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Direct Versus Indirect

June 14, 2011

Last week, I made a comment on Twitter regarding the end of the ‘direct / indirect’ distinction within Procurement.

At the Procurecon CPO roundtable meeting in London, I had asked whether this distinction was blurring and the majority opinion was either that it was, or that it should. A couple of those reading the Twitter comment have asked why, and whether it matters.

I think the answer is yes, if Procurement is to improve its understanding and management of markets, this is a key progression. The old direct / indirect division is too simplistic, especially when it comes to the skills, knowledge and tools needed for their management. With the growth of services and solutions, many ‘direct’ categories require more complex analysis. The assumption that suppliers who try to ‘escape’ commoditization are seeking to exploit their customer is not necessarily true – it may instead be an example of true innovation. The evaluation techniques used in indiect are of increased relevance, as are the skills in negotiating and structuring the right contracts and relationships.

Those in indirect often face barriers to acceptance. Groups such as Marketing or Legal may see their efforts as intrusive and threatening to estabished relationships. Tackling these challenges through improved understanding and explanation of ‘value’ is something that can benefit both direct and indirect, and where they can learn from each other.

Similarly, indirect procurement can often benefit from the disciplines (and greater investment in tools and systems) that is typical of their direct procurement colleagues.  

These are the drivers I see for the end of the direct / indirect distinction – and why I believe it should be welcomed.

One Comment
  1. Great post Tim. Further to this your division, we have put together put together a chart which drills into the division between Direct and Indirect from a Retail perspective (http://info.buyingteam.com/buyingBlog/bid/54123/Why-GNFR-Indirects-Needs-a-Different-Approach-Within-Retail).

    Completely agreeing with your note about the need to avoid being seen as intrusive or threatening Tim, a clearer understanding and greater emphasis needs to be placed on:
    a) Understanding your stakeholders needs, drivers, challenges and personal connections – ensuring you are acting as an enabler and a partner rather than a hindrance or barrier to get the job done.
    b) Defining what ‘value’ means from a stakeholder’s perspective and not simply “doing the easy thing” – which you touch on your next post (CFOs Want Value)

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