT, facilities and marketing, one request form in the e-procurement tool.
2. Months 5 to 8: catalogues for IT accessories and office supplies, a framework for temporary staff, purchasing cards for small one-off purchases, supplier list closed to new entries without a reason.
3. Months 9 to 12: “no PO, no pay” announced to suppliers with a list of exceptions, monthly report to every budget holder.

The order matters. Had the company started with “no PO, no pay” in month 1, the 10,800 invoices without a prior order would have been blocked while employees still had no easy way to order. Most would have come back as retrospective orders or exceptions, and suppliers would have waited for payment.

Which indirect procurement strategies save money?

An indirect procurement strategy is written per category, but the levers that save money are the same. They work best in this order, because each one makes the next one count.

Demand

Buy less, or buy simpler: fewer laptop models, fewer printed brochures, fewer consulting days. The saving is in volume, not price.

Specification

Buy the right level: a standard service level for office cleaning instead of a premium one nobody asked for.

Consolidation

Bring the volume of many small suppliers to a few contracted ones, so that volume buys a better price and terms.

Competition

Use quotes or a tender at the right threshold, with criteria fixed in advance.

Compliance

Make sure orders go to the contracts, otherwise the negotiated price never reaches the budget.

Measure savings against a written baseline agreed with finance, and report them per category. GAO reported in 2013 that leading companies saved 4% to 15% over prior-year spending by strategically sourcing the full range of services. That range comes from case studies; treat it as a reference, not a promise. The KPI formulas, with a worked dashboard, are in procurement KPIs.

Which mistakes undo indirect procurement best practices?

• Writing a policy before building the channels: employees cannot follow a rule that has no easy route.
• Negotiating prices without changing where people buy: the contract exists, the spend stays outside it.
• Treating every category the same: legal services and office supplies need different channels, owners and measures.
• Choosing for budget holders instead of with them: marketing and IT then buy around procurement.
• Reporting only savings: without compliance figures, nobody sees whether the savings reach the budget.
• Buying software first: a tool repeats the existing rules faster; it does not decide them.

In the public sector, the same practices apply inside legal procedures. The UK government functional standard for commercial work, GovS 008, says an organisation can divide its third-party spend into categories and may appoint category experts, with technology, professional services, facilities and utilities as examples. How to choose the tools once the rules are clear is set out in indirect procurement software.